The Morning Hark - 18 Apr 2024
Today’s focus..Central bank talk divergence continues; Fed “higher for longer” versus ECB “are we nearly there yet”. The Japanese throw a G7 curve ball....first step towards coordinated intervention?
Overnight Highlights
Prices are at 7.00 BST/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil flat overnight with Brent and Crude June futures trading at 87.60 and 82.30. Oil very much on the back foot with global demand issues, inactivity, in terms of a response, from Israel as well as the EIA stats showing a build in crude inventories.
EQ - Asian equity markets showed some relief overnight following a strong sell off in the US markets yesterday. The Hang Seng and Nikkei futures trading up at 16,450 and 38,100 respectively.
The US indices up a touch with the S&P and Nasdaq futures currently at 5080 and 17,750 respectively.
Gold - Gold unchanged overnight with June futures trading at 2391.
FI - US yields continuing their slide from yesterday as some profit taking was seen after the rejection of the 2y at the 5% level. In addition a strong auction in the US20y helped the move in yields lower. Currently the US2y futures trading off a touch at 4.93% whilst similarly the US10y futures yield at 4.57%.
European yields following the US move with the German 10y closing at 2.47% and the Italian 10y yield at 3.88%.
UK gilt 10y similarly at 4.26%.
FX - The USD flat overnight as some profit taking hit the USD yesterday after 6 days of gains. The USD Index currently at 105.82. The majors all happy for some relief; JPY, EUR and GBP currently at 154.30, 1.0680 and 1.2470 respectively.
Today’s FX option expiries sees in the AUDUSD Aud1.6bn at 0.6435.
Others - Bitcoin and Ethereum flipped into pressure mode with the general risk off theme yesterday with the pair currently down over three percent at 61,180 and 2985 respectively. The much heralded “halving” tomorrow for Bitcoin and I post a good blog on what to expect and what previous halving have met for the markets.
Macro Themes At Play
Recap
UK Inflation Report for March showed an easing from the previous month’s YoY for both headline and core to 3.2% and 4.2% respectively. Both prints were the lowest seen since late 2021 but were a touch higher than expectations. Overall some welcome news for the BoE but still a long way from the 2% target especially with yesterday’s wages data. The first BoE cut is now getting pushed out beyond the Fed’s first cut and into November.
Final EU Inflation Print for March as you’d expect was bang on the screws.
Central Bank Speakers
The divergence continues with the Fed speakers continuing to push back on imminent rate cuts whilst the ECB can’t get to June quick enough! Probably the most interesting official talk was form the Japanese where they claimed that the G7 backed their claims that excessive moves harm the economy. Is this a signal that the G7 “approve” Japanese intervention? Or a sign that they would help in some form of coordinated intervention? The latter seems a stretch and the fact that the market has taken it with a pinch of salt, thus far, seems to think likewise.
Fed’s Mester again emphasised that if labour markets deteriorate then the Fed could lower rates. On the other hand if inflation isn’t moving down to 2% we could keep rates where they are for longer. What happens if both these scenarios play out?
Inflation is higher than expected this year and we need more information before confirming 2% inflation stability.
Bowman agreed that progress on inflation had been slow and even perhaps stalled. The economy is strong. Current monetary policy is restrictive and time will tell if it is restrictive enough.
ECB’s Holzmann insisted that the ECB must wait until June before deciding to cut rates. It is also too early to say how many cuts there will be in 2024. Geopolitical is the biggest threat with rising oil prices next. He also pointed out that the ECB moving ahead of the Fed makes their cuts less effective.
Centeno pointed to wage growth having come down significantly. He continued that even with 50bps of cuts, policy will remain tight. June was , at this point, very likely.
Vasle sees the deposit rate much closer to 3% by year end if disinflation goes to plan.
Cipolline suggested that if incoming data in June and July confirm confidence that the target can be reached then it will be appropriate to remove restrictive measures.
Lagarde its obvious that FX moves may have an impact on inflation.
Nagel conceded that the possibility of a June rate cut is increasing however we could see price pressures, in the EU, continuing for some time.
BoE’s Bailey expected to see a strong drop in inflation next month.
Greene saw encouraging news on UK inflation but getting to target would be a bumpy ride. However we are closer to target than we were a few months ago so that is encouraging.
BoJ’s Noguchi was one of the dissenters in March and stressed that the pace of adjustment in short term rates would be made at a pace that is incomparable to that of other major central banks. Significant amount of time needed for trend inflation to return to 2%.
Meanwhile the Japanese chief currency diplomat, Kanda reconfirms G7 commitment to FX following Japan’s stance that excessive FX moves harm the economy. Is this a signal that the other major countries have “approved” intervention?
The Day Ahead
Overnight the Australian Labour Report for March was as anticipated a payback from last month’s bumper numbers with the headline employment change dropping 6.6k on the month. Probably more encouraging that the losses were in the part time workers sector with full time employment actually increasing. The unemployment rate ticked back up a touch to 3.8%.
Little else data wise for the rest of the day but as ever a plethora of central bank speakers.
Overnight we have the March Japanese Inflation Report. As we go to print tomorrow the UK Retail Sales print for March hits the tapes.
👏 If you found this briefing helpful, please show the desk some appreciation by giving it a ‘Like’ or a ‘Comment’ at the bottom of the page.
Stay on top of the latest market narratives throughout the day using our curated research & commentary channels on Harkster.com
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
US Philadelphia Fed Manufacturing Index Apr consensus 1.5 vs previous 3.2 (13.30 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 (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)
Early Friday
Japan Inflation Rate MoM Mar consensus % vs previous 0.0% (00.30 BST)
Japan Inflation Rate YoY Mar consensus 2.7% vs previous 2.8% (00.30 BST)
Japan Core Inflation Rate YoY Mar consensus 2.7% vs previous 2.8% (00.30 BST)
UK Retail Sales MoM Mar consensus 0.3% vs previous 0% (07.00 BST)
UK Retail Sales YoY Mar consensus % vs previous -0.4% (07.00 BST)
Good luck.
The information provided in this post is for general information purposes only. No information, materials, services, and other content provided in this post constitute solicitation, recommendation, endorsement or any financial, investment, or other advice. Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision.