The Morning Hark - 11 Mar 2024
Today’s focus...Quiet start to the week with US CPI and Japan’s Spring wage negotiations the focus ahead. The "C" word is out and being freely used by the ECB; will it be April or June?
Overnight Highlights
Prices are at 6.45 GMT/2.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil soft in Asia with Brent and Crude May futures trading off a touch at 81.80 and 77.10 respectively following on from Friday’s sell off with again demand side worries weighing on the sector.
EQ - Asian equity markets mixed with the Nikkei off close to one percent as the stronger JPY starts to weigh on the exporter sector. Currently the futures trade at 38,550. The Hang Seng however has been helped by gains from onshore stocks with the futures up well over one percent at 16,610.
The US indices little changed with the S&P and Nasdaq futures currently flat at 5187 and 18,265 respectively. The indicies saw a pull back on Friday lead by what seemed profit taking from Nvidia. I post a good thread on some of the technical factors surrounding that stock below from the ever excellent Jim Bianco.
Gold - Gold flat in Asia after again hitting fresh highs on Friday post data. April futures currently trading steady at 2185.
FI - Global yields start the week continuing their recent softness in Asia with the US2y and US10y futures yields currently at 4.48% and 4.06% respectively.
European yields closed the week lower with the US payroll print and the ECB chatter adding to the softness with the German 10y at 2.26% and the Italian 10y yield at 3.57%.
UK gilt 10y similarly at 4.06%.
FX - FX in Asia back doing nothing with the USD Index currently at 102.74. The majors; JPY, EUR and GBP currently at 147.00, 109.40 and 1.2850 respectively.
Today’s FX option expiries sees little of significance close to current market levels.
Others - Bitcoin and Ethereum consolidating well close to their highs with the pair currently at 68,650 and 3850 respectively. Over the weekend we did briefly visit 70k for another fresh high but have since pulled back. Lot of offers on the exchanges around that level so it will get sticky but, as we said last week, there’s a lot of blue sky beyond.
Macro Themes At Play
Recap
EU GDP for q4 on the screws as you’d expect for a third reading.
Canada Labour Report for February was decent with the Unemployment Rate a touch higher but on expectations at 55.8%. Employment Change had a good beat with am additional 40.7k added whilst Average Hourly Wages will have warmed the cockles of the BoC’s heart with a drop back below 5% to 4.9%.
In the UK the first poll after the Spring Budget saw no change in the Conservative’s ratings as they languish on 20% of the not so popular vote.
The BoJ is said to be considering new quantitative monetary policy framework slowing the outlook of JGB buying amount. Sources also suggested that they are leaning towards exiting the negative rate regime in March with next week’s wage talks as the key determinant.
More stories emerged over the weekend that there is a growing consensus, for an end to negative rates at next week’s meeting, among the BoJ members.
NFP Review
That was somewhat of a mixed bag. Soft wages, high headline number, lower revisions to the last two months and unemployment rate higher as participation weaker. Net net you’d probably put it in the soft camp.
Headline beat expectations at 275k, however the elation of that number was tempered and some by the return of downward revisions to previous months’ prints which totally 167k!
Unemployment ticked up to 3.9% whilst average hourly earnings was a mere 0.1% MoM, its lowest print in 2years. Music in the Fed’s ears if not the workers!
Under the hood further the report was fairly weak with the divergence between payrolls and employment growing suggesting that people are taking on additional jobs to cover their living expenses.
Market wise the week’s theme has continued; stocks and gold up, yields and USD down.
June still the favoured month for rate cuts, with it fully priced in, with a 30% chance for May.
Central Bank Speakers
ECB were let out on mass Friday with a lot of clambering for who could be the most dovish! Seems the “C” word is very much out of the bag now and its all about which month; April or June. The week ahead has no data of any consequence, out of the Eurozone, so we will be lead by the speakers but its now only about when not if for the ECB.
Later in the day a “sources” story suggested that the ECB overwhelmingly favour June for the first rate cut with some even floating a second cut in July as a compromise for those seeking an earlier April move.
Fed’s Williams pointed to demand having cooled amid restrictive monetary policy and inflation expectations have decreased quite a bit. It is not quite clear whether the neutral rate has risen.
ECB’s Rehn was primed for a rate cut as faster than expected inflation slowdown is good news and makes the risks of a premature rate cut substantially lower. The ECB will review a rate cut in April and in June.
Kazaks claimed that the ECB would avoid “autopilot” once rate cuts begin and how far they go will depend on data. Furthermore the ECB could take pauses on its rate cutting journey.
