The Morning Hark - 10 June 2024
Today’s focus...Markets settling down post NFP. ECB united for now. The Week Ahead.
Overnight Highlights
Prices are at 6.50 BST/1.50 EST, with changes reflecting movement from midnight GMT
Oil - Oil steady in Asia with Brent and Crude August futures currently at 79.80 and 75.40 and little changed from where we opened on Friday, despite all the noise elsewhere.
EQ - Asian equity markets quiet with much of the region out on holiday. Nikkei futures trading higher however 39,030.
The US indicies similarly dull with the S&P and Nasdaq futures now at 5355 and 19,040 respectively.
Gold - Gold continuing to slip in Asia, with the stronger USD, with the August futures trading currently at 2313, their lowest level in over a month.
FI - US yields continuing to climb overnight with the US2y futures trading at 4.89% whilst the US10y futures yield at 4.45%. Rates traders took the NFP headline print at its word, rather than look at the underlying weakness, and went for the after burners.
European yields closed the week higher after the payroll’s report and the unanimous ECB voices advocating restraint on further rate cuts. The German 10y closing at 2.62% and the Italian 10y yield at 3.96%.
UK gilt 10y at 4.26%.
FX - The USD continuing its firm Friday footing in Asia to start the week. The USD Index currently at 105.30. The majors now trading at; JPY, EUR and GBP 157.10, 1.0750 and 1.2715 respectively.
No major FX option expiries of significance today.
Others - Bitcoin and Ethereum were enjoying life until the payroll print ruined the week. Having tested 72k earlier on Friday, the NFP headline proved a swift reversing catalyst which it has failed to recover from. Currently the pair trading at 69,600 and 3690 respectively.
Macro Themes At Play
Recap
Germany Industrial Production MoM for April showed a downside miss to -0.1%.
EU GDP Growth Rate QoQ and YoY for q1 came in-line at 0.3% and 0.4% respectively, as you’d expect from a third reading.
Canada Labour Report for May was pretty much in line with 26.7k jobs added with the unemployment rate ticking up to 6.2%.
US NFP May here we go again with 272k headline and all the chatter about migrant workers. Downward revisions again to the previous two months trimming 15k from the original numbers.
Unemployment Rate ticked up to 4%, the first time its hit that level since the start of 2022. Finally more fuel to the inflation fire with Average Hourly Earnings MoM rising to 0.4% which takes the YoY back to 4.1%.
The underlying message was part time jobs are soaring but full time are going in the opposite direction.
Central Bank Speakers
ECB out in force on Friday and showed a great deal of solidarity in their message; no rush on further rate cuts, no predetermined rate path and data dependent moving forward.
ECB’s Kazaks was first out of the traps claiming that further rate cuts need to be “gradual”.
Mueller wanted the ECB to make cautious decisions and it shouldn’t rush its rate cuts.
de Guindos sees huge uncertainty for the economy.
Schnabel echoed that the ECB cannot pre-commit to a particular rate path whilst the inflation outlook remains uncertain.
Holzmann was keen to stress that a hawkish cut means the ECB will be more cautious.
Centeno felt that the message is of confidence in the disinflation process but maintaining some prudence. Interestingly he claimed that the ECB sees no inflation slowdown over the next three months. There is no commitment on the rate trajectory.
Villeroy claimed that the ECB will not rush or procrastinate rate cuts and will move at an appropriate pace.
Vasle future rate decisions are to be data dependent. No pre-commitments.
Makhlouf, somewhat out of left field, voiced that he didn’t know how fast the ECB will carry on, if at all.
Rehn stated that the ECB is evaluating policy restrictiveness in the current situation. Inflation will decline and rate cuts will also support economic recovery.
Simkus said that if trends match the ECB forecasts, there will be more rate cuts but the fight with inflation was not over.
Nagel stressed the decision to lower rates was logical and not premature. Decisions will be made on a meeting by meeting basis.
de Cos once again future cuts depend on data.
