The Morning Hark - 13 May 2024

Today’s focus...Quiet markets continue. The Week Ahead offers some hope.

Overnight Highlights

Prices are at 6.45 BST/1.45 EST, with changes reflecting movement from midnight GMT

Oil - Oil trading soft in Asia with Brent and Crude July futures currently at 82.50 and 77.60.

Generally soggy backdrop for oil with Fed speakers dampening any hopes of an imminent rate cut, the USD a touch firmer and doubts over the sustainability of global demand.

EQ - Asian equity markets little changed overnight with the Hang Seng and Nikkei futures trading at 19,060 and 38,180.

The US indicies also unchanged in Asia, with the S&P and Nasdaq futures now at 5250 and 18,300 respectively.

Gold - Gold backing off a touch in Asia with the June futures trading currently at 2359.

FI - US yields off a touch overnight, but ultimately little changed, with currently the US2y futures trading at 4.86% whilst the US10y futures yield at 4.50%.

European yields closed the week firmer following the US move post data with the German 10y closing at 2.52% and the Italian 10y yield at 3.82%.

UK gilt 10y closed similarly lower at 4.17%.

FX - The USD unchanged overnight with the USD Index currently at 105.30. The majors now trading at; JPY, EUR and GBP 155.80, 1.0775 and 1.2530 respectively.

Today’s FX option expiries sees in the EUR; €3.5bn at 1.0750/55.

Others - Bitcoin and Ethereum had a sell off on Friday’s US Data and didn’t really recover after that. The pair currently at 60,900 and 2870 respectively.

Macro Themes At Play

Recap

Norway Inflation Report a touch hotter than expected with the MoM’s a smidgeon higher at 0.8% and 0.9% for the headline and core respectively. Seems stronger food prices contributed to the upside miss. The YoY now at 3.6% and 4.4% respectively again a touch higher than had been expected but lower than the previous month’s prints. Indeed the core YoY now at its lowest since June 2022.

Meanwhile in the UK, its back! Q1 GDP hits 0.6% after a couple of quarters of declines with services and production leading the way although worryingly construction continues to lag. The YoY measure now dragged back into positive territory at 0.2%. Obviously the monthly measure for March was better than expected at 0.4% taking 3m average to 0.6%.

Both Industrial and Manufacturing Production MoM for March back in positive territory at 0.2% and 0.3% respectively. That takes the respective YoY figures to 0.5% and 2.3%.

ECB Monetary Policy Meeting Accounts pretty much endorsed June. Key money lines:

Members expressed greater confidence in the projections but further evidence is needed.

Inflation expectations are well anchored.

Seen as plausible that the ECB would start to ease in June.

Large majority voted for hold but a few saw cut conditions being met in April.

Canada Employment Report for April was another number one with a 90.4k employment change headline number. Well above expectations and a big rebound from the previous month’s negative number. Its the biggest single month number since January 2023. The only small negative is that part time workers accounted for 50.3k of the rise. The unemployment rate ticked down to 6.1%.

US Michigan Consumer Sentiment Survey for May wasn’t ideal. The headline printed 67.4 its worst print in 6 months and its biggest ever miss versus expectations. More worryingly, for the Fed, the Inflation Expectations were on the rise once again with 1y now up to 3.5% and the 5y now at 3.1% both above expectations.

The Week Ahead

A tad spicier week than last on the data front with the US Inflation Report holding the key for markets. Elsewhere the BoE labour report box tick, were the Riksbank justified in cutting and China’s data dump showing a moderate improvement.

1. Fed Speakers. Full line up throughout the week of Fed speakers to no doubt continue to tell us its higher for longer. The highlight is Powell on Tuesday, although given this is pre CPI, perhaps not. However post CPI there are at least 7 more up at a podium somewhere in the world so plenty of opportunity to give us their take on the report.

