The Morning Hark - 11 Apr 2024
Today’s focus... CPI game changer. BoC edging closer to a rate cut. FOMC stale as but offer teasers for balance sheet run off. Japan in a pickle.
Overnight Highlights
Prices are at 7.00 BST/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil flat overnight with Brent and Crude June futures trading at 90.50 and 85.60. Mixed day with the CPI print hitting oil but Middle East sabre rattling reversed the trend and some. Israel threatened Iranian nuclear sites, the Iranians are said to be set to launch a high precision missile attack on Israel the US could interfere if there is an Iranian attack on Israel.
EQ - Asian equity markets recovered after their follow through sell off from the US session and are now green on the day with the Hang Seng and Nikkei futures trading at 17,150 and 39,440 respectively.
The US indices stabilised after yesterday’s sell off with the S&P and Nasdaq futures currently flat at 5208 and 18,210 respectively.
Gold - Gold stabilising after yesterday’s sell off and, given the news, it has held in very well. Currently June futures trading up smalls at 2357.
FI - US yields seeing some relief after their stratospheric rise yesterday. The US2y futures trading at 4.96% whilst the US10y futures yield at 4.54%.
European yields followed US move higher with the German 10y closing at 2.43% and the Italian 10y yield at 3.77%.
UK gilt 10y similarly at 4.15%.
FX - FX in Asia taking a breather with the USD near its year’s highs. The USD Index currently at 105.15. The majors all flat after their sell off post CPI ; JPY, EUR and GBP currently at 152.95, 1.0745 and 1.2545 respectively. Amidst all the carnage we saw the JPY hitting 44 year lows and the EUR hitting a 9 month low.
Today’s FX option expiries sees quite a bit of action. In USDJPY $2bn at 152. EUR wise we see €3bn at 1.08 and €2.5bn at 1.07.
Others - Bitcoin and Ethereum recovering and remain in their short term range with the pair at 70,600 and 3565 respectively.
Macro Themes At Play
Recap
Norway Inflation Report for March softer than expected at 0.2% MoM for both headline and core. The YoY measures have dropped to 4.5% for core which is the lowest since July 2022 and headline is now below 4% for the first time in 6 months at 3.9%.
CPI Review
So CPI was the game changer and some. MoM prints for core and headline beat expectations for the fourth month running at 0.4%. The YoY measures saw headline hit 3.5%, its highest print in 6 months whilst core remained steady at 3.8%. Core remains sticky lead by jumps for shelter, medical and car insurance. What they call “super core”, services stripping out energy and housing, rose 0.7%. So overall its hard to see a positive spin on this one! Although some expect April’s print to soften dramatically and for the PCE print, later in the month, to be softer due to the fact it excludes medical and car insurance. All eyes on PPI today! Let’s see.
Even Fed whisperer WSJ’s Timiraos felt that the first three inflation prints of the year have made a deferral of Fed rate cuts inevitable. He even hinted that 3% is the new norm rather than 2%.
Market wise as you’d expect a huge move in the rates space with the US2y at the year’s highs. The 10y at its highest since November. There are now less than two cuts in the curve for this year and September is now the most likely for the first cut from the Fed. The 2y had its biggest jump in a over a year whilst the 10y its biggest in 18 months. Gold slammed, USD rising and hitting 153 vs the JPY.
To compound matters the US10y auction was a shocker with the third worst tail on record. Bid to cover was lowest in 15 months with the inevitable spike in yields.
BoC Review
Unchanged and no surprise but there were stronger signals that the BoC is edging closer to its first rate cut but it first needs more evidence that inflation is slowing. The poor economic backdrop, relative to other countries, and an inflation profile slowing makes the Bank closer to cutting rates.Rate cuts were discussed but the consensus was for a hold.
Macklem did not say that a cut was imminent but did not explicitly rule out a June cut.
Remember we still have 2 inflation reports and one labour before that meeting.
Forecast changes saw inflation edged down for this year to 2.2% and remain steady at 2.1% next whilst growth was meaningfully revised up to 2.1% this but down a similar amount next to 2.2%.
FOMC Minutes Review
Post the CPI release all a tad stale given the moves we have seen in the markets. All inflation chatter seems very outdated “CPI continued to decline” although they did admit that the Jan and Feb prints had “not increased their confidence” that inflation was falling. They also noted the uncertainty that is brought by the persistence of high inflation.
