The Morning Hark - 25 Mar 2024
Today’s focus...Holzmann and Bostic break the mould. The Week Ahead and strong Easter Bonnets may be needed for later in the week.
Overnight Highlights
Prices are at 7.00 GMT/3.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil up smalls in Asia. Currently Brent and Crude May futures trading at 85.80 and 81.00 respectively on the back of the underlying geo-political unrest in the Middle East and Russia.
EQ - Asian equity markets in the red with the Hang Seng and Nikkei futures currently at 16,510 and 40,130 respectively.
The US indices flatlining in Asia and consolidating close to their record highs. The S&P and Nasdaq futures currently at 5285 and 18,540 respectively.
Gold - Gold off a touch in Asia with April futures currently trading at 2167 with the USD bid tone causing a continued headwind.
FI - US yields steady overnight with the US2y futures trading at 4.60% whilst the US10y futures yield at 4.21%.
European yields closed the week near their recent lows with the German 10y at 2.32% and the Italian 10y yield at 3.63%.
UK gilt 10y similarly at 4.04%.
FX - FX in Asia saw the USD retaining its bid tone from the tail end of last week with the USD Index currently up smalls at 104.35. The majors all off a touch; JPY, EUR and GBP currently at 151.30, 1.0820 and 1.2610 respectively.
Today’s FX option expiries today sees in the EUR around €1bn at 1.0850 and 1.0780.
Others - Bitcoin and Ethereum had a decent weekend and have started the week on a positive note with the pair trading currently up close to five percent at 67,180 and 3470 respectively.
Macro Themes At Play
Recap
Rengo Wage Negotiations, remember them from last week, had a small revision at their second sitting to 5.25% from 5.28% but still well above what’s required by the BoJ.
UK Retail Sales for February were a touch better than expectations with a flat reading for the month but an upward revision for the previous month to a whopping 3.6%. YoY measure at 0.4%
German Ifo for March saw a decent upside surprise with all three measures beating prior and consensus. Business climate to 87.8, a 9 month high, expectations at a 10 month high to 87.5 whilst current conditions hit 88.1.
Canada Retail Sales for January were better than expected albeit they declined 0.3% MoM on the back of lower motor vehicle sales. The YoY measure sitting now at 0.9%.
Central Bank Speakers
Some interesting comments from the talking heads with Bostic standing out on the Fed side with his retreat into the “one cut for the year camp”. He does tend to be a flip-flopper so maybe a pinch of salt is needed but nevertheless does show a creeping mood by the Fed, as a whole, to veer to a more hawkish stance. With the economic data remaining robust is there really room for 3 cuts this year?
From the ECB side Holzmann stuck out like a sore thumb, maybe he’d had a boozy lunch or something but his comments regarding “no ECB cut” were left field to say the least and well off the recent ECB “April/June” script. He speaks again today, as does Lagarde, so we may get a touch more colour on the subject.
Fed’s Jefferson felt that the labour market was rebalancing towards achieving low inflation without causing unemployment. He remains cautiously optimistic on inflation developments.
Bostic surprised by proclaiming that he sees only one rate cut this year due to inflation concerns. In addition he felt that the cut would come later in the year and later than he had previously expected. He had previously been looking for two back in December.
ECB’s Nagel claimed that the inflation target will be achieved next year and the probability is increasing that the ECB will cut rates before the summer break. The decision is data dependent and rate cuts will not become automatic. Risks remain due to energy prices, profits and wage demands. Core inflation is still quite sticky so we need more clarity on inflation before we move.
Holzmann obviously got out the wring side of bed as he saw a sting of inflation risks. He also went on to say that investors should consider the risk of no ECB cut.
Reports suggested that Lagarde told EU leaders that the decline in inflation would continue.
Scicluna opined that an April rate cut is not impossible or even improbable we just need additional data.
Centeno stated that the ECB must, and will, act as inflation retreats towards target.
The Week Ahead
Quieter week on the data front after last week’s activity. The main focus will be, of all days, Good Friday when we get the US PCE Report for February as well as Powell speaking. I do wonder sometimes when central bankers fret so much about market volatility and financial stability, that they decide to have two major set pieces released on the day where a good number of the market participants will be tucking into some Easter lamb or freezing, in the chill spring breeze, attempting to help their kids find some Easter eggs. Well that’s my rant over with but if PCE surprises or Powell goes off script you’ll need more than Easter Bonnet to protect the head from some cascading markets!