2. UK Labour Report. Governor Bailey highlighted the importance of the 2 inflation and labour reports we get between last week’s meeting and the next one in June and this is the first of them. As ever volatile, potentially unreliable and fairly out of date, given the data relates to March, but hey its all we’ve got. Early forecasts suggest a further drop for the headline employment change number which would be the third such consecutive monthly drop for the series. This is expected to result in the unemployment rate ticking up to 4.3%, matching the recent high for the cycle. One bright spot may be average earnings which are seen to cool to its lowest level since June 2022 on 3m/yr basis. If the report comes in as expected, then the BoE would have one tick in their box to start the cutting cycle.

3. Sweden Inflation Report. A timely report on the back of the Riksbank’s rate cut last week. Did they go too soon or was the cut justified? The Bank claimed that inflation was “firmly anchored” and wage increases are “moderate”. On that basis we’d expect to see a further cooling with CPIF expected to match the cycle low 2.2% print of last month, the lowest since July 2021. Headline remains stickier however, with expectations of a tick lower 4% print which still seems too high given the cut in rates. For reference the difference between the two measures is housing.

4. US Inflation Report. Highlight of the week with expectations for a slight cooling across all measures. Remember the old adage; one’s a wish, two’s a kiss, three’s a disappointment, four’s a letter. Well we certainly got the disappointment with last month’s print. If four disappoints, does Jay write a letter of apology to Joe? Anyway both the MoM’s expected to print 0.3% whilst the YoY’s are seen lower at 3.4% and 3.6% for headline and core respectively. That would be a 3 year low for the core measure. Is it as simple as, a 0.2% print gets the market all excited about a rate cut in September again? Whilst a 0.4% print pushes any move out until December? Seems too simplistic but all that being said the trend is still well above the 2% target. If we go back to the old adage: five is “much better” so maybe we just have to be patient…..

5. Japan GDP. The Japanese economy is seen to slip back into contraction again in q1 with a -0.4% QoQ print expected. In effect Japan escaped a technical recession with 0.1% growth in the previous quarter after the sharp 0.8% decline we saw in q3 of last year. Growth will have been dragged down by the Daihatsu plant shut down at the start of the year on the back of the falsification of their safety tests. BoJ’s Ueda alluded to the anaemic growth backdrop recently when he said the economy was recovering moderately albeit with some pockets of weakness.

6. China Data Dump. The usual monthly data dump out of China with all prints expected to show renewed levels of growth. Industrial production seen to climb back above 5% whilst retail sales are expected to rebound after last month’s disappointment. Fixed asset investment is expected to continue its gradual upward trend with unemployment remaining steady. Earlier in the week we get the PBoC 1yr MLF rate announcement where we expect rates to remain on hold at 2.5%. Ultimately there appears a lack of urgency for the Bank to shift rates lower with the Yuan weakness and the economic data, in the main, improving moderately.

Central Bank Speakers

Fed speakers all pretty much higher for longer narrative. Hikes not coming but neither are cuts any time soon. Let’s see what this week brings!

Fed’s Bostic felt the Fed were on for one cut this year but timing wise its uncertain. Optimistic disinflation will continue although may take longer to get to target; late 2025/early 2026. Looking for job growth to slow to be consistent with 2% target.

Bowman claimed that the Fed needs to keep policy steady for a bit longer.

Logan felt that q1 inflation data was disappointing. Also that there are important upside risks to inflation. There are uncertainties if policy is sufficiently restrictive. Too early to think about cutting rates.

Barkin joined the chorus as she called for a patient and deliberate approach as she looks for inflation progress to sustain and broaden.

Goolsbee claimed that the Fed are still trying to determine if this is a bump or whether inflation is stalling here. He is hesitant to focus on the recent inflation data and more on the progress that has been made. He continues to pint to housing data, and in particular if it comes down then there will be an “optimistic lane” towards 2% inflation.

