The Morning Hark - 20 May 2024
Today’s focus...All eyes on the situation in Iran. The Week Ahead.
Overnight Highlights
Prices are at 6.40 BST/1.40 EST, with changes reflecting movement from midnight GMT
Oil - Oil trading up smalls in Asia with Brent and Crude July futures currently at 84.30 and 79.80.
Middle East tensions to the fore with all eyes on the situation in Iran.
EQ - Asian equity markets little changed overnight with the Hang Seng and Nikkei futures trading at 19,640 and 39,050.
The US indicies remain unchanged in Asia, with the S&P and Nasdaq futures now at 5335 and 18,675 respectively.
Gold - Gold up over one percent in Asia with the June futures trading currently at 2450 as its safe haven status came to the fore after the Middle East was rocked by yet more uncertainty after the Iranian helicopter crash, in which the Iranian President appears to have died.
FI - US yields backing off a touch overnight with currently the US2y futures trading at 4.82% whilst the US10y futures yield at 4.42%.
European yields closed in line with the US on a touch firmer.. The German 10y closing at 2.52% and the Italian 10y yield at 3.81%.
UK gilt 10y similarly at 4.13%.
FX - The USD flat overnight with the USD Index currently at 104.42. The majors now trading at; JPY, EUR and GBP 155.70, 1.0880 and 1.27respectively.
Today’s major FX option expiries sees in the EUR; €2bn between 1.0850/75.
Others - Bitcoin and Ethereum having a decent weekend and holding onto their gains of late last week. The pair currently at 67,100 and 3130 respectively.
Macro Themes At Play
Recap
Riksbank’s Thedeen noted that inflation is close to target and if the outlook for it holds then rates could be cut a further twice in the second half of the year.
EU Inflation Rate Report final reading for April was all in line.
Central Bank Speakers
ECB’s de Guindos noted that wages are the fundamental risk to inflation to watch for.
Holzmann must be sure CPI on path to target before cuts. Too early a rate cut risks refuelling inflation.
The Week Ahead
RBA Minutes. Not a whole lot expected in terms of surprises here. For reference they held rates steady at 4.35% and the statement remained on the hawkish side. The RBA were resolute in their determination to return inflation to target and they would not rule anything in or out, implying that a rate hike is a possibility at some point in the future. They noted that inflation remained high and was falling more gradually than had been expected. The accompanying forecasts tweaked inflation higher and growth lower and the Bank sees rates remaining at their current level until mid 2025. Bullock maintained that the Bank need to remain vigilant but rates are at the right level to return inflation to target. If we get anything beyond that I’d be surprised.
Canada Inflation Report. A further slight cooling is expected from the April report which, if realised, would continue the downward trend. 3 out of the 4 main YoY measures have been on a multi month downward trend with headline being the outlier which has had more of a bumpy ride. Indeed, on that note, Macklem has recently noted that headline YoY inflation will probably stay close to 2.9% in the coming months on the back of rising gasoline prices. The report garners more attention given it is the last before the early June BoC meeting where there is close to a 50% chance of a rate cut (July has the first full cut priced in). Macklem however has recently dowsed the flames for an early rate cut by claiming the Bank needed further “months” of data. As ever the median and trimmed-mean measures will be looked at closely, given their significance to the BoC, with the latter potentially dipping under 3% for the first time since October 2021.
RBNZ Interest Rate Decision. The RBNZ is met with a backdrop of a cooling labour report and a first quarter which has also seen headline inflation tick up smalls. On that basis nothing changes from the RBNZ; on hold with similar guidance to last time. Remember we get the full gambit of rate decision, monetary policy statement, forecasts and the Governor Orr presser. The only point of note would be as we go into the meeting the market expects the RBNZ to cut rates in October, whilst the Bank has indicated that there will be no rate cut until well into next year. We’d expect that gap to be closed somewhat after this meeting although which side crumbles remains to be seen.
UK Inflation Report. Step two on the BoE’s 4 steps to heaven, or at least to the decision on whether they cut rates in June or not! As things stand the June cut is a coin toss with the first full cut now priced for August. The headline has been heralded at coming in a lot softer and even threatening the 2% level however it is also heralded to rebound in the coming months so don’t get out the bunting just yet! Core is also expected to dip below 4% for the first time since October 2021.
FOMC Minutes. Given all the Fed chatter since the actual FOMC there seems little that could surprise us in this release especially as we have PCE and NFP in the next couple of weeks. Those releases will be of much more significance as to whether September is a likely first rate cut for the Fed. Brief recap of the meeting; obviously rates on hold, similar guidance with a nod to the fact that there has been a “lack of further progress” on inflation in the first few months of the year. Powell in his presser ruled out rate hikes but admitted that rates may have to remain on hold for longer than previously had been anticipated. The only real point of interest may be the discussion on QT which had a sharper than expected monthly tapering from $60bn to $25bn. Other than that a snooze.
Flash PMIs. The usual monthly peer into the health of the major global economies. The trend is expected to continue whereby manufacturing slowly continues to tick higher towards, or into, growth territory with services cooling slightly from their recent peaks but still remaining well in growth territory.
Japan Inflation Report. Little to go on here forecast wise but, if we take our steer from the highly correlated Tokyo release, we would expect to see a cooling in this series with both headline and core easing back towards the 2% level. Not music to the BoJ’s ears.
The Day Ahead
China Loan Prime Rates were, as expected, kept on hold at 3.45% and 3.95% for the 1y and 5y respectively.
Little else other than the central bank speakers to kick us off this week.
