The Morning Hark - 15 Apr 2024
Today’s focus...Geopolitical landscape to dominate. Talking heads meet in Washington. Will three be a disappointment to Powell. The Week Ahead.
Overnight Highlights
Prices are at 7.00 BST/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil off smalls overnight with Brent and Crude June futures trading at 90.20 and 84.80. The Iranian drone attack seems to have been very much buy the rumour sell the fact with the risk premium being taken out of the market overnight. However traders remain cautious as to where the next move is coming from and how severe the Israeli response will be.
EQ - Asian equity markets have taken the geopolitical news in their stride overnight with the Hang Seng and Nikkei futures trading up at 16,665 and 39,200 respectively.
The US indices similarly up smalls with the S&P and Nasdaq futures currently at 5185 and 18,250 respectively.
Gold - Gold flatlining overnight with currently June futures trading at 2378.
Big gap lower late in the session on Friday and the reverse of the move we saw the previous day. Again no fat finger as volumes were steady.
FI - US yields holding onto the majority of last week’s gains with the US2y futures trading at 4.92% whilst the US10y futures yield at 4.55%.
European yields closed the week softer with the German 10y closing at 2.36% and the Italian 10y yield at 3.74%.
UK gilt 10y similarly at 4.14%.
FX - The USD holding onto its gains from the tail end of last week with the USD Index currently at 105.93. The majors all a touch softer; JPY, EUR and GBP currently at 153.80, 1.0660 and 1.2465 respectively. The JPY continuing to be under pressure with it down almost one percent overnight to 164 versus the EUR levels last seen over 15 years ago.
Today’s FX option expiries sees nothing of note.
Others - Bitcoin and Ethereum recovering a touch overnight after what was a rough old end to the week and indeed weekend. The pair currently up a couple of percent at 65,500 and 3160 respectively.
Macro Themes At Play
Recap
The Chinese Trade Balance for March showed a sharp decline to $58.55bn with a sharp unexpected drop in exports to -7.5%, its worst print in 7 months.
The Swedish CPI Report for March showed a further sharp slowdown with the YoY measures for headline coming in at 4.1%, its lowest since June 2022 and the core measure at 2.2% is its lowest since July 2021. The data was well below the Riksabnk forecast and brings the potential for an early move by the Swedes.
UK wise the highlight was Industrial and Manufacturing Production for February which both had decent upside surprises to 1.1% and 1.2% MoM there best in 8 months.
The UMich Consumer Sentiment preliminary reading for April missed to the downside to 77.9 but more worryingly inflation expectations rose to their highest level in 6 months to 3.1% and 3% for the 1y and 5y measures respectively.
Central Bank Speakers
Fed’s Bostic reiterated his call for one rate cut this year towards the end of the year and emphasised that he was in no hurry to cut.
Daly similarly stated that she saw no urgency to cut rates. She went onto say that there is too much discussion on how many rate cuts there will be rather than what the Fed is trying to achieve and we will maintain policy stance as long as necessary.
ECB’s Holzmann claimed that an ECB rate cut in June is likely but depends on data. Rate cut pace, meanwhile will depend on inflation and wages
The Week Ahead
A busy week ahead with some key releases in the UK, inflation and labour reports, as well as inflation in Japan, Canada and New Zealand. The IMF and World Bank have their spring meeting with Powell, Bailey and Macklem the highlights. Big week of q1 earnings with the Wall Street giants and Netflix the highlights there. Of course the geopolitical tensions will no doubt rage on after the Iranian drone strikes into Israel. How will the Israelis respond?
US Retail Sales. A further slowing is expected from retail sales with a 0.3% gain which, when taken as a quarter, would leave the US in a small q1 deficit for the retail sector. Anecdotal reports from the credit card sector have suggested subdued activity in the month and auto sales have dipped leading to potential for a downside miss. The earlier Easter weekend may have helped offset some of that weakness but that remains to be seen.
China Data Dump. The usual mid month data dump from the Chinese with q1 GDP the highlight. Expectations, given the data we have witnessed for the first couple of months of the year, are for a trend 5% YoY growth rate. Retail sales for March are expected to slip back to 5.5% YoY on a rebound from the Lunar New Year. Whilst Industrial Production is also set to slow after 4 decent months of growth for the sector.
UK Labour Report. Along with the inflation report, very much the focus for the UK markets as they gauge whether it will be a late spring or summer move from the BoE. Accuracy again an issue with this report, as well as its 6 weeks stale, but its all we have. Maybe things will improve with Bernanke’s scolding, although I doubt it. Much focus will be on the average earnings figure (excl bonuses) which are expected to dip back below 6% for the first time in 18 months.