ECB Elderson started that there was no commitment for a June cut

BoE’s Pill said the path of many indicators is likely to be bumpy. The Bank has to focus on the persistent components of inflation not just headline. The labour market and wage growth have the biggest impact. The Bank has sent a clear signal that when there is sufficient evidence of a downward path in persistent inflation then rates can be cut. Medium term inflation forecasts don’t necessarily give a signal on rate moves at the next meeting or the one after that.

The Day Ahead

The China Inflation Report for April printed over the weekend with a return to positive inflation. The MoM came in at 0.1% taking the YoY to 0.3% and above market expectations.

The BoJ sent a hawkish signal to the markets as it cut the amount of Japanese government bonds it offered to buy in the market. The Bank reduced its offer to JPY 425bn from 475bn at the previous April operation.

Nothing else for the day……

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Main Highlights Ahead

All times in BST (EST+5 / CET-1 / JST-9)

The main highlights for the week ahead ahead in terms of data and speakers:

Monday

Fed Speakers

Jefferson (14.00 BST)

Mester (14.00 BST)

ECB Speakers

Buch (14.00 BST)

Tuesday

Germany Inflation Rate MoM Final Apr consensus 0.5% vs previous 0.4% (07.00 BST)

Germany Inflation Rate YoY Final Apr consensus 2.2% vs previous 2.2% (07.00 BST)

UK Employment Change Mar consensus k vs previous -156k (07.00 BST)

UK Unemployment Rate Mar consensus 4.3% vs previous 4.2% (07.00 BST)

UK Average Earnings incl Bonus (3m/yr) Mar consensus 5.3% vs previous 5.6% (07.00 BST)

Germany ZEW Economic Sentiment Index May consensus 44.9 vs previous 42.9 (10.00 BST)

EU ZEW Economic Sentiment Index May consensus 46.1 vs previous 43.9 (10.00 BST)

US PPI MoM Apr consensus 0.2% vs previous 0.2% (13.30 BST)

US PPI YoY Apr consensus % vs previous 2.1% (13.30 BST)

US Core PPI MoM Apr consensus 0.2% vs previous 0.2% (13.30 BST)

US Core PPI YoY Apr consensus % vs previous 2.4% (13.30 BST)

Fed Speakers

Cook (14.10 BST)

Powell (15.00 BST)

ECB Speakers

Schnabel (14.15 BST)

Knot (15.00 BST)

BoE Speakers

Pill (08.30 BST)

Wednesday

Australia Wage Price Index QoQ q1 consensus 1% vs previous 0.9% (02.30 BST)

Australia Wage Price Index YoY q1 consensus % vs previous 4.2% (02.30 BST)

Sweden Inflation Rate MoM Apr consensus % vs previous 0.1% (07.00 BST)

Sweden Inflation Rate YoY Apr consensus 4% vs previous 4.1% (07.00 BST)

Sweden CPIF MoM Apr consensus % vs previous 0.1% (07.00 BST)

Sweden CPIF YoY Apr consensus % vs previous 2.2% (07.00 BST)

Riksbank Monetary Policy Meeting Minutes rates cut by 25bp to 3.75% (08.30 BST)

EU Employment Change QoQ Prel q1 consensus 0.3% vs previous 0.3% (10.00 BST)

EU Employment Change YoY Prel q1 consensus % vs previous 1.2% (10.00 BST)

EU GDP Growth Rate QoQ 2nd est q1 consensus 0.3% vs previous -0.1% (10.00 BST)

EU GDP Growth Rate YoY 2nd est q1 consensus 0.4% vs previous 0.1% (10.00 BST)

EU Industrial Production MoM Mar consensus -0.3% vs previous 0.8% (10.00 BST)

EU Industrial Production YoY Mar consensus  % vs previous -6.4% (10.00 BST)

US Inflation Rate MoM Apr consensus 0.3% vs previous 0.4% (13.30 BST)

US Inflation Rate YoY Apr consensus 3.4% vs previous 3.5% (13.30 BST)

