The Morning Hark - 17 May 2024
Today’s focus...Fed chat remains higher for longer. ECB stress its June and done, for now at least. Today yet more central bank speakers, no doubt on repeat. TMH advice; find a good boozer.
Overnight Highlights
Prices are at 6.45 BST/1.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil trading up smalls in Asia with Brent and Crude July futures currently at 83.60 and 79.
General risk on theme has helped oil retain its bid tone.
EQ - Asian equity markets little changed overnight with the Hang Seng and Nikkei futures trading at 19,450 and 38,710.
The US indicies remain unchanged in Asia, with the S&P and Nasdaq futures now at 5320 and 18,660 respectively. Yesterday was notable for the Dow hitting 40,000.
Gold - Gold unchanged in Asia with the June futures trading currently at 2385 as it backed off a touch yesterday with the stronger USD.
FI - US yields backing off a touch overnight with currently the US2y futures trading at 4.78% whilst the US10y futures yield at 4.38%.
European yields followed the US move yields a touch firmer.. The German 10y closing at 2.46% and the Italian 10y yield at 3.72%.
UK gilt 10y similarly at 4.09%.
FX - The USD continuing to firm up overnight with the USD Index currently at 104.62 after yesterday’s US yields rebound. The majors now trading at; JPY, EUR and GBP 155.80, 1.0860 and 1.2660 respectively. Once again the USD strength being mainly played out on the JPY axis.
Today’s major FX option expiries sees in the EUR; €2.8bn at 1.0850 and €1bn at 1.0875. In USDJPY; $2bn at 155.
Others - Bitcoin and Ethereum continuing to hold above the recent range top with the pair currently at 65,600 and 2945 respectively.
Macro Themes At Play
Recap
Norway GDP Growth Rate QoQ for q1 disappointed with a sharp downward retracement after last quarter’s strong reading. This quarter Norway saw a 0.2% increase in growth with a sharp decline in fixed investments and household consumption slowing seen as the main reasons for the pullback. The quarter’s print takes the YoY back into negative territory at -0.8%.
US Building Permits Prel for April fell to 1.44m, their lowest level since December 2022. Even worse were Housing Starts which came in at 1.36m well below expectations and the previous month had a sharp downward revision.
US Philadelphia Fed Manufacturing Index for May was below expectations at 4.5.
US Philly Fed Business Conditions showed a dip in May to 32.4 its worst print in 3 months. The underlying measures once again saw Employment in the negative zone at -7.9, for the seventh month in a row. New Orders had a sharp turnaround back into negative territory too at -7.9. Prices Paid however remain in positive territory at 18.7.
Meanwhile US Industrial Production MoM for April disappointed with a flat reading and a downward revision to the previous month’s print taking the YoY measure to -0.4%.
US Manufacturing Production MoM didn’t fare much better with a -0.3% print taking the YoY to 0.5%.
Central Bank Speakers
The Feders to a man and woman are all on the higher for longer page.
The ECB theme, throughout the day, was June done forget about July.
Fed’s Williams is still lacking in confidence that inflation is moving sustainably towards 2%. However he does feel optimistic it will continue to retreat and the overall trend of slowing inflation looks good. In addition the April print was a positive development and ultimately the Fed does not have to wait until inflation is exactly 2% to ease.
He emphasised that he saw no current reason to raise rates.
Bostic expects inflation to fall slowly which could make it appropriate to reduce rates later this year. There is still a lot of pricing pressure in the economy. The Fed has to stay vigilant and patient.
Mester was on the more data is needed train, as the Fed seeks more confidence that the decline in inflation is sustainable towards the 2% target level. This will take longer than had previously been thought. The current restrictive policy rate will help lower inflation but the risks to inflation have increased. She noted the welcome tick down in the monthly readings for inflation but noted that these were still higher than the readings we witnessed in the second half of last year.
Barkin thought the latest retail sales figures pointed to a good but not great outlook for consumer spending. Inflation is still not where the Fed is trying to get to. The big question remains; how long do rates need to be held at current levels to get the required impact on inflation.
ECB’s de Cos said that every indicator is pointing towards a first cut in June but doesn’t want to make any estimates beyond then.
Centeno claimed that inflation is falling and it is sustained. We expect to start rate cuts in June but it is a meeting by meeting decision. He would prefer a gradual rate reduction path.
Kazaks was relatively comfortable with market pricing. It would take a massive economic surprise for the ECB not to move in June. Rate cuts should be gradual and easiest to move at quarterly meetings when projections are released.
Villeroy suggested that the probability of a rate cut in June is significant.
Schnabel felt that a July cut was not warranted.
BoE’ Greene felt that inflation persistence in the UK has waned since she joined the MPC last July. Data released ahead of the next MPC will give a clearer indication of how far along the last mile the BoE is. Steeper jobless increases would warrant looser policy.
The Day Ahead
The China Data Dump for April was out overnight and as so often a mixed bag. Industrial Production YoY showed a good expansion to 6.7% and much better than last month’s low print and what had been expected. The main source of the boost came from manufacturing, mining and utilities. The Unemployment Rate YoY fell back to 5% and matching its lowest print since November 2021. Retail Sales YoY however fell back to 2.3% their lowest since Dec 2022 with sharp declines in grain and food oil. Finally Fixed Asset Investment YoY dipped to 4.2%, easing form previous and expected.
Little else other than central bank speakers throughout the day. Note as well Powell speaks on Sunday night.
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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:
Friday
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)
Weekend Fed Speakers
Kugler (22.45 BST Saturday)
Powell (20.30 BST Sunday)
Good luck and a good weekend to one and all.
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