Canada Inflation Report. Another big print especially with the dovish BoC last week and Macklem not pushing back on the possibility of a June rate cut. Specifically the BoC removed their line regarding risks to the inflation outlook on the back of the two soft prints we have witnessed this year. Will a third such print encourage the doves further or will a rebound see the BoC have to row back their thoughts? The softness in inflation has been attributed more to the weather and inventory management rather than the BoC hiking cycle so there is a good chance of it being transitory.
NZ Inflation Report. A further moderation is expected as we expect to see softness in tradable goods edge inflation down towards the 4% level. Remember RBNZ stayed the course with no dovish tilt last week and no cut in rates is expected until early next year. Expectations are for a 0.8% print for the first quarter of the year which is well above the RBNZ forecast. However they did point out that they expect some higher prints along the way to getting inflation back to target. This week’s print merely looks like justifying the RBNZ’s cautious stance.
UK Inflation Report. The second of the big UK prints as the BoE considers the timing of their first cut. Indeed the BoE specifically pointed to services inflation and wage growth as the key components in their decision making process regarding the timing of that first cut. If we were to get a downside surprise the doves would be a flutter for a May cut although more likely the Bank would use May to tee up a June move. Given the Fed’s more hawkish stance, and expectations for their first move getting pushed back to September, it still feels like August may suit the BoE best. However on the flip side several members have expressed their view that inflation will briefly hit target 2% in May before moving higher again.
Australia Labour Report. We are set for a payback after February’s bumper print of well over 100k, which was the best since late 2021. Seasonal factors have made this a very volatile series but the general trend has been for the unemployment rate to rise as the population growth outpaces that of the job growth.
Japan Inflation Report. Headline YoY is expected to remain steady at 2.8% but core YoY is seen as cooling a touch to 2.6% due to base effects. There is a possibility we see headline print higher on the back of the weaker JPY and higher commodity prices but overall nothing to get the BoJ too excited about.
IMF/World Bank Spring Meeting. Big week of speeches by the talking heads although, the geopolitical backdrop may drown a lot of them out. The three highlights will be; Powell and what he says regarding the three hotter than expected inflation prints we have seen thus far in 2024. As the rhyme goes, One’s a wish, two’s a kiss, three’s a disappointment…..having waved through the first two will he now own up to the third? The BoE’s Bailey will be speaking during a week of big data for the UK, labour and inflation reports, so any reaction to any outsized misses will give a better feel for where the UK is in terms of their first cut. Finally after the BoC’s Macklem gave a “yes” to the possibility that June is a live meeting will he opine further?
The Day Ahead
PBoC kept their 1y MLR Rate steady at 2.5% as expected. Lot of talking heads today and indeed throughout the week. Highlight of the dat will be the US Retail Sales print for March.
Early doors tomorrow the China Data Dump.
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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
EU Industrial Production MoM Feb consensus % vs previous -3.2% (10.00 BST)
EU Industrial Production YoY Feb consensus % vs previous -6.7% (10.00 BST)
US Retail Sales MoM Mar consensus 0.3% vs previous 0.6% (13.30 BST)
US Retail Sales YoY Mar consensus % vs previous 1.5% (13.30 BST)
US NY State Manufacturing Index Apr consensus -9 vs previous -20.9 (13.30 BST)
Fed Speakers
Logan (07.30 BST)
Williams (13.30 BST)
Daly (22.00 BST)
ECB Speakers
Simkus (08.30 BST)
Lane (11.00 BST)
Lane (13.00 BST)
BoE Speakers
Breeden (12.15 BST)
Tuesday
China GDP Growth Rate QoQ q1 consensus % vs previous 1% (03.00 BST)
