The Morning Hark - 12 June 2024
Today’s focus...US CPI the warm up act for them there dots.
Overnight Highlights
Prices are at 6.45 BST/1.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil edging higher again in Asia with Brent and Crude August futures currently at 82.40 and 78 but holding onto their decent gains from yesterday. API data saw sizeable draws across crude and gasoline in particular.
EQ - Asian equity markets mixed with the Hang Seng off one percent on the rather benign inflation outlook in China with the futures currently at 17,915. Meanwhile the Nikkei futures trading steady at 38,930.
The US indicies similarly dull with the S&P and Nasdaq futures now at 5385 and 19,250 respectively.
Gold - Gold up smalls in Asia with the August futures trading currently at 2330.
FI - US yields flat overnight with the US2y futures trading at 4.84% whilst the US10y futures yield at 4.40%.
European yields tempered their early week move post the European Elections and subsequent Macron election gamble and sold off a touch. The German 10y closing at 2.64% and the Italian 10y yield at 4.07%.
UK gilt 10y at 4.28%.
FX - The USD back in the flat zone again in Asia with the USD Index currently at 105.27. The majors now trading at; JPY, EUR and GBP 157.25, 1.0740 and 1.2740 respectively. The main USD strength being seen through the weakness in the EUR with the French elections hanging heavy.
The major FX option expiries of significance today are; EUR sees €2.5bn between 1.0800/10, AUD had AUD1.5bn at 0.6615, GBP sees £1.8bn at 1.2795 and in the NZD at 0.62 we have NZD1.7bn and at 0.61 NZD1bn.
Others - Bitcoin and Ethereum had a further dip yesterday as we saw the first day in 19 of outflows from the ETFs. However it managed to regain ground and get back towards where we started yesterday with the pair currently at 67,320 and 3512 respectively.
Macro Themes At Play
Recap
UK Labour Report for April was not the best. Employment change continued its downward trend with -139k print, a fourth month of negative prints. Unemployment rate ticked up to 4.4%, its highest level since September 2021. Meanwhile average earnings incl bonus ticked up to 5.9% with the excl bonus remaining at 6%.
Bit of a conundrum that for the BoE; clearly softening but wage growth still remain strong. Guess thats what they get paid the big bucks for…
Central Bank Speakers
ECB’s Simkus was firmly of the belief that it was too early to declare victory over inflation. However rates can be cut more if ECB is sure the 2% goal will be met.
Villeroy rate cut marks a decisive orientation. Fed’s policy should not greatly affect ECB’s. We have significant leeway to lower rates before exiting restrictive territory. We are monitoring actual inflation data, especially services, but monthly figures will be volatile due to energy base effects.
Rehn claimed that the ECB’s monetary policy has dampened price pressures.
Lane emphasised that the ECB was not pre-committed to a particular rate path. Rates will remain sufficiently restrictive for as long as needed. ECB must, and will, carefully analyse incoming data.
FOMC Review
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”. Couple of side notes. We obviously get the CPI print a few hours before the FOMC and this report will be baked into the Fed’s dots and thoughts. Secondly remember the BoJ intervened after the last FOMC and we are not that far off where we were back then in USDJPY. Just saying.
In summary rates unchanged, the statement largely unchanged and the all important dots to go to two for the year with a larger group than previously opting for one. Forecast wise small but not market moving tweaks.
The Day Ahead
Overnight the China Inflation Report for May held steady at 0.3% YoY for the second month in a row and continued a positive trend for inflation sib=nce January’s deep dip into disinflation.
As we go to print the final German Inflation print for May and the UK Data Dump.
The rest of the day is given over to the US for their Inflation Report for May and of course the FOMC.
Early doors tomorrow the Australian Labour Report for May.
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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:
Wednesday
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 0.7% vs previous 0.6% (07.00 BST)
UK GDP YoY Apr consensus 0.6% vs previous 0.7% (07.00 BST)
UK Industrial Production MoM Apr consensus -0.1% vs previous 0.2% (07.00 BST)
UK Industrial Production YoY Apr consensus 0.3% 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 1.6% vs previous 0.2.3% (07.00 BST)
US Inflation Rate MoM May consensus 0.1% 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)
BoC Macklem Speaks (20.30 BST)
ECB Speakers
Tuominen (10.15 BST)
Schnabel (10.30 BST)
Buch (12.30 BST)
de Guindos (14.00 BST)
McCaul (14.45 BST)
Tuominen (15.00 BST)
Early Thursday
Australia Employment Change May consensus 27.5k vs previous 38.5k (02.30 BST)
Australia Unemployment Rate May consensus 4% vs previous 4.1% (02.30 BST)
Good luck.
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