The Morning Hark - 22 Apr 2024
Today’s focus...Lack of headlines sees a muted relief rally to start the week and The Week Ahead.
Overnight Highlights
Prices are at 6.45 BST/1.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil trading off one percent overnight with Brent and Crude June futures trading at 86.50 and 81.40. No further escalation in tensions in the Middle East has put a cap on the oil sector for now at least.
EQ - Asian equity markets all in the green with a muted relief rally to start the week after a weekend of minimal Middle East headlines. The Hang Seng and Nikkei futures trading up one percent at 16,550 and 37,400 respectively.
The US indices up smalls with the S&P and Nasdaq futures currently at 5020 and 17,275 respectively.
Gold - Gold off over one percent in Asia with June futures trading at 2377. Safe haven premium being squeezed out a touch after a “quiet” weekend in the Middle East.
FI - US yields starting the week strongly with currently the US2y futures trading at 5% whilst the US10y futures yield at 4.66%. Seems the higher (hiking) for longer message is starting to filter through to the market again as fears slowly dissipate for a wider conflict in the Middle East. It will be interesting to see if we manage to hold onto the 2y 5% level after last week’s rejection.
European yields closed yesterday little changed with the German 10y closing at 2.50% and the Italian 10y yield at 3.90%. We’d expect a higher open to follow the US move.
UK gilt 10y closed lower after Ramadan’s chatter at 4.23%.
FX - The USD flat overnight with the USD Index currently at 106.06. The majors trading at; JPY, EUR and GBP 154.75, 1.0665 and 1.2385 respectively.
Today’s FX option expiries sees in the EUR €1.3bn at 1.07. USDJPY has $1.5bn at 155. In GBP £1.1bn at 1.24.
Others - Bitcoin and Ethereum continuing their recovery over the weekend and remain steady with them currently at 66,215 and 3225 respectively.
Macro Themes At Play
Central Bank Speakers
All much of a muchness although the BoE’s Ramsden probably the standout with his dovish interpretation of the UK inflation profile.
Fed’s Goolsbee thought it made sense for the Fed to wait and get more clarity on inflation before moving. The current restrictive monetary policy was appropriate and going forward policy will be data dependent. Inflation has stalled this year and the last 3 month’s prints cannot be dismissed.
ECB’s Kazaks claimed it was too soon to declare victory over inflation. It takes the Fed into account but the ECB has its own mandate.
Scicluna claimed that the ECB may need 50bps of cuts if inflation is set to miss the 2% target.
Lagarde stated that the disinflation process has continued in the EU and if inflation criteria is met then it would be appropriate to cut rates. However the ECB is not pre-committing to a particular rate path.
BoE’s Ramsden was confident that headline inflation would fall sharply in April to close to the 2% target. Overall he has become more confident, over the last few months, that the persistence in inflation is receding and indeed, risks for inflation are now to the downside.
The Week Ahead
Far from a blockbuster but what we have may prove significant given the Fed’s mini pivot. US GDP and PCE will take the debate forward on whether its September or later for the first US rate cut. Elsewhere the BoJ meeting, after that meeting, will have less hullabaloo but it does have the accompanying outlook report to guide us into mid year and any prospects for an earlier hike from the BoJ.
Flash PMIs. The general trend is expected to continue with a slow and gradual bottoming out of the manufacturing sector with a stronger services sector leading the way. EU wise, and in particular Germany, we expect to get a pick up in manufacturing which would point to that long anticipated bottoming being at last with us. In the UK and US expectations are for the recent growth prints, for both sectors, to start to stall a touch although still remaining in growth territory. Overall a slow steady improvement in the global outlook.
Australia Inflation Report. Expectations are for a 0.5% MoM climb for April inflation in Australia which would maintain the annual rate at 3.4%, the rate it has been stuck at all year and remaining well above the RBA’s 2/3% target range. Too sticky for any move from the RBA at this point in terms of rate cuts.
US GDP Report. Expectations are for a still running hot economy with growth of 2.5% for q1. The surveys are telling us a different story but the GDP headline numbers are running above trend growth. The majority of the growth lis anticipated to come from government spending given the recent cooling in the consumer sector. For colour the Atlanta Fed is estimating 2.9% growth. In addition the last 6 quarter’s street estimates have all been below the actual print so beware the upside beat.
Japan Tokyo Inflation Report. Another volatile print is expected with a pull back from last month’s high base effects. This could see the Core YoY print back close to 2% although this is only expected to be a temporary blip. The print comes in the hours leading up to the BoJ rate announcement so any big miss will have to be explained away by the Ueda press conference.
BoJ Interest Rate Decision. A sleeper after all the hullabaloo of the previous meeting. Rates on hold but we do have the quarterly outlook report. The two points of note we would expect to garner attention from the market; any colour on further rate hikes and any news on balance sheet reduction plans. The backdrop of a weaker JPY, higher oil prices and stronger wage growth would point to inflation forecasts being revised higher. However the BoJ find themselves in a pickle with the depreciating JPY. All was thought to be well in the world, as the Japanese started to come out of negative rates, the Fed were expected to be starting their rate cutting cycle and hence a lot of the heavy lifting would be done by the Fed. That fairy story has changed radically with the Fed cuts getting pushed out further in the year. Will this prompt a more aggressive BoJ? I would doubt it but let’s see.
US PCE. The hot topic of the week. Will the inflation disappointments continue? Estimates would suggest yes albeit a touch lower than the CPI print we saw earlier in the month. Expectations are for 0.3% MoM prints which will remain too high for the Fed, and indeed the markets, to change course from a later rate cut. Anything above 0.4% would raise the spectre of a post US election cut being the earliest conceivable and more potential rate hike chatter. As we talked about previously the window for cuts is slowly closing. We have 4 meetings prior to the election with two, May and June, almost struck out as possibilities already, leaving just July and September. September remains the red hot favourite but remember March had that accolade not that long ago. No Fed speakers this week as we move into the May FOMC so that at least is a blessing!
