The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.

1210 ET - Market pricing for Canadian interest rate cuts isn't supported by the fundamentals that drive monetary policy considerations, barring a severe liquidity event in global markets, reckons Scotiabank head of capital markets economics Derek Holt. The latest GDP data is a mix of fresh and stale in terms of significance to the outlook, he says. On one hand, it accounts for relatively little in a world focused on forward-looking considerations, but on the other it says Canada's economy isn't anywhere close to creating material disinflationary slack. Same goes for the labor market, he adds. Still, markets price a quarter point BoC cut by September or October and smaller probabilities of a cut before then. (robb.stewart@wsj.com; @RobbMStewart)

1155 ET - February PCE numbers "offer some hope," but "it's far too soon to break out the champagne," Pantheon's Ian Shepherdson says in a report. The core PCE monthly reading was 0.3%, down from a revised 0.5% in January. "The smallest increase in the core deflator in three months is a welcome development," Shepherdson says. "The March report, due just a few days before the May FOMC meeting, is now a hugely important release," he says. (paulo.trevisani@wsj.com; @ptrevisani)

1130 ET - Brazil's economy will grow less than previously expected, partly because of recent declines in business confidence and high interest rates, said Morgan Stanley Chief Economist Andre Loes in a research note. Morgan Stanley cut its forecast for Brazil GDP growth this year to 1.0% from 1.4% and cut its forecast for gross fixed capital formation, a measure of investment, to a decline of 5.0% from 2021 from its previous forecast of a decline of 2.7%. Consumer spending will also grow less because of the high cost of credit and a stagnant labor market, Loes said. (jeffrey.lewis@wsj.com)

1120 ET - With recent global banking sector volatility and Canadian inflation coming in below expectations in February, there are plenty of reasons for the Bank of Canada to stay on the sidelines for the foreseeable future, though the latest GDP data suggest the central bank should reiterate hawkish-leaning forward guidance, Desjardins senior director Randall Bartlett reckons. The outside GDP move in January and momentum through February leave little room to equivocate, and Bartlett estimates 1Q GDP growth is tracking toward 3% annualized, well above the BoC's forecast from January for 0.5%. "Expect substantial upward revisions to the central bank's near‑term forecast when it's published in a week and a half." (robb.stewart@wsj.com; @RobbMStewart)

The monthly core PCE index decelerated to 0.3% in February from a revised 0.5% gain in January. "Treasury Yields Fall on Softening Inflation Data -- Market Talk," at 9:08 a.m. ET incorrectly said the monthly core measure decelerated to 0.3% from 0.6% in January.

1107 ET - The US may be showing signs of slowing economic momentum, with household spending rising only modestly in February. Consumer spending increased a seasonally adjusted 0.2% from January's revised 2% increase, which was the largest one-month gain in nearly two years. The spending slowdown could signal that recent layoff announcements and persistent inflation are causing shoppers to reconsider purchases and conserve cash. Last month's spending data also preceded the March banking crisis, which sent a chill through the economy as consumers saw the collapse of SVB and subsequent fallout. Banks could keep a tighter leash on lending to US households and businesses, which could cause them to retrench and further increase the likelihood of recession. (patrick.sheridan@wsj.com)

1058 ET - The European Central Bank isn't in a position to pause interest-rate rises in Europe, which is likely to drive the 10-year Bund yield higher, says Piet Haines Christiansen, director for the ECB and fixed income research at Danske Bank. He sees 10-year German Bund yields potentially rising to 2.7% in two to three months, compared with a current level of 2.328%, according to Tradeweb. In the very near term, however, it could be tricky for markets to "fully revert to the pricing before the banking turmoil erupted" in the absence of a firm conclusion that the recent banking turmoil is isolated to specific cases, he says. (emese.bartha@wsj.com)

1042 ET - High-yield credit issuers in the primary market could resort to the loan market as the primary HY corporate bond market remains shut, write UniCredit Research analysts in a note. "While the primary market for investment-grade non-financial bonds has reopened, high-yield issuers remain on the sidelines," they write. The recent financial sector turmoil caused increased volatility in credit spreads and led the primary corporate bond market to temporarily shut. (miriam.mukuru@wsj.com)

1042 ET - The Fed "will be slightly encouraged" by February's 0.3% core PCE inflation increase, Capital Economics' Paul Ashworth says in a note. The pace is slower than January's downwardly revised 0.5%. "Nevertheless, inflation remains too high, with the annual and three-month-annualised rates both above 4.5%," Ashworth says. Markets are pricing 51% odds of a 25-basis point interest rate increase in May, and 49% odds of a pause, according to the CME's FedWatch tool, underscoring uncertainty about the Fed's next move. Next Friday's March nonfarm payrolls, the last before the FOMC meeting, is likely to be closely monitored. (paulo.trevisani@wsj.com; @ptrevisani)

1031 ET - Investor positioning data suggests the dollar could weaken in the medium-term, Unicredit Research says. Investors have returned to being overall net-long the U.S. dollar but this is driven against the Australian dollar, New Zealand dollar and Canadian dollar, Unicredit forex strategist Roberto Mialich says in a note. "If these three currencies are excluded and just the euro, the yen, the Swiss franc and sterling are considered, the effective market exposure becomes net-short USD, as it has been since early November." Long positions bet on an asset price rising and shorts bet on it falling. Unicredit expects EUR/USD to rise to 1.12 by the fourth quarter of 2023 and 1.16 by the fourth quarter of 2024, from 1.0885 currently. (renae.dyer@wsj.com)

1023 ET - A bigger surprise than the slightly stronger-than-expected 0.5% month over month growth in Canadian GDP for January is a flash estimate pointing to a 0.3% advance in February, which suggests zero giveback to the January jump and points to the economy holding remarkably well in early 2023, BMO Economics chief economist Douglas Porter says. He adds signs of growth in February also suggest the prior month's growth wasn't entirely due to unseasonably mild weather. "Even if growth stalls in March, it now looks like 1Q will post growth of 2.5% (annualized), up from a flat read in 4Q." Porter continues to expect a cooldown in the next two quarters, but now expects GDP growth across 2023 of 1%. (robb.stewart@wsj.com; @RobbMStewart)

1018 ET - Brazil's labor market should continue to weaken in coming quarters, Goldman Sachs economist Alberto Ramos says in a research note. Brazil's statistics agency says the country's jobless rate reached 8.6% in the three months through February, from 8.4% in the three months through January. Brazil's economy is expected to grow below trend in 1H, which should reduce job creation, and if more idle workers who currently aren't seeking employment return to the labor force, then the jobless rate should rise even more, Ramos says. (jeffrey.lewis@wsj.com)

(END) Dow Jones Newswires

March 31, 2023 12:10 ET (16:10 GMT)

2023