The Morning Hark - 24 Apr 2024
Today’s focus...US PMI gives some relief to the bulls. Bitter Pill for the BoE. