CONSUMER STAPLES: Macro read-through this week

Belgium has announced it will be looking to sell the following at its auction next Monday, February 24:

• the 2.70% Oct-29 OLO (ISIN: BE0000362716)
• the 3.00% Jun-34 OLO (ISIN: BE0000333428)
• the 1.90% Jun-38 OLO (ISIN: BE0000336454)

Stronger than expected core CPI inflation hasn’t changed domestic analyst views for the Mar 12 BoC decision, with a split between pausing after 200bp of cuts since June or another 25bp cut. BoC-dated OIS has shifted from 12-13bp to ~9bp of cuts for the decision. 

March pause:

• BMO: “We continue to lean to the view that the BoC will take a pause at their next decision (March 12), although developments on the tariff front may yet have a big say in that call—the possible 25% U.S. tariff on Canada and Mexico still looms for March 4.”
• Desjardins: “We continue to believe the Bank of Canada hits the pause button in March, given that the activity data is also holding up well. But that call is still contingent on tariff news and upcoming data releases cooperating.”
• RBC: “We think the BoC will want to wait for more data for hints on how underlying price pressures are evolving excluding impact from the tax holiday, and take a pause from cutting interest rates in their next meeting in March.”

March cut:

• National: “Perhaps the recent pickup in inflation would have convinced the Bank that a pause in monetary easing was appropriate. However, the situation is far from normal. The threat of tariffs should weigh on the Canadian economy, keeping investment projects on hold. In this context, we continue to forecast a 25-basis-point cut in March, although many economic data and political developments could change our outlook between now and then”
• TD Securities: “Core inflation strength will make the BoC's job more challenging as it continues to balance stronger domestic data against excess capacity and trade uncertainty. We do not believe this will be enough to force the Bank back to the sidelines in March, even if subsequent cuts would require further deterioration into Q2.”

Undecided on March:

• CIBC: “We continue to forecast a trough of 2.25% for the BoC’s overnight rate [cumulative 75bp of cuts from current], but the path there will depend on how/if tariff uncertainty is resolved as well as upcoming GDP and employment data.”

• Higher core yields overnight assisted the weakness for the Japanese Yen, prompting USDJPY to rise around 100 pips from the lows to an overnight peak of 152.22. However, a subsequent reversal in fixed income markets and the weakness seen for major equity indices have bolstered the JPY recovery.
• As such, USDJPY has been slowly grinding lower and currently trades around unchanged levels on the day. Price action narrows the gap to the overnight lows of 151.24 and below here, focus will be on the bear trigger at 150.93, the Feb 7 low.
• Clearance of this level would resume the bear cycle that started on Jan 10, and would target 149.69 (Dec 9 low) and 148.65, the Dec 3 low and a key support.
• In Japan, trade data will be released overnight before the focus turns to national CPI readings on Thursday. In the US, the FOMC minutes have the spotlight. Details surrounding the most recent adjustments to the January statement, as well as any discussion or analysis regarding the potential impact of the new presidential administration's policy shifts will be scrutinised.