The Morning Hark - 12 Apr 2024
Today’s focus... Softer PPI doesn’t do any more damage. ECB all roads lead to June. Fed speakers cautious. Gold telling us something? SBF appeals.
Overnight Highlights
Prices are at 7.00 BST/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil up overnight with Brent and Crude June futures trading at 90.40 and 85.20 and recovering their lost ground from yesterday. The sell off was helped by reports that suggested Iran had postponed a strike on Israel at the last minute due to the threat of a retaliatory strike by the US.
EQ - Asian equity markets off overnight with the Hang Seng and Nikkei futures trading at 16,820 and 39,570 respectively.
The US indices rebounded on the “softer” PPI number and are up again smalls overnight with the S&P and Nasdaq futures currently flat at 5243 and 18,489 respectively. To be honest all a tad puzzling that such a PPI print would have such an outsized move for equities.
Gold - Gold again on the march to ever higher all time highs Currently June futures trading up over one percent at 2406.
Big gap higher late in the session yesterday. No fat finger as volumes were steady. The move is getting a lot of attention as the forbearer of some bad news which may lead to the road back to what the market wants; an imminent rate cut.
FI - US yields seeing some relief after a further rise yesterday. The US2y futures trading at 4.94% whilst the US10y futures yield at 4.57%.
European yields followed US move higher and not the thought of an imminent ECB rate cut with the German 10y closing at 2.47% and the Italian 10y yield at 3.86%.
UK gilt 10y similarly at 4.20%.
FX - FX in Asia taking a breather with the USD holding onto its gains from the previous two days. The USD Index currently at 105.40. The majors all a touch softer; JPY, EUR and GBP currently at 153.15, 1.0715 and 1.2540 respectively.
Today’s FX option expiries sees quite a bit of action in the EUR with €3.3bn at 1.07 and €1bn at 1.0780.
Others - Bitcoin and Ethereum steady overnight with the pair at 70,965 and 3545 respectively.
Unsurprisingly SBF appealed his 25 year sentence so the circus will continue.
Macro Themes At Play
Recap
PPI Review
Softer than expected, which was a relief for the Fed and markets, with both MoM measures coming in at 0.2%. The YoY headline and core now at 2.1% and 2.4% respectively.
Some conjecture that the print wasn’t as benign as the data suggests with the miss in headline being down to some gasoline prices “seasonal adjustments”.
As ever Jim Bianco has a great take on the current inflation profile in the US.
ECB Review
All pretty much as expected with rates held steady but an indication that things may change soon. They pointed to falling inflation as a whole but cautioned that services inflation is being kept high by strong domestic price pressures.
The money line was:
‘If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction“.
Lagarde was keen to stress the ECB’s independence from the Fed; “we are data dependent, we are not Fed dependent.” She also pointed to the fact that some members were “sufficiently confident” that the ECB could cut rates.
Other money lines were:
The economy is still weak
Service inflation is still at high levels
Won’t wait until each item in inflation is back to 2%
If disinflation continues, rate path will reflect that
The inflation decline won’t be linear
Inflation to fluctuate around current levels in coming months
Inflation will then decline to target next year
The usual sources stories hit the tapes later as is customary. They suggested that a handful of members needed extra convincing to back hold. The story went on to suggest that they expect the first cut to come in June, but given the US inflation dynamic, a pause again is more likely for July.
Central Bank Speakers
Williams, part of the leadership team, so was worth noting yesterday. He said that the outlook remained uncertain and that data will drive rate decisions. He slightly revised his PCE forecast for the year (2.25/2.5% from 2/2.25% back in February). No need to change monetary policy in the very near term but eventually we will need to cut rates.
He claimed that recent inflation setbacks were not a surprise to the Fed.
Interestingly he said that banks need to be prepared to use the discount window before trouble arrives.
Collins saw short term inflation expectations as consistent with a 2% goal. However she felt that the risks of monetary policy being too tight have receded and it may take more time, than previously thought, to gain the confidence to begin easing policy.
She continued that the recent data argued against an imminent need to change interest rates but still expects a cut this year. However the economy’s strength may point to fewer rate cuts.
Barkin felt that previous Fed tightening would slow the economy further. He was a little reluctant to declare victory on inflation and its smart to take time. Unsurprisingly she gave a nod to the recent inflation data not give increasing confidence that disinflation is spreading in the economy.
ECB’s Gentiloni claimed that EU inflation is declining, the road appears less bumpy than the US.
BoE’s Greene continued her tone from yesterday with her assessment that wage growth remains too high and we need to ensure inflation expectations are anchored.
She saw the UK hitting the 2% target for inflation in May briefly.
The day would not be complete with out another cracker from the Japanese Finance Minister Suzuki who was finding it difficult to determine the sole factor behind current weka yen! Guess he missed the rate differentials lecture!
The Day Ahead
Overnight the Chinese Trade Balance for March print is delayed.
Some Japanese data for February with Capacity Utilisation and Industrial Production showing further declines.
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.
Rest of the day will be about the Fed speakers and any comments on the CPI with the UMich Consumer Sentiment preliminary reading for April the only data.
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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
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)
US Michigan Consumer Sentiment Prel Apr consensus 79 vs previous 79.4 (15.00 BST)
US Michigan Inflation Expectations Prel Apr consensus % vs previous 2.9% (15.00 BST)
US Michigan 5y Inflation Expectations Prel Apr consensus % vs previous 2.8% (15.00 BST)
Fed Speakers
Bostic (19.30 BST)
Daly (20.30 BST)
ECB Speakers
Elderson (12.00 BST)
BoE Speakers
Greene (08.40 BST)
Good luck and a good weekend to one and all.
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Can you point me out to a lecture about rate differentials?