Villeroy suggested that there was a large consensus that risks are balanced and a rate cut will come, the timing remains a minor issue. It is very likely the ECB will cut in April or June.
Nagel saw a rising chance of a rate cut before the summer break. Its data dependent but the prospects have brightened.
Simkus could see no reason why rate cuts would be larger than 25bps. He favoured June over April for the first cut explaining that the ECB was in no rush.
Muller noted that inflation is slowing but more confidence is needed.
Holzmann said that rate change may be in preparation.
Vasle future steps will depend on economic and financial data especially inflation.
As a refresher….the ECB
The Week Ahead
Again another week with little key data points. US CPI will be the main focus for the market and will that print get us closer to the point of no return for the Fed? In addition the wage negotiation season is up and running in Japan so, as those results start to emerge, we should have a better steer as to what the BoJ will do at next week’s meeting.
UK Labour Report. Focus will centre on the wage growth numbers given the Bank has alluded to them, and services inflation, as being key for the timing of their first rate cut. On that basis another drop in average weekly earnings is expected, albeit a small one, to 5.7%. Still on the hot side but well off the 8.5% peak we saw back in July. Analysts however have poured a fair amount of cold water over the reliability of these labour reports given the low response rate the survey gets. Optically the series doesn’t look right with the unemployment rate dropping throughout the last quarter despite the UK being in recession.
US Inflation Report. Expectations are for a similar print to last month but, given the amount of chatter from Fed officials we have seen of late, all eyes will be firmly on the housing component. Expectations are for those to remain on the high side alongside medical costs and gasoline prices. Offsetting that somewhat will be the core goods which are expected to weaken. The MoM prints in the 0.3/0.4% still remains toppy for the dial to move significantly for the Fed to accelerate their rate cut timelines. On the flip side Core YoY is expected to drop to 3.7% which would be the lowest print since May 2021. Fed chatter pre report has been fairly relaxed. Remember this is the last major data point prior to next week’s FOMC and new set of forecasts.
UK GDP. Rebound expected and mainly all due to the blockbuster retail sales data we saw in the UK for January. Expectations are for 0.2% growth for the month. On top of retail sales, the PMIs have also emerged surprisingly strong into the new year which should filter through into a positive pick up for the GDP print.
US Retail Sales. Expectations are for a healthy rebound after the weather related weakness we saw in January. Car sales have already printed firmer for February and this is always a good forward indicator for the wider sales figures. In addition personal income for January was a strong print which is usually a precursor to strong consumer spending in the month after. Expectations are for a print close to offsetting last MoM’s 0.8% decline.
PBoC 1y MLF Rate Announcement. 10bp cut as part of the “coordinated” effort to boost the Chinese economy? The Two Sessions meeting did little to suggest that anything was imminent in terms of a rate cut with the continued “prudent monetary policy” outlook. Remember the PBoC have recently cut their 5y LPR rate by 25bps to 3.95% although this was seen as specifically targeting the ailing property sector. In addition Governor Pan, only last week, alluded to there being still room for RRR cuts.
Japan Rengo First Tally. Rengo is one of the largest trade union confederations in Japan and the outcome of their wage negotiations will be announced this week. Suggestions are they have asked for a 5.85% rise (4.49% last year) which would be the biggest jump in over 30y if it is awarded. The wider Shinto Spring wage round will see their talks finish on Wednesday with the final results published on Friday. For reference last year’s wage round settled on a 3.6% increase. The BoJ has long flagged the crucial nature of these wage negotiations in their deliberations regarding the timing of the Bank’s exit from the negative rate regime. This outcome will come a week before the Bank’s March meeting with anticipation growing that the negative rates regime which has been in place 8 years now is coming to a close.
The Day Ahead
Over the weekend we had a couple of data points with the Chinese Inflation Report for February showing a 1% rise MoM, its hottest print in over 3 years. That took the YoY to its highest print in almost a year to 0.7%.
The final print for Japan’s q4 GDP showed that Japan narrowly avoided a “recession” with a revised 0.1% growth for the quarter after last quarter’s 0.8% contraction. The improvement was driven by a strong rebound in capital expenditure for the quarter. The annualised measure showed a 0.4% growth.
The day is pretty much over before it even started with the release of Norway’s Inflation Report for February.
