Upbeat US Services PMI could fuel hawkish Fed bets

Anxiety among the market participants is gradually escalating ahead of the release of the United States Institute of Supply Management (ISM) Services PMI data. The economic data is seen lower at 54.5 from the former release of 55.2. The New Orders Index which conveys the forward demand is expected to decline to 58.5 from the prior figure of 60.4.

Earlier, the US Manufacturing PMI displayed a fourth-time contraction, however, the New Orders Index was exceptionally higher. A surprise rise in the Services New Orders Index along with the already upbeat Manufacturing demand outlook will clear that the overall forward demand is in an expansionary mode and could propel the Consumer Price Index (CPI), which will bolster expectations of more rates from the Federal Reserve.

Atlanta Fed Bank President Raphael Bostic said on Thursday that the central bank could be in a position to pause the current tightening cycle by mid-to-late summer. He favors a 25 basis points (bps) rate hike in March but has left room opened for more hawkish rate outlook if inflation and labor market data come in stronger.

Tokyo Inflation surprisingly decline

Bank of Japan (BoJ) policymakers are spending sleepless nights, designing strategies for achieving a stable 2% inflation. The central bank is infusing stimulus into the Japanese economy to fuel wages and domestic demand. Japan’s inflation was fueling constantly, however, a recent decline has alarmed the Bank of Japan policymakers.

The annual headline CPI has dropped to 3.4% from the consensus of 4.1% and the prior release of 4.4%. Contrary to that, the core CPI that excludes the impact of energy and food prices have improved to 3.2% from 3.1% as expected and the former release of 3.0%. It seems like the inflationary pressures have been exceptionally battered by the recent fall in food and energy prices.

Reuters reported that “The pace of inflation slowed due in part to the government's energy subsidies to ease the pain on households from soaring electricity bills.”

Commentary from Bank of Japan Governor Nominee Kazuo Ueda on a fresh decline in the Tokyo CPI will be keenly watched.

Meanwhile, Japanese Prime Minister Fumio Kishida has ordered the ruling party to draft additional measures to counter price hikes, as reported by the Kyodo news agency. The agenda behind that would be supporting households to offset the impact of items such as food and energy, which are highly inflated.

On the economic front, a poll by Reuters reported Japan's economy is likely to grow a tad faster than initially estimated in the fourth quarter. Revised Gross Domestic Product (GDP), scheduled for March 9, might grow at 0.8% annualized in October-December, versus an initial estimate of 0.6%.