The Morning Hark - 10 May 2024
Today’s focus... BoE edges closer but markets remain relatively subdued.
Overnight Highlights
Prices are at 6.35 BST/1.35 EST, with changes reflecting movement from midnight GMT
Oil - Oil trading a touch firmer with Brent and Crude July futures currently at 84.40 and 79.40.
EQ - Asian equity markets little changed overnight with the Hang Seng and Nikkei futures trading at 18,900 and 38,155.
The US indicies also unchanged in Asia holding onto yesterday’s gains, with the S&P and Nasdaq futures now at 5245 and 18,230 respectively.
Gold - Gold enjoyed the lower yields environment with the June futures currently trading at 2363..
FI - US yields stabilising a touch overnight, after yesterday’s post claims sell off, with currently the US2y futures trading at 4.81% whilst the US10y futures yield at 4.46%.
European yields little changed yesterday with the German 10y closing at 2.50% and the Italian 10y yield at 3.80%.
UK gilt 10y closed flat at 4.14%.
FX - The USD unchanged overnight with the USD Index currently at 105.30. The sell off was post initial claims data which was the highest print since August, pushing yields lower in the US. The majors now trading at; JPY, EUR and GBP 155.60, 1.0780 and 1.2520 respectively.
Others - Bitcoin and Ethereum continues to stabilise above 61k, for now at least. Currently the pair at 62,800 and 3025 respectively.
Macro Themes At Play
BoE Review
Well the BoE tried to liven things up a touch with a more dovish assessment of the UK economy than had been expected. They held rates steady as expected but the vote slipped to 7/2; hold versus cut, with, as we mentioned yesterday, Ramsden the next cab off the rank in joining Dhingra in the dove camp.
Statement was pretty much unchanged with the Bank seeing encouraging news on inflation but more evidence is needed that it will remain low.
They kept the money line in though that the bank rate is “restrictive for sufficiently long to return inflation to the 2% target sustainably”.
Forecast wise it was all very positive.
Unemployment rate was lowered 2024 at 4.4% (Feb 4.6%), 2025 4.7% (4.9%) and 2026 4.8% (5%).
GDP was elevated slightly 2024 at 0.5% (Feb 0.25%), 2025 1% (0.75%) and 2026 1.25% (1%).
CPI was lowered slightly 2024 at 0.5% (Feb 0.25%), 2025 1% (0.75%) and 2026 1.25% (1%).
Some of the money lines from the main protagonists:
Ramsden did not see any contradiction between QT and cutting rates.
He was completely comfortable when he voted to reduce the bank rate to continue QT in the background.
Broadbent felt that inflation’s persistence is fading due to high rates.
He would look more closely at services inflation than the wages over short periods of time.
Bailey stressed that one small cut in the bank rate would still leave the BoE with restrictive monetary policy.
Likely we will need to cut rates over the coming quarters.
Possible we will need to cut rates more than currently priced into market rates.
No preconceptions on how far or how fast we will cut rates.
The conclusion is a cut is coming with more to follow. Bailey stressed that the UK will see 2 CPI and labour reports before the next BoE and if they are within expectations then June is live.
Central Bank Speakers
Interesting Daly’s comments that there would be “uncertainty” for inflation for the next three months. Suggests rate cuts are off the table until September unless something dramatically changes.
Fed’s Daly thought that inflation expectations are well anchored but the final phase of disinflation is going to be bumpy. The last few months have left considerable uncertainty about inflation over the next 3 months. She pointed to a faltering labour market as a catalyst for a rate cut.
ECB’s de Guindos does not want to commit to a rate path beyond June.
BoE’s Pill claimed that it was too soon to cut rates but confidence was growing and the Bank will be thinking of cutting rates over the next few meetings. However the process of getting inflation down is not yet complete.
The Day Ahead
As we go to print we get the Norwegian Inflation Report for April as well as the UK Data Dump with GDP being the highlight.
ECB Minutes of their recent policy meeting should be rather dull. Canadian Labour Report for April is the main afternoon highlight with the Michigan Sentiment Survey for May with the all important inflation expectations closing the week data wise.
A plethora of central bank speakers throughout the day plus int he early hours of Saturday we get the China Inflation Report for April.
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Main Highlights Ahead
All times in BST (EST+5 / CET-1 / JST-9)
The main highlights for the day ahead ahead in terms of data and speakers:
Friday
Norway Inflation Rate MoM Apr consensus 0.7% vs previous 0.2% (07.00 BST)
Norway Inflation Rate YoY Apr consensus 3.4% vs previous 3.9% (07.00 BST)
Norway Core Inflation Rate MoM Apr consensus 0.8% vs previous 0.2% (07.00 BST)
Norway Core Inflation Rate YoY Apr consensus 4.3% vs previous 4.5% (07.00 BST)
UK GDP Growth Rate QoQ Prel q1 consensus 0.4% vs previous -0.3% (07.00 BST)
UK GDP Growth Rate YoY Prel q1 consensus 0% vs previous -0.2% (07.00 BST)
UK GDP MoM Mar consensus 0.1% vs previous 0.1% (07.00 BST)
UK GDP 3m Avg Mar consensus 0.4% vs previous 0.2% (07.00 BST)
UK Industrial Production MoM Mar consensus -0.5% vs previous 1.1% (07.00 BST)
UK Industrial Production YoY Mar consensus 0.3% vs previous 1.4% (07.00 BST)
UK Manufacturing Production MoM Mar consensus -0.4% vs previous 1.2% (07.00 BST)
UK Manufacturing Production YoY Mar consensus 1.8% vs previous 2.7% (07.00 BST)
ECB Monetary Policy Meeting Accounts (12.30 BST)
Canada Employment Change Apr consensus 18k vs previous -2.2k (13.30 BST)
Canada Unemployment Rate Apr consensus 6.2% vs previous 6.1% (13.30 BST)
US Michigan Consumer Sentiment Prel May consensus 76 vs previous 77.2 (14.45 BST)
US Michigan Inflation Expectations Prel May consensus % vs previous 3.2% (15.00 BST)
US Michigan 5y Inflation Expectations Prel May consensus % vs previous 3% (15.00 BST)
Fed Speakers
Bowman (14.00 BST)
Goolsbee (17.45 BST)
Barr (18.30 BST)
ECB Speakers
Cipollone (08.00 BST)
Elderson (09.45 BST)
BoE Speakers
Pill (12.15 BST)
Dhingra (12.45 BST)
Saturday
China Inflation Rate MoM Apr consensus 0.1% vs previous 0.1% (02.30 BST)
China Inflation Rate YoY Apr consensus % vs previous -1% (02.30 BST)
Good luck and a good weekend to one and all.
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