PPI and Retail Sales on Deck

Rates rise ahead of more inflation data. Swap rates grinded 3-5bps higher ahead of tomorrow’s eagerly anticipated economic data. The swap curve bear flattened as strong demand at today’s 30y UST auction pulled long-term rates ~2bps lower in the afternoon. Attention has shifted toward tomorrow’s retail sales and PPI data, where the former is expected to soar from -0.8% to +0.8% MoM in February. Equities generally declined ahead of the prints, while Bitcoin continues to break all-time highs on its way above $73k.

PPI forecasted to drop significantly in February. PPI is expected to show further progress toward 2% inflation at its release tomorrow morning, a welcomed rebound for monetary doves after yesterday’s CPI showed elevated levels. Core PPI is expected to plummet to +0.2% MoM from +0.5% in February, while annualized PPI should fall 0.1% to +1.9%. The MoM decline would be especially welcome after last month’s 0.6% increase from -0.1% in December, the largest increase since July 2023.

ECB announces changes to monetary policy framework. The Governing Council of the ECB announced monetary policy implementation changes today after a review process that began in 2022. The announcement came as the ECB mulls strategic changes to the ways that liquidity is provided while incentivizing interbank lending. Significant bond purchases by the ECB over the past decade have generated excess liquidity and disincentivized lending; going forward, the ECB will look to decrease holdings of securities, uplift banks’ roles in determining liquidity needs, and decrease the main financing rate at which banks can borrow from the ECB at weekly auctions, among other things. ECB President Lagarde stated that the changes will “ensure that our policy implementation remains effective, robust, flexible and efficient in the future as our balance sheet normalizes.”