The European session features the German IFO index, which has a correlation with the German Composite PMI, but is unlikely to affect market dynamics significantly.
In the American session, attention will centre on the US Consumer Confidence report, with expectations of a drop to 94.0 from the previous 98.3, following a notable decline seen since August 2021.
Consumer Sentiment Trends
The latest figures indicate a third consecutive monthly decline, suggesting consumer sentiment is at the lower end of the range since 2022. While assessments of current business conditions saw a slight improvement, views on future prospects have worsened significantly.
Inflation expectations for the next 12 months rose to 6% in February, driven by persistent inflation and increases in essential good prices. Central bank speakers include ECB’s Kazimir and Fed officers Kugler and Williams throughout the day.
The German IFO index, closely tracked for insight into business sentiment, often moves in tandem with the German Composite PMI. However, its impact on broader market dynamics tends to be limited. Any divergence from expectations will provide context for growth expectations in the eurozone’s largest economy, but without a meaningful shift, reactions in currency and fixed-income markets may remain subdued.
The focus in the latter part of the trading day will be the US Consumer Confidence report. Projections suggest a decline to 94.0, down from 98.3. This would extend the downward trend that has been in place since August 2021, reinforcing concerns that consumer sentiment remains fragile. With confidence measures already sitting towards the lower end of post-2022 readings, further deterioration could weigh on spending and broader activity levels.
Breaking down the latest survey, respondents have shown marginal optimism about current economic conditions. However, perceptions of future growth and labour market prospects have deteriorated. This divergence hints at growing caution among households, particularly as cost pressures persist.
Inflation Expectations And Policy Signals
Inflation expectations over the next 12 months climbed to 6% in February. The uptick reflects prolonged price pressures, with essentials such as food and housing continuing to see price increases. A worsening outlook could influence rate expectations, though policymakers have stressed the need to observe sustained disinflation before adjusting their stance.
Several central bank officials are scheduled to speak, with Kazimir representing the ECB, while Kugler and Williams will provide updates from the Federal Reserve. Markets will be listening for any adjustments in rhetoric, particularly on inflation dynamics and the potential timing of future policy moves. Even if core messages remain unchanged, an emphasis on risks around inflation persistence or shifts in economic projections could lead to short-term adjustments in rate expectations.
With inflation expectations rising and consumer confidence under pressure, attention will be on whether policymakers acknowledge recent shifts or maintain their current stance. Market participants will be sensitive to any indications regarding upcoming decision-making, particularly given the uncertainty surrounding future rate paths.