Riksbank Interest Rate Decision. Like their near neighbours in Norway the Riksbank looks likely to hold rates steady again at 4%. At the last meeting in February they indicated that the policy rate could “probably be cut sooner than was indicated in the November forecast” as there was less risk that inflation would become entrenched at higher levels. In addition the February meeting saw the potential for a “further rate hike” jettisoned and furthermore they added that the possibility of a rate cut in H1 couldn’t be ruled out. Since the last meeting inflation has come in lower than forecast at 3.5% and Floden has commented that the February print was “very good”. On that basis a further softening in language can be expected with the potential for a nod for a cut sooner rather than later.
BoJ Summary of Opinions. Interest will centre around what’s next? Governor Ueda has suggested that the bond purchases will be eventually scaled back and the ETFs, that have been purchased by the Bank over the last few years, will be returned to the “wild” but again some later date. Any sniff of when that might be would be of obvious interest. In addition the Nikkei had reported that a further hike was being discussed by the members for July or October and again any further colour on that would be great.
Canada GDP. We get the final January print, as well as a preliminary reading for February which should give us a decent steer as to what to expect for growth from the first quarter in Canada. Mixed underlying with housing starts on the up which should help the construction sector but house sales have stalled which in turn should provide somewhat of a headwind for growth. Auto sales have been good this quarter so again that should help the overall picture. Expectations are for 0.4% growth in January with no lead for February as yet.
Japan Tokyo Inflation Report. After last month’s pop higher on the back of the government energy support programme, this month’s print is expected to take a step back although not in a ny meaningful way. The noises out of the BoJ post last week’s hike suggest we aren’t moving on rates again for some time.
Japan Data Dump. Industrial production is expected to rebound after last month’s shocker of a print (-6.7%). We have since seen a solid set of export numbers from the trade balance data which should reflect kindly on industrial production. In addition, a good showing is expected of the retail sales data given the period covers the Lunar New Year with the increased number of tourists that normally brings to Japan. Labour data looks set to remain stable and emphasis the tightness in the labour market.
US Core PCE. Given the dovish Fed this will be looked at closely especially with last week’s PMIs showing signs of inflationary pressures regaining some traction. Powell has consistently been relaxed about the higher than expected inflation prints this year and he maintained that veneer last week at his press conference. Indeed he even went further when he noted that he expected this week’s core print to be “well below 0.3%”. I guess the question is how far? The median from the “brains of Wall Street” is for a 0.29% print so not that far under!
Fed Speakers. Three headline speakers in the week with Cook, Waller and Powell all up. Are they happy with the market reaction to last week’s FOMC, does Waller expand on his views on balance sheet reduction and given Powell speaks after the PCE print will he opine?
The Day Ahead
All about the central bank speakers. Cook the highlight on the Fed side. Lagarde and Holzmann will be the ECB stars; will Holzmann elaborate on his “no cuts” comments from last week. Mann from the BoE may touch on why she left the hawk’s nest.
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Main Highlights Ahead
All times in GMT (EST+4 / CET-1 / JST-9)
The main highlights for the week ahead ahead in terms of data and speakers:
Monday
US New Home Sales Feb consensus 0.68m vs previous 0.661m (14.00 GMT)
Fed Speakers
Bostic (12.25 GMT)
Goolsbee (13.05 GMT)
Cook (14.30 GMT)
ECB Speakers
Lagarde (10.00 GMT)
Holzmann (10.30 GMT)
BoE Speakers
Mann (14.15 GMT)
Tuesday
RBA Connolly Speaks (02.20 GMT)
BoC Rogers Speaks (12.15 GMT)
US Durable Goods Orders MoM Feb consensus 1% vs previous -6.1% (12.30 GMT)
US Richmond Fed Manufacturing Index Mar consensus vs previous -5 (14.00 GMT)
ECB Speakers
Lane (19.00 GMT)
Wednesday
Australia Monthly CPI Indicator Feb consensus 3.5% vs previous 3.4% (00.30 GMT)
BoJ Tamura Speaks (01.00 GMT)
Riksbank Interest Rate Decision expectations for rates to remain on hold at 4% (08.30 GMT)
Riksbank Monetary Policy Report (08.30 GMT)
BoJ Summary of Opinions 20bp hike in rates to 0.1% and ending negative rates (23.50 GMT)
Fed Speakers
Waller (22.00 GMT)
ECB Speakers
Cipollone (09.00 GMT)
Thursday
Australia Retail Sales MoM Feb Prel consensus 0.4% vs previous 1.1% (00.30 GMT)
UK GDP Growth Rate QoQ q4 Final consensus -0.3% vs previous -0.1% (07.00 GMT)
UK GDP Growth Rate YoY q4 Final consensus -0.2% vs previous 0.2% (07.00 GMT)
Germany Retail Sales MoM Feb consensus 0.3% vs previous -0.4% (07.00 GMT)
Germany Retail Sales YoY Feb consensus -0.9% vs previous -1.4% (07.00 GMT)
Germany Unemployment Change Mar consensus 10k vs previous 11k (08.55GMT)
Germany Unemployment Rate Mar consensus 5.9% vs previous 5.9% (08.55 GMT)
Canada GDP MoM Jan consensus 0.4% vs previous 0% (12.30 GMT)
Canada GDP MoM Prel Feb consensus % vs previous 0.4% (12.30 GMT)
Canada Average Weekly Earnings YoY Jan consensus % vs previous 3.8% (12.30 GMT)
US GDP Growth Rate QoQ Final q4 consensus 3.2% vs previous 4.9% (12.30 GMT)
US GDP Price Index QoQ Final q4 consensus 1.6% vs previous 3.3% (12.30 GMT)
US PCE Prices QoQ Final q4 consensus 1.8% vs previous 2.6% (12.30 GMT)
US Core PCE Prices QoQ Final q4 consensus 2.1% vs previous 2% (12.30 GMT)
US Chicago PMI Mar consensus 46 vs previous 44 (13.45 GMT)
US Michigan Consumer Sentiment Mar Final consensus 76.5 vs previous 76.9 (14.00 GMT)
US Michigan Consumer Expectations Mar Final consensus vs previous 75.2 (14.00 GMT)
US Michigan Inflation Expectations Mar Final consensus % vs previous 3% (14.00 GMT)
US Michigan 5y Inflation Expectations Mar Final consensus % vs previous 2.9% (14.00 GMT)
Japan Tokyo CPI YoY Mar consensus % vs previous 2.6% (23.30 GMT)
Japan Tokyo Core CPI YoY Mar consensus 2.4% vs previous 2.5% (23.30 GMT)
Japan Unemployment Rate Feb consensus 2.4% vs previous 2.4% (23.30 GMT)
Japan Industrial Production MoM Feb Prel consensus 1.4% vs previous -6.7% (23.50 GMT)
Japan Industrial Production YoY Feb Prel consensus % vs previous -1.5% (23.50 GMT)
Japan Retail Sales MoM Feb consensus % vs previous 0.8% (23.50 GMT)
Japan Retail Sales YoY Feb consensus 3% vs previous 2.3% (23.50 GMT)
Fed Speakers
Barr (16.00 GMT)
ECB Speakers
Buch (08.00 GMT)
Knot
BoE Speakers
Mann
Friday
US PCE Price Index MoM Feb consensus 0.4% vs previous 0.3% (12.30 GMT)
US PCE Price Index YoY Feb consensus 2.4% vs previous 2.4% (12.30 GMT)
US Core PCE Price Index MoM Feb consensus 0.3% vs previous 0.4% (12.30 GMT)
US Core PCE Price Index YoY Feb consensus 2.8% vs previous 2.8% (12.30 GMT)
US Personal Income MoM Feb consensus 0.4% vs previous 1% (12.30 GMT)
US Personal Spending YoY Feb consensus 0.4% vs previous 0.2% (12.30 GMT)
Fed Speakers
Powell (15.30 GMT)
ECB Speakers
Villeroy (17.30 GMT)
Good luck.
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