China GDP Growth Rate YoY q1 consensus 5% vs previous 5.2% (03.00 BST)
China Industrial Production YoY Mar consensus 5.4% vs previous 7% (03.00 BST)
China Retail Sales YoY Mar consensus 4.5% vs previous 5.5% (03.00 BST)
China Unemployment Rate Mar consensus % vs previous 5.3% (03.00 BST)
China Industrial Capacity Utilisation q1 consensus % vs previous 75.9% (03.00 BST)
UK Unemployment Rate Feb consensus % vs previous 3.9% (07.00 BST)
UK Employment Change Feb consensus k vs previous -21k (07.00 BST)
UK Average Earnings incl. Bonus (3m/yr) Feb consensus % vs previous 5.6% (07.00 BST)
EU ZEW Economic Sentiment Index Apr consensus vs previous 33.5 (10.00 BST)
Germany ZEW Economic Sentiment Index Apr consensus vs previous 31.7 (10.00 BST)
Canada Inflation Rate MoM Mar consensus % vs previous 0.3% (13.30 BST)
Canada Inflation Rate YoY Mar consensus % vs previous 2.8% (13.30 BST)
Canada Core Inflation Rate MoM Mar consensus % vs previous 0.1% (13.30 BST)
Canada Core Inflation Rate YoY Mar consensus % vs previous % (13.30 BST)
Canada CPI Median YoY Mar consensus % vs previous 3.1% (13.30 BST)
Canada CPI Trimmed-Mean YoY Mar consensus % vs previous 3.2% (13.30 BST)
US Building Permits Prel Mar consensus 1.514m vs previous 1.524m (13.30 BST)
US Housing Starts Mar consensus 1.48m vs previous 1.521m (13.30 BST)
US Industrial Production MoM Mar consensus % vs previous 0.1% (14.15 BST)
US Industrial Production YoY Mar consensus % vs previous -0.2% (14.15 BST)
US Manufacturing Production MoM Mar consensus % vs previous 0.8% (14.15 BST)
US Manufacturing Production YoY Mar consensus % vs previous -0.7% (14.15 BST)
US Capacity Utilisation Mar consensus 78.5% vs previous 78.3% (14.15 BST)
BoC Macklem Speaks (18.15 GMT)
NZ Inflation Rate QoQ q1 consensus % vs previous 0.5% (23.45 BST)
NZ Inflation Rate YoY q1 consensus % vs previous 4.7% (23.45 BST)
Fed Speakers
Daly (01.00 BST)
Jefferson (14.00 BST)
Powell (18.15 BST)
ECB Speakers
Rehn (09.00 BST)
Villeroy (17.30 BST)
Vujcic (19.00 BST)
BoE Speakers
Bailey (18.00 BST)
Wednesday
Japan Reuters Tankan Index Apr consensus vs previous 10 (00.00 BST)
Japan Balance of Trade Mar consensus JPY bn vs previous JPY -379.4bn (00.50 BST)
Japan Exports YoY Mar consensus % vs previous 7.8% (00.50 BST)
Japan Imports YoY Mar consensus % vs previous 0.5% (00.50 BST)
UK Inflation Rate MoM Mar consensus % vs previous 0.6% (07.00 BST)
UK Inflation Rate YoY Mar consensus % vs previous 3.4% (07.00 BST)
UK Core Inflation Rate MoM Mar consensus % vs previous 0.6% (07.00 BST)
UK Core Inflation Rate YoY Mar consensus % vs previous 4.5% (07.00 BST)
EU Inflation Rate MoM Mar Final consensus 0.8% vs previous 0.6% (10.00 BST)
EU Inflation Rate YoY Mar Final consensus 2.4% vs previous 2.6% (10.00 BST)
EU Core Inflation Rate YoY Mar Final consensus 2.9% vs previous 3.1% (10.00 BST)
Fed Speakers
Mester (22.30 BST)
ECB Speakers
Cipollone (10.00 BST)
Cipollone (14.00 BST)
de Cos (16.00 BST)
Schnabel (16.45 BST)
BoE Speakers
Greene (13.05 BST)
Bailey (17.00 BST)
Haskel (19.00 BST)
Thursday
Australia Unemployment Rate Mar consensus % vs previous 3.7% (02.30 BST)
Australia Employment Change Mar consensus k vs previous 116.5k (02.30 BST)
US Philly Fed Business Conditions Mar consensus vs previous 38.6 (13.30 BST)
US Philly Fed Employment Mar consensus vs previous -9.6 (13.30 BST)
US Philly Fed New Orders Mar consensus vs previous 5.4 (13.30 BST)
US Philly Fed Prices Paid Mar consensus vs previous 3.7 (13.30 BST)
US Existing Home Sales Mar consensus 4.2m vs previous 4.38m (15.00 BST)
Fed Speakers
Bowman (00.15 BST)
Bowman (14.05 BST)
Williams (14.15 BST)
Bostic (16.00 BST)
Bostic (22.45 BST)
ECB Speakers
de Guindos (08.15 BST)
Nagel (13.00 BST)
Schnabel (18.30 BST)
Friday
Japan Inflation Rate MoM Mar consensus % vs previous 0.0% (00.30 BST)
Japan Inflation Rate YoY Mar consensus % vs previous 2.8% (00.30 BST)
Japan Core Inflation Rate YoY Mar consensus % vs previous 3.2% (00.30 BST)
UK Retail Sales MoM Mar consensus % vs previous 0% (07.00 BST)
UK Retail Sales YoY Mar consensus % vs previous -0.4% (07.00 BST)
Fed Speakers
Goolsbee (15.30 BST)
ECB Speakers
Nagel (20.00 BST)
BoE Speakers
Breeden (15.15 BST)
Ramsden (15.15 BST)
Good luck.
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