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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
Norway Inflation Rate MoM Feb consensus 0.5% vs previous 0.1% (07.00 GMT)
Norway Inflation Rate YoY Feb consensus 4.9% vs previous 4.7% (07.00 GMT)
Norway Core Inflation Rate MoM Feb consensus 0.7% vs previous 0% (07.00 GMT)
Norway Core Inflation Rate YoY Feb consensus 5.3% vs previous 5.3% (07.00 GMT)
Tuesday
Germany Inflation Rate MoM Feb Final consensus 0.4% vs previous 0.2% (07.00 GMT)
Germany Inflation Rate YoY Feb Final consensus 2.5% vs previous 2.9% (07.00 GMT)
UK Employment Change Jan consensus k vs previous 72k (07.00 GMT)
UK Unemployment Rate Jan consensus 3.8% vs previous 3.8% (07.00 GMT)
UK Average Earnings incl. Bonus (3m/Yr) Jan consensus 5.7% vs previous 5.8% (07.00 GMT)
US Inflation Rate MoM Feb consensus 0.4% vs previous 0.3% (12.30 GMT)
US Inflation Rate YoY Feb consensus 3.1% vs previous 3.1% (12.30 GMT)
US Core Inflation Rate MoM Feb consensus 0.3% vs previous 0.4% (12.30 GMT)
US Core Inflation Rate YoY Feb consensus 3.7% vs previous 3.9% (12.30 GMT)
ECB Speakers
Holzmann (08.00 GMT)
Buch (16.00 GMT)
BoE Speakers
Mann (11.00 GMT)
Butt (14.05 GMT)
Wednesday
UK GDP MoM Jan consensus 0.2% vs previous -0.1% (07.00 GMT)
UK GDP 3m Avg Jan consensus -0.1% vs previous -0.3% (07.00 GMT)
UK GDP YoY Jan consensus % vs previous 0% (07.00 GMT)
UK Industrial Production MoM Jan consensus 0% vs previous 0.6% (07.00 GMT)
UK Industrial Production YoY Jan consensus 0.7% vs previous 0.6% (07.00 GMT)
UK Manufacturing Production MoM Jan consensus 0% vs previous 0.8% (07.00 GMT)
UK Manufacturing Production YoY Jan consensus 2% vs previous 2.3% (07.00 GMT)
EU Industrial Production MoM Jan consensus -1% vs previous 2.6% (10.00 GMT)
EU Industrial Production YoY Jan consensus -2.8% vs previous 1.2% (10.00 GMT)
ECB Speakers
Jochnick (08.25 GMT)
Cipollone (11.45 GMT)
Stoumaras (14.00 GMT)
Thursday
Sweden Inflation Rate MoM Feb consensus 0.3% vs previous -0.1% (07.00 GMT)
Sweden Inflation Rate YoY Feb consensus 4.7% vs previous 5.4% (07.00 GMT)
Sweden CPIF MoM Feb consensus 0.2% vs previous -0.3% (07.00 GMT)
Sweden CPIF YoY Feb consensus 2.7% vs previous 3.3% (07.00 GMT)
US PPI MoM Feb consensus 0.3% vs previous 0.3% (12.30 GMT)
US PPI YoY Feb consensus 1.2% vs previous 0.9% (12.30 GMT)
US Core PPI MoM Feb consensus 0.2% vs previous 0.5% (12.30 GMT)
US Core PPI YoY Feb consensus 2% vs previous 2% (12.30 GMT)
US Retail Sales MoM Feb consensus 0.7% vs previous -0.8% (12.30 GMT)
US Retail Sales YoY Feb consensus % vs previous 0.6% (12.30 GMT)
ECB Speakers
Elderson (09.30 GMT)
Schnabel (11.00 GMT)
Knot (12.00 GMT)
de Guinods (18.00 GMT)
Stoumaras (18.30 GMT)
Friday
US NY Empire State Manufacturing Index Mar consensus -7.5 vs previous -2.4 (12.30 GMT)
US Industrial Production MoM Feb consensus 0% vs previous -0.1% (13.15 GMT)
US Industrial Production YoY Feb consensus % vs previous 0% (13.15 GMT)
US Manufacturing Production MoM Feb consensus 0.3% vs previous -0.5% (13.15 GMT)
US Manufacturing Production YoY Feb consensus % vs previous -0.9% (13.15 GMT)
US Michigan Consumer Sentiment Prel Mar consensus 76.6 vs previous 76.9 (14.00 GMT)
US Michigan Inflation Expectations Prel Mar consensus % vs previous 3% (14.00 GMT)
UK Michigan 5y Inflation Expectations Prel Mar consensus % vs previous 2.9% (14.00 GMT)
China PBoC 1y MLF Rate Announcement consensus for rates to remain on hold at 2.5%
Japan Rengo First Tally all important wage negotiation results
ECB Speakers
Vujcic (09.35 GMT)
Lane (14.30 GMT)
Good luck.
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