The Day Ahead
Overnight we had the China Loan Prime Rate announcement and as expected rates remained on hold. The rest of the day sees no data and only a couple of ECB speakers to keep us going. Overnight we see the Flash PMIs for April start hitting the tapes with Australia and Japan first up.
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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
ECB Speakers
Lagarde (16.30 BST)
Villeroy (16.30 BST)
Tuesday
Australia Judo Bank Manufacturing PMI April Flash consensus vs previous 47.3 (00.00 BST)
Australia Judo Bank Services PMI April Flash consensus vs previous 54.4 (00.00 BST)
Japan Jibun Bank Manufacturing PMI April Flash consensus 48 vs previous 48.2 (01.30 BST)
Japan Jibun Bank Services PMI April Flash consensus vs previous 54.1 (01.30 BST)
Germany HCOB Manufacturing PMI April Flash consensus 42.9 vs previous 41.9 (08.30 BST)
Germany HCOB Services PMI April Flash consensus 50.5 vs previous 50.1 (08.30 BST)
EU HCOB Manufacturing PMI April Flash consensus 46.5 vs previous 46.1 (09.00 BST)
EU HCOB Services PMI April Flash consensus 51.8 vs previous 51.5 (09.00 BST)
UK S&P Global Manufacturing PMI April Flash consensus 50.3 vs previous 50.3 (09.30 BST)
UK S&P Global Services PMI April Flash consensus 53 vs previous 53.1 (09.30 BST)
US S&P Global Manufacturing PMI April Flash consensus vs previous 51.9 (14.45 BST)
US S&P Global Services PMI April Flash consensus vs previous 51.7 (14.45 BST)
US New Home Sales Mar consensus 0.668m vs previous 0.662m (14.45 BST)
US Richmond Fed Manufacturing Index April consensus -7 vs previous -11 (15.00 BST)
US Richmond Fed Services Index April consensus vs previous -7 (15.00 BST)
ECB Speakers
Fernandez-Bollo (09.15 BST)
Nagel (12.30 BST)
BoE Speakers
Haskell (09.00 BST)
Pill (12.15 BST)
Wednesday
Australia Inflation Rate QoQ q1 consensus 0.8% vs previous 0.6% (02.30 BST)
Australia Inflation Rate YoY q1 consensus 3.4% vs previous 4.1% (02.30 BST)
Australia Monthly CPI Indicator Mar consensus 3.4% vs previous 3.4% (02.30 BST)
Germany Ifo Business Climate Apr consensus 88.9 vs previous 87.8 (09.00 BST)
Germany Ifo Current Conditions Apr consensus 89 vs previous 88.1 (09.00 BST)
Germany Ifo Expectations Apr consensus 88.9 vs previous 87.5 (09.00 BST)
Canada Retail Sales MoM Feb consensus 0.1% vs previous -0.3% (13.30 BST)
Canada Retail Sales YoY Feb consensus % vs previous 0.9% (13.30 BST)
Durable Goods Orders MoM Mar consensus 2.5% vs previous 1.3% (13.30 BST)
BoC Summary of Deliberations (18.30 BST)
ECB Speakers
Nagel (08.00 BST)
Cipollone (08.35 BST)
Tuominen (09.15 BST)
Cipollone (10.10 BST)
McCaul (14.15 BST)
Schnabel (15.00 BST)
Thursday
US GDP Growth Rate QoQ Adv q1 consensus 2.5% vs previous 3.4% (13.30 BST)
US GDP Price Index QoQ Adv q1 consensus 3% vs previous 1.7% (13.30 BST)
US PCE Prices QoQ Adv q1 consensus % vs previous 1.8% (13.30 BST)
US Core PCE Prices QoQ Adv q1 consensus % vs previous 2% (13.30 BST)
Canada Average Weekly Earnings YoY Feb consensus % vs previous 3.9% (13.30 BST)
ECB Speakers
Schnabel (08.00 BST)
Vujcic (09.20 BST)
Nagel (16.15 BST)
Mauderer (16.45 BST)
Panetta (18.30 BST)
Friday
Japan Tokyo CPI YoY Apr consensus 2.6% vs previous 2.6% (00.30 BST)
Japan Tokyo Core CPI YoY Apr consensus 2.2% vs previous 2.4% (00.30 BST)
BoJ Interest Rate Decision rates to remain on hold at 0% (05.00 BST)
BoJ Quarterly Outlook Report (05.00 BST)
SNB’s Jordan Speaks (09.00 BST)
US PCE Price Index MoM Mar consensus 0.3% vs previous 0.3% (13.30 BST)
US PCE Price Index YoY Mar consensus 2.6% vs previous 2.5% (13.30 BST)
US Core PCE Price Index MoM Mar consensus 0.3% vs previous 0.3% (13.30 BST)
US Core PCE Price Index YoY Mar consensus 2.6% vs previous 2.8% (13.30 BST)
US Personal Income MoM Mar consensus 0.5% vs previous 0.3% (13.30 BST)
US Personal Spending MoM Mar consensus 0.6% vs previous 0.8% (13.30 BST)
US Michigan Consumer Sentiment April Final consensus 77.8 vs previous 79.4 (15.00 BST)
US Michigan Inflation Expectations April Final consensus 3.1% vs previous 2.9% (15.00 BST)
US Michigan 5y Inflation Expectations April Final consensus 3% vs previous 2.8% (15.00 BST)
ECB Speakers
Centeno (09.00 BST)
Good luck.
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