The Week Ahead
Norway Inflation Report. Last month ran hotter than expectations although still a lot cooler than the Norges Bank’s forecasts; core 4.4% vs 4.6%. This month a moderation in core is expected to 4.2% which probably fits into the Norges Bank narrative that rates may need to be maintained at their current level for “somewhat longer than previously envisaged”. Market expectations are still pointing for a cut in the latter part of the year.
UK Labour Report. The usual issues off reliability and, given the fact the print is for April, their lagging nature means this print lacks the significance of other major economies’ releases. A “steady” report is expected although the average earnings excl bonus will be worth noting, as indeed will the BoE. The increase for the national living wage will feed into this month’s number which could see the 8 month decline in this measure broken by a small uptick to 6.1% giving the BoE a further hurdle to climb in their pursuit of rate cuts.
China Inflation Report. Expectations are for a broadly stable print at 0.3% YoY and maintaining the run of positive inflation prints since January as the deflationary pressure start to wane.
US Inflation Report. Another steady report is expected, somewhat mirroring the more encouraging print we got last month, as the first quarter’s inflation curveballs seem to be fading from the memory. That quarter was notable for its, well publicised, lack of progress on inflation and a further calming print, to follow up April’s report, is expected this month creating a firebreak from q1. Headline is expected to tick down to 0.2% MoM whilst core is seen as remaining at 0.3%. Worth noting that this is the first of four CPI prints we get prior to the Fed’s September meeting, where the market expect the Fed to pull the trigger on a first rate cut.
FOMC Rate Decision. All about the dots! Nothing else seems to matter with an unchanged decision and a pretty much cut and paste statement expected, the new projections will take centre stage. Remember back in March we had 3 dots (rate cuts) for this year. Given the Fed commentary since and inflation’s continued stickiness, it seems inconceivable that this would remain. Expectations are for the dots to move down to 2 for this year. For reference the 19 dots were dispersed as follows: 2 for 0 cuts this year, 2 for 25bps, 5 for 50bps, 9 for 75bps and 1 for 100bps. We also expect Powell to justify the new dots with his usual recent rhetoric of requiring further evidence to gain confidence that a rate cut is warranted and that it is taking “longer than expected”. As a side note remember the BoJ intervened after the last FOMC and we are not that far off where we were back then in USDJPY. Just saying.
Australia Labour Report. Last report before next week’s RBA meeting so, on that basis, it does take on a touch more significance. A similar report to last month is expected with a near 40k gain in jobs and the unemployment rate drifting back to 4% and arresting a 3 month rising sequence for that measure. If the report comes in as expected then Australia will have added around 200k jobs this year. However, despite this healthy picture, the underlying remain less than impressive. More than half those gains came in February and last month’s increase was more than made up by part time workers as full time positions actually fell.
BoJ Interest Rate Decision. The backdrop shows inflation starting to rev up again, retail sales recovering as well as wage growth increases all point to a favourable backdrop for the BoJ to raise rates. However the belief is they will hold of for some more evidence before hiking again, with next month more favoured for the move and only a full hike priced in for September. We expect a Ueda type “proceeding cautiously” for this meeting with only a potential tweak to the pace of JGB buying as the outlier.
Sweden Inflation Report. First inflation report post the Riksbank rate cut. The MoM measures are expected to cool further although the YoY prints are expected to increase somewhat on base effects. Given the Riksbank have stated no further moves until the second half of the year this report has more of a placeholder feel to it.
The Day Ahead
Little to excite to start the week with the Norwegian Inflation Report for May just printing as we go to print.
Good luck.
