The Morning Hark - 16 May 2024
Today’s focus...”Weakish” CPI, poor retail sales and a NY Fed disappointment enough to get the market juiced up again.
Overnight Highlights
Prices are at 6.35 BST/1.35 EST, with changes reflecting movement from midnight GMT
Oil - Oil trading up smalls in Asia with Brent and Crude July futures currently at 83.20 and 78.60.
Main driver for lower oil yesterday appeared to be the IEA forecasts with a lower demand story on top of inventory builds. However the API data later in the day showed a much bigger than expected draw and, on top of the USD and yields move, oil turned around.
EQ - Asian equity markets happy to ride the coattails of the US move higher with the Hang Seng and Nikkei futures trading at 19,400 and 38,810.
The US indicies remain unchanged in Asia, with the S&P and Nasdaq futures now at 5340 and 18,725 respectively after hitting record highs yesterday on renewed expectations of Fed rate cuts.
Gold - Gold unchanged in Asia with the June futures trading currently at 2397 but holding onto their gains from yesterday post data.
FI - US yields still remaining soft overnight with currently the US2y futures trading lower at 4.72% whilst the US10y futures yield at 4.32%. Sell off yesterday came after the slightly weaker CPI but more importantly the disappointing retail sales and NY Fed survey.
European yields closed a lot lower on the back of the US move and more confirmation that June is a go for the ECB. The German 10y closing at 2.42% and the Italian 10y yield at 3.70%.
UK gilt 10y closed lower too at 4.07%.
FX - The USD unchanged overnight with the USD Index currently at 104.22 after yesterday’s US yields sell off post the data dump. The majors now trading at; JPY, EUR and GBP 154, 1.0880 and 1.2685 respectively. Worth noting that USDJPY did not really participate in the USD weakness.
Today’s major FX option expiries sees in the EUR; €1.3bn at 1.0875.
Others - Bitcoin and Ethereum back on the front foot post the data dump and we managed to push out of the recent 60/65k range. The pair currently at 65,870 and 3010 respectively.
Macro Themes At Play
Recap
The Sweden Inflation Report for April seems to have justified last week's rate cut from the Riksbank. All measures coming in a touch softer across the board with both monthly measures printing 03.% Whilst the YoY measures now at 3.9% and 2.3% for the headline and CPIF respectively. Headline is now back below 4% for the first time since Jan 2022.
EU Employment Change QoQ for q1 was as expected and as per last month at 0.3%. That takes the YoY measure to 1%.
EU GDP Growth Rate QoQ 2nd est for q1 came in as expected at 0.3% taking the YoY to 0.4%.
EU Industrial Production MoM for March surprised smalls to the upside at 0.6% taking the YoY now to -1%.
US Inflation Report for April a touch cooler than expected with both MoM measures at 0.3% which takes the YoYs to 3.4% and 3.6% for headline and core respectively. That’s the first time we have seen expectations and actuals match this year.
Still way too sticky for the Fed to engage but that didn’t prevent the market from getting all excited about rate cuts. Coupled with the weaker retail sales and NY Fed data rate cuts were back on. September is the starting gun with 2 full cuts now in play for this year with a further three in place for 2025.
Meanwhile the US Retail Sales MoM for April came in lower than expected at 0% growth taking the YoY to 3% now. In addition March’s strong print was revised downwards to 0.6%. Overall April may have been a payback for March’s strong number and early Easter certainly played a part in that. However taken as whole the two months, and indeed the first four months of the year point to a slowing consumer.
US NY Empire State Manufacturing Index for May had a downside miss at -15.6. A six consecutive month of negative prints for the series.
Central Bank Speakers
Fed’s Kashkari said that the Fed was focused on underlying demand in the economy to get inflation down. He is very focused on the housing area right now. The big question is how restrictive policy is right now. Helpfully he stated that we probably need to sit here for a while to see where inflation is headed.
Goolsbee felt that if the decrease in housing inflation seen in April CPI continues, that’s great.
ECB’s Villeroy felt that it was likely the ECB would start cutting in June. Beyond that the pace will be decided at each meeting.
Rehn following in a similar vein as he saw a reduction in the restrictiveness of monetary policy possible, if inflation continues to approach target in a sustainable manner.
Muller stated that a rate cut in June is very probable but rate moves over the rest of the year are more complicated.
ECB Sources story noted that the ECB is cautious beyond the June rate cut. They would have enough information to warrant a June cut but beyond that caution is the buzzword.
The Day Ahead
Overnight Japan’s q1 GDP preliminary reading showed a worse than expected -0.5% contraction for the economy in the first quarter leaving it tracking at -2% YoY.
The Australian Labour Report for April was better than expected though with a good bounce back into positive territory after last months negative print. Headline showed a 38.5k increase in employment, well above estimated. The downside would be that wartime positions jumped 44.6k with full time dropping. The unemployment rate ticked back up to January’s high print of 4.1%.
As we go to print the Norwegian q1 GDP and thats it for the morning.
The afternoon is taken up with some US Housing Data for April as well as May’s Philly Fed Survey and April’s Manufacturing and Industrial Production numbers.
A whole heap of central bank speakers throughout the day with no less than 4 Feders.
Tomorrow starts with the China Data Dump for April.
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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:
Thursday
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 1.42m vs previous 1.321m (13.30 BST)
US Philadelphia Fed Manufacturing Index May consensus 8 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 0.1% 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 0.1% 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)
Early Friday
China Industrial Production YoY Apr consensus 5.4% vs previous 4.5% (03.00 BST)
China Retail Sales YoY Apr consensus 3.7% vs previous 3.1% (03.00 BST)
China Unemployment Rate YoY Apr consensus 5.2% vs previous 5.2% (03.00 BST)
Good luck.
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