The Morning Hark - 16 Apr 2024
Today’s focus...Geopolitical tensions persist. China mixed bag. Powell, Macklem and Bailey all up today.
Overnight Highlights
Prices are at 6.40 BST/1.40 EST, with changes reflecting movement from midnight GMT
Oil - Oil up close to one percent overnight with Brent and Crude June futures trading at 90.70 and 85.30. Oil’s casual approach to the weekend’s activities was soon shattered with oil spiking on the WSJ article that Israel would respond quickly to Iran’s attack.
EQ - Asian equity markets off a touch overnight with the Hang Seng and Nikkei futures trading at 16,340 and 38,600 respectively.
The US indices similarly with the S&P and Nasdaq futures currently at 5100 and 17,860 respectively. Equities were doing just fine thank you very much until that WSJ hit and the reversal was sharp. The S&P having its biggest two day drop in over a year.
Gold - Gold up close to one percent overnight with currently June futures trading at 2404.
The rally is back on with the geopolitical tensions playing into the hands of the goldbugs.
FI - US yields coming off a touch after yesterday’s post retail sales gains with the US2y futures trading at 4.93% whilst the US10y futures yield at 4.61%.
European yields rebounded yesterday in line with the US move with the German 10y closing at 2.45% and the Italian 10y yield at 3.84%.
UK gilt 10y similarly at 4.24%.
FX - The USD holding onto its gains from yesterday with the USD Index currently at 106.30. The USD now on its biggest four day gain in well over a year. The majors all a touch softer; JPY, EUR and GBP currently at 154.30, 1.0620 and 1.2440 respectively. The JPY continuing to be under pressure with chatter that 160 is the market’s next target. Upside option premium starting to get pricey.
Today’s FX option expiries sees nothing of note.
Others - Bitcoin and Ethereum, it was all looking so good! Having had a rough end to the week the pair recovered well and took the Iranian drone strike in their stride however the headline suggesting an Israeli counterstrike was imminent sent risk off and crypto followed. The pair currently down three percent at 62,700 and 3045 respectively.
Macro Themes At Play
Recap
US Retail Sales for March was a decent upside beat to 0.7% for the MoM taking the YoY to 4%.
US NY State Manufacturing Index for April was a downside miss however to -14.9 although it was better than last month’s print. A fifth month of declines for the measure with new orders and shipments showing a significant fall.
Central Bank Speakers
The usual story from the Fed and ECB. The Fed continue their casual approach to the inflation prints but maintain that there is no rush for a rate cut with September now the favourite for the rate cycle kick off. The ECB are now more focused on what happens after June in terms of an immediate cut again in July or do they pause for breath over the summer and resume when the Fed get going.
Fed’s Williams tight on cue after the retail sales print said that consumer spending was driven by strong fundamentals. His impression was that the economy would continue to grow at a solid rate. Interestingly he did not see the latest inflation data as a turning point although it is important data when considering forecasts. His own view is that rate cuts will start this year
Daly once again reiterated her view that there was no rush for the Fed to cut rates.
ECB’s Simkus felt that there was no sudden reason to go for cuts bigger than 25bps and there was a more than 50% chance of more than 3 cuts this year. He further added that he saw a chance for a July cut after the first June move.
Interestingly he pointed to the geopolitical shocks such as an escalation in the Israel/Iran conflict could cancel the June rate cut.
Lane pointed to services inflation declining in the near term but it is expected to remain elevated for most of the year. He also noted that the deceleration in wage growth is necessary in order for services inflation to converge to a rate that is consistent with meeting the 2% target.
Rehn claimed that rates could be cut in June if inflation slows as expected.
Kazimir agreed although the Bank is not committing to any policy path beyond June and it must retain flexibility.
The Day Ahead
The China Data Dump saw a mixed bag.
Q1 GDP had a good upside beat to 5.3% which beat both expectations and the previous quarter’s print. Indeed it was the best quarter of growth in a year.
March’s Industrial Production came in lower than expected at 4.5% its worst print in 6 months.
Retail Sales for March equally struggling with 3.1% growth its lowest since the summer as domestic consumption continues to struggle.
Unemployment Rate for the same month ticked down to 5.2.
UK Labour Report for February kicks things off on a very busy data day. ZEW Surveys the only other morning highlight.
The afternoon we see the Canadian Inflation Report for March. In addition we have some March US Housing Data and both the Industrial and Manufacturing Production data for March.
Throughout the day we have central bank speakers with the highlights being the the Fed’s Powell, BoC’s Macklem and the BoE’s Bailey.
Overnight we have the NZ Inflation Report for q1 as well as the Japan April Tankan and their Balance of Trade for March. Finally as we go to print tomorrow the UK Inflation Report for March.
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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:
Tuesday
UK Unemployment Rate Feb consensus 4% 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 5.5% vs previous 5.6% (07.00 BST)
EU ZEW Economic Sentiment Index Apr consensus 37.2 vs previous 33.5 (10.00 BST)
Germany ZEW Economic Sentiment Index Apr consensus 35.9 vs previous 31.7 (10.00 BST)
Canada Inflation Rate MoM Mar consensus 0.7% 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 2.1% (13.30 BST)
Canada CPI Median YoY Mar consensus 3% vs previous 3.1% (13.30 BST)
Canada CPI Trimmed-Mean YoY Mar consensus 3.2% 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 0.4% 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 0.6% 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)
Early 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 3.1% 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 4.1% vs previous 4.5% (07.00 BST)
Good luck.
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