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Main Highlights Ahead
All times in BST (EST+5 / CET-1 / JST-9)
The main highlights for the week ahead ahead in terms of data and speakers:
Monday
Norway Inflation Rate MoM May consensus % vs previous 0.8% (07.00 BST)
Norway Inflation Rate YoY May consensus % vs previous 3.6% (07.00 BST)
Norway Core Inflation Rate MoM May consensus % vs previous 0.9% (07.00 BST)
Norway Core Inflation Rate YoY May consensus % vs previous 4.4% (07.00 BST)
Tuesday
UK Employment Change April consensus k vs previous -178k (07.00 BST)
UK Unemployment Rate April consensus 4.3% vs previous 4.3% (07.00 BST)
UK Average Earnings incl Bonus 3m/yr April consensus 5.7% vs previous 5.7% (07.00 BST)
UK Average Earnings excl Bonus 3m/yr April consensus 6% vs previous 6% (07.00 BST)
ECB Speakers
Lane (12.00 BST)
Elderson (17.45 BST)
Wednesday
China Inflation Rate MoM May consensus % vs previous 0.1% (02.30 BST)
China Inflation Rate YoY May consensus 0.3% vs previous 0.3% (02.30 BST)
Germany Inflation Rate MoM Final May consensus 0.1% vs previous 0.5% (07.00 BST)
Germany Inflation Rate YoY Final May consensus 2.4% vs previous 2.2% (07.00 BST)
UK GDP MoM Apr consensus 0% vs previous 0.4% (07.00 BST)
UK GDP 3m Avg Apr consensus % vs previous 0.6% (07.00 BST)
UK Industrial Production MoM Apr consensus -0.1% vs previous 0.2% (07.00 BST)
UK Industrial Production YoY Apr consensus % vs previous 0.5% (07.00 BST)
UK Manufacturing Production MoM Apr consensus -0.2% vs previous 0.3% (07.00 BST)
UK Manufacturing Production YoY Apr consensus % vs previous 0.2.3% (07.00 BST)
US Inflation Rate MoM May consensus 0.2% vs previous 0.3% (13.30 BST)
US Inflation Rate YoY May consensus 3.4% vs previous 3.4% (13.30 BST)
US Core Inflation Rate MoM May consensus 0.3% vs previous 0.3% (13.30 BST)
US Core Inflation Rate YoY May consensus 3.5% vs previous 3.6% (13.30 BST)
US FOMC Interest Rate Decision rates to remain on hold at 5.5% (19.00 BST)
US FOMC Economic Projections (19.00 BST)
US FOMC Press Conference (19.30 BST)
ECB Speakers
Schnabel (10.30 BST)
de Guindos (14.00 BST)
McCaul (14.45 BST)
Thursday
Australia Employment Change May consensus 39k vs previous 38.5k (02.30 BST)
Australia Unemployment Rate May consensus 4% vs previous 4.1% (02.30 BST)
EU Industrial Production MoM Apr consensus 0.1% vs previous 0.6% (10.00 BST)
EU Industrial Production YoY Apr consensus % vs previous -1% (10.00 BST)
US PPI MoM May consensus 0.2% vs previous 0.5% (13.30 BST)
US PPI YoY May consensus 2.2% vs previous 2.2% (13.30 BST)
US Core PPI MoM May consensus 0.3% vs previous 0.5% (13.30 BST)
US Core PPI YoY May consensus 2.3% vs previous 2.4% (13.30 BST)
Fed Speakers
Williams (17.00 BST)
Friday
Japan BoJ Interest Rate Decision rates to remain on hold at 0.1% (05.00 BST)
Sweden Inflation Rate MoM May consensus % vs previous 0.3% (07.00 BST)
Sweden Inflation Rate YoY May consensus % vs previous 3.9% (07.00 BST)
Sweden CPIF MoM May consensus % vs previous 0.3% (07.00 BST)
Sweden CPIF YoY May consensus % vs previous 2.9% (07.00 BST)
US Michigan Consumer Sentiment Prel June consensus 73 vs previous 69.1 (15.00 BST)
US Michigan Consumer Expectations Prel June consensus 75 vs previous 68.8 (15.00 BST)
US Michigan 1y Inflation Expectations Prel June consensus % vs previous 3.3% (15.00 BST)
US Michigan 5y Inflation Expectations Prel June consensus % vs previous 3% (15.00 BST)
Fed Speakers
Goolsbee (19.00 BST)
ECB Speakers
Lane (10.00 BST)
de Guindos (10.00 BST)
Schnabel (14.30 BST)
Lagarde (18.30 BST)
Good luck.
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