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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
Fed Speakers
Bostic (13.45 BST)
Barr (14.00 BST)
Waller (14.00 BST)
Jefferson (15.30 BST)
BoE Speakers
Broadbent (10.00 BST)
Tuesday
RBA Meeting Minutes rates held steady at 3.45% (02.30 BST)
Canada Inflation Rate MoM Apr consensus 0.5% vs previous 0.6% (13.30 BST)
Canada Inflation Rate YoY Apr consensus 2.8% vs previous 2.9% (13.30 BST)
Canada Core Inflation Rate MoM Apr consensus % vs previous 0.5% (13.30 BST)
Canada Core Inflation Rate YoY Apr consensus % vs previous 2% (13.30 BST)
Canada CPI Median YoY Apr consensus 2.7% vs previous 2.8% (13.30 BST)
Canada CPI Trimmed-Mean YoY Apr consensus 2.9% vs previous 3.1% (13.30 BST)
Fed Speakers
Barkin (14.00 BST)
Waller (14.00 BST)
Williams (14.05 BST)
Bostic (14.10 BST)
Barr (16.45 BST)
Mester (24.00 BST)
Bostic (24.00 BST)
Collins (24.00 BST)
ECB Speakers
Lagarde (09.00 BST)
BoE Speakers
Kroszner (09.20 BST)
Bailey (18.00 BST)
Wednesday
Japan Reuters Tankan Index May consensus vs previous 9 (00.00 BST)
Japan Balance of Trade Apr consensus JPY-339.5bn vs previous JPY366.5bn (00.50 BST)
Japan Exports YoY Apr consensus 11.1% vs previous 7.3% (00.50 BST)
Japan Imports YoY Apr consensus -2.1% vs previous -4.9% (00.50 BST)
RBNZ Interest Rate Decision rates to be held steady at 5.5% (03.00 BST)
RBNZ Press Conference (04.00 BST)
UK Inflation Rate MoM Apr consensus % vs previous % (07.00 BST)
UK Inflation Rate YoY Apr consensus 2.1% vs previous 3.2% (07.00 BST)
UK Core Inflation Rate MoM Apr consensus % vs previous 0.6% (07.00 BST)
UK Core Inflation Rate YoY Apr consensus 3.7% vs previous 4.2% (07.00 BST)
US Existing Home Sales Apr consensus 4.18m vs previous 4.19m (15.00 BST)
FOMC Minutes (19.00 BST)
Fed Speakers
Bostic (00.00 BST)
Collins (00.00 BST)
Mester (00.00 BST)
ECB Speakers
Lagarde (09.05 BST)
BoE Speakers
Breeden (13.45 BST)
Thursday
Australia Judo Bank Manufacturing PMI Flash May consensus vs previous 49.6 (00.00 BST)
Australia Judo Bank Services PMI Flash May consensus vs previous 53.6 (00.00 BST)
Japan Jibun Bank Manufacturing PMI Flash May consensus vs previous 49.6 (01.30 BST)
Japan Jibun Bank Services PMI Flash May consensus vs previous 54.3 (01.30 BST)
Germany HCOB Manufacturing PMI Flash May consensus 43.5 vs previous 42.5 (08.30 BST)
Germany HCOB Services PMI Flash May consensus 53.5 vs previous 54.3 (08.30 BST)
EU HCOB Manufacturing PMI Flash May consensus 46.6 vs previous 45.7 (09.00 BST)
EU HCOB Services PMI Flash May consensus 53.5 vs previous 53.3 (09.00 BST)
UK S&P Global Manufacturing PMI Flash May consensus 49.2 vs previous 49.1 (09.30 BST)
UK S&P Global Services PMI Flash May consensus 54.8 vs previous 55 (09.30 BST)
US S&P Global Manufacturing PMI Flash May consensus vs previous 50 (14.45 BST)
US S&P Global Services PMI Flash May consensus 51.5 vs previous 51.3 (14.45 BST)
US New Home Sales Apr consensus 0.68m vs previous 0.693m (15.00 BST)
Fed Speakers
Bostic (20.00 BST)
BoE Speakers
Pill (12.30 BST)
Friday
Japan Inflation Rate MoM Apr consensus % vs previous 0.2% (00.30 BST)
Japan Inflation Rate YoY Apr consensus % vs previous 2.7% (00.30 BST)
Japan Core Inflation Rate YoY Apr consensus 2.2% vs previous 2.6% (00.30 BST)
UK Retail Sales MoM Apr consensus -0.2% vs previous 0% (07.00 BST)
UK Retail Sales YoY Apr consensus % vs previous 0.8% (07.00 BST)
Canada Retail Sales MoM Mar consensus -0.1% vs previous -0.1% (13.30 BST)
Canada Retail Sales YoY Mar consensus % vs previous 1.2% (13.30 BST)
US Durable Goods Orders MoM Apr consensus 0.5% vs previous 2.6% (13.30 BST)
US Michigan Consumer Sentiment Final May consensus 67.4 vs previous 77.2 (15.00 BST)
US Michigan Inflation Expectations Final May consensus 3.5% vs previous 3.2% (15.00 BST)
US Michigan 5y Inflation Expectations Final May consensus 3.1% vs previous 3% (15.00 BST)
Fed Speakers
Waller (14.35 BST)
ECB Speakers
Schnabel (08.00 BST)
Vasle (10.15 BST)
Muller (10.15 BST)
Nagel (10.15 BST)
Centeno (16.25 BST)
Good luck.
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