US Core Inflation Rate MoM Apr consensus 0.3% vs previous 0.4% (13.30 BST)

US Core Inflation Rate YoY Apr consensus 3.6% vs previous 3.8% (13.30 BST)

US Retail Sales MoM Apr consensus 0.4% vs previous 0.7% (13.30 BST)

US Retail Sales YoY Apr consensus % vs previous 4% (13.30 BST)

US NY Empire State Manufacturing Index May consensus -10.8 vs previous -14.3 (13.30 BST)

PBoC 1y MLF Announcement rates to be held at 2.5%

Fed Speakers

Kashkari (17.00 BST)

Bowman (20.20 BST)

ECB Speakers

Rehn (09.00 BST)

Villeroy (10.00 BST)

Thursday

RBA Hunter Speaks (00.40 BST)

Japan GDP Growth Rate QoQ Prel q1 consensus -0.4% vs previous 0.1% (00.50 BST)

Japan GDP Growth Rate YoY Prel q1 consensus -1.5% vs previous 0.4% (00.50 BST)

Australia Employment Change Apr consensus 25.3k vs previous -6.6k (02.30BST)

Australia Unemployment Rate Apr consensus 3.9% vs previous 3.8% (02.30 BST)

Norway GDP Growth Rate QoQ q1 consensus % vs previous 1.5% (07.00 BST)

Norway GDP Growth Rate YoY q1 consensus % vs previous 0.5% (07.00 BST)

Norway GDP MoM Mar consensus % vs previous -0.9% (07.00 BST)

US Building Permits Prel Apr consensus 1.48m vs previous 1.467m (13.30 BST)

US Housing Starts Apr consensus 1.41m vs previous 1.321m (13.30 BST)

US Philadelphia Fed Manufacturing Index May consensus 7.7 vs previous 15.5 (13.30 BST)

US Philly Fed Business Conditions May consensus  vs previous 34.3 (13.30 BST)

US Philly Fed Employment May consensus  vs previous -10.7 (13.30 BST)

US Philly Fed New Orders May consensus  vs previous 12.2 (13.30 BST)

US Philly Fed Prices Paid May consensus  vs previous 23 (13.30 BST)

US Industrial Production MoM Apr consensus 0.2% vs previous 0.4% (14.15 BST)

US Industrial Production YoY Apr consensus % vs previous 0% (14.15 BST)

US Manufacturing Production MoM Apr consensus % vs previous 0.5% (14.15 BST)

US Manufacturing Production YoY Apr consensus % vs previous 0.8% (14.15 BST)

Fed Speakers

Barr (15.00 BST)

Harker (15.30 BST)

Mester (17.00 BST)

Bostic (20.50 BST)

ECB Speakers

Panetta (10.00 BST)

Nagel (12.30 BST)

Villeroy (13.15 BST)

BoE Speakers

Greene (12.00 BST)

Friday

China Industrial Production YoY Apr consensus 4.6% vs previous 4.5% (03.00 BST)

China Retail Sales YoY Apr consensus 3.8% vs previous 3.1% (03.00 BST)

China Unemployment Rate YoY Apr consensus 5.2% vs previous 5.2% (03.00 BST)

EU Inflation Rate MoM Final Apr consensus 0.6% vs previous 0.8% (10.00 BST)

EU Inflation Rate YoY Final Apr consensus 2.4% vs previous 2.4% (10.00 BST)

EU Core Inflation Rate YoY Final Apr consensus 2.7% vs previous 2.9% (10.00 BST)

Fed Speakers

Waller (15.15 BST)

ECB Speakers

Vasle (08.00 BST)

de Guindos (08.20 BST)

Vujcic (08.30 BST)

Vasle (13.30 BST)

Holzmann (13.30 BST)

Kazaks (13.30 BST)

BoE Speakers

Mann (09.00 BST)

Good luck.

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