Probably of the most interest given the overall staleness was the QT and balance sheet chat. There was a majority to “begin slowing the pace of runoff fairly soon”. They went further and said they favoured “reducing the monthly pace of runoff by roughly half from the recent overall pace”. Furthermore this would be through treasuries and not MBS. They expect this to be around the mid year.
This was significant as previously the Fed had said they wouldn’t start this process without cutting rates, although it could be at the same time.
Central Bank Speakers
Fed’s Goolsbee same old with the Fed still having a ways to go to tame inflation.
BoE’s Greene claimed that higher inflation expectations have lead to higher pay growth by 6/7% in the UK. She sees services inflation remaining high and much higher than in the US. Hence rate cuts are still way off in the UK.
Japan officials all of a fluster as you can imagine and spouting the usual rhetoric which is too long and much to recant here although I did like FM Suzuki trying to reason that the JPY weakening to 152, 153 was not necessarily the levels themselves, looking at the background. Think you’ll find thats the fundamentals sir!
The Day Ahead
Overnight China’s Inflation Report for March fell back after the Lunar New Year spike, indeed the MoM reading of -1% was an exact rebound of last month’s print. The YoY now, barely in inflationary territory, at 0.1%.
Rest of the day sees the ECB Interest Rate Decision and press conference as well as the US PPI Report for March. In addition a fair smattering of central bank speakers.
Overnight a busy session with Chinese Trade Balance for March. Some Japanese data for February follows with Capacity Utilisation and Industrial Production.
As we go to print we have a plethora of data; for March we have the final German Inflation and the Swedish CPI Report. Then we have a UK Data dump for February with the GDP data as well as Industrial and Manufacturing Production.
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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:
Thursday
ECB Interest Rate Decision expectations for rates to remain on hold at 4.5% (13.15 BST)
US PPI MoM Mar consensus 0.3% vs previous 0.6% (13.30 BST)
US PPI YoY Mar consensus 2.2% vs previous 1.6% (13.30 BST)
US Core PPI MoM Mar consensus 0.2% vs previous 0.3% (13.30 BST)
US Core PPI YoY Mar consensus 2.3% vs previous 2% (13.30 BST)
ECB Press Conference (13.45 BST)
Fed Speakers
Williams (13.45 BST)
Collins (17.00 BST)
Bostic (18.30 BST)
BoE Speakers
Greene (19.00 BST)
Early Friday
China Balance of Trade Mar consensus $70.2bn vs previous $125.16bn (04.00 BST)
China Exports YoY Mar consensus -3% vs previous 7.1% (04.00 BST)
China Imports YoY Mar consensus 1.2% vs previous 3.5% (04.00 BST)
Japan Capacity Utilisation MoM Feb consensus vs previous 7.9% (05.30 BST)
Japan Industrial Production MoM Feb Final consensus -0.1% vs previous -6.7% (05.30 BST)
Japan Industrial Production YoY Feb Final consensus vs previous -1.5% (05.30 BST)
Germany Inflation Rate MoM Mar Final consensus 0.4% vs previous 0.4% (07.00 BST)
Germany Inflation Rate YoY Mar Final consensus 2.2% vs previous 2.5% (07.00 BST)
Sweden Inflation Rate MoM Mar consensus 0.4% vs previous 0.2% (07.00 BST)
Sweden Inflation Rate YoY Mar consensus 4.4% vs previous 4.5% (07.00 BST)
Sweden CPIF MoM Mar consensus 0.4% vs previous 0.2% (07.00 BST)
Sweden CPIF YoY Mar consensus 2.6% vs previous 2.5% (07.00 BST)
UK GDP MoM Feb consensus 0.1% vs previous 0.2% (07.00 BST)
UK GDP YoY Feb consensus -0.4% vs previous -0.3% (07.00 BST)
UK GDP 3m avg Feb consensus 0.1% vs previous -0.1% (07.00 BST)
UK Industrial Production MoM Feb consensus 0% vs previous -0.2% (07.00 BST)
UK Industrial Production YoY Feb consensus 0.6% vs previous 0.5% (07.00 BST)
UK Manufacturing Production MoM Feb consensus 0.1% vs previous 0% (07.00 BST)
UK Manufacturing Production YoY Feb consensus 2.1% vs previous 2% (07.00 BST)
Good luck.
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