The Morning Hark - 22 May 2024
Today’s focus...Feders continue to prepare us for those new dots. RBNZ remain on the hawkish side.
Overnight Highlights
Prices are at 6.35 BST/1.35 EST, with changes reflecting movement from midnight GMT
Oil - Oil trading down smalls in Asia with Brent and Crude July futures currently at 82.20 and 78.
API inventories built unexpectedly as well as news that the US would release some of its gasoline reserves weighed on the oil sector.
EQ - Asian equity markets little changed overnight with the Hang Seng and Nikkei futures trading at 19,250 and 38,650.
The US indicies remain unchanged in Asia, with the S&P and Nasdaq futures now at 5345 and 18,800 respectively.
Gold - Gold off smalls in Asia with the June futures trading currently at 2415.
FI - US yields unchanged overnight with currently the US2y futures trading at 4.84% whilst the US10y futures yield at 4.42%.
European yields little changed with the German 10y closing at 2.50% and the Italian 10y yield at 3.81%.
UK gilt 10y similarly so at 4.13%.
FX - The USD flat overnight, and little changed on the week, with the USD Index currently at 104.66. The majors now trading at; JPY, EUR and GBP 156.40, 1.0860 and 1.2710 respectively.
Today’s major FX option expiries sees nothing of note.
Others - Bitcoin and Ethereum consolidating well, for now, near its recent highs with the pair currently at 69,900 and 3760 respectively.
Macro Themes At Play
Recap
Canadian Inflation Report for April was a tad cooler than expected. Headline MoM and YoY were as expected at 0.5% and 2.7% respectively and both lower than last month’s print. Indeed the headline YoY now at its lowest level since March 2021. Core YoY also hit a 3 year low with it now at 1.6%.
The BoC favoured measures also gave some relief to the BoC with both the Median and Trimmed-Mean at 2.6% and 2.9% respectively and also at near three year lows.
BoC pricing push a June rate cut closer to a 50/50 call after the print.
Central Bank Speakers
Bostic pushed out his rate cut into q4 which, given there are only two meetings in that quarter and one is right before the election, he is basically saying December. All others were on the higher for longer page. They are really prepping us for those new dots. I can hardly wait!
Fed’s Waller felt that April showed progress toward 2% has likely resumed. However needs to see several more months of good inflation data before being comfortable to support an easing in policy. The exception would be a significant weakening in the labour market. Further increases in the policy rate are probably unnecessary and very low probability.
Bostic stressed again that not in a hurry to cut rates. Rather wait longer for a cut to be sure inflation does not start to bounce around. Expects inflation to decline but relatively slowly. Would not expect rate cut before q4. He added that the Fed are discussing the possibility that the neutral rate has moved higher.
Barr sees the need to sit tight for longer than we had previously thought. The job is not yet done.
Collins also alluded to the neutral rate being higher, at least, in the medium term. Again patience is needed and we are not taking risks by holding now as the labour market is healthy.
Goolsbee on the same page as he felt the Fed must take a longer look at inflation and be patient.
Mester suggested that policy is probably not as restrictive as would’ve thought. We need to see more months of inflation coming down and we are also watching expectations. It will come down but it will take longer. On the plus side economic growth is expected to be above trend this year.
The Day Ahead
Overnight we had the Japan Reuters Tankan for May which was bang in line, as well as the April Trade Balance. The trade balance saw a larger deficit than had been anticipated at around JPY 462bn. Exports grew for the fifth straight month but at a much lower level than had expected at 8.3% Imports also grew and indeed at their fastest rate in well over a year at 8.3%.
We also got the RBNZ Rate Decision and as expected rates remain at 5.5%. Hawkish statement and forecasts. Rates need to remain restrictive to ensure inflation returns to the 1-3% target zone. This is expected by the end of the year. The rate forecast was edged higher with previous expectations suggesting a full 25bp rate cut in q3 2025 now pushed into q4. Indeed a hike was discussed at this meeting and their forecasts sees the potential that rates have not peaked.
Governor Orr stressed that it will take more time for inflation to decline. The economy has a lower potential growth rate and we are unsure if that is temporary. We have limited room for upside inflation surprises.
As we go to press the UK Inflation Report for April is up first
Rest of the day sees the usual central bank speakers and the FOMC Minutes.
Early doors tomorrow the Flash PMIs start to drop.
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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:
Wednesday
UK Inflation Rate MoM Apr consensus 0.2% vs previous 0.6% (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 0.7% vs previous 0.6% (07.00 BST)
UK Core Inflation Rate YoY Apr consensus 3.6% vs previous 4.2% (07.00 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)
Early 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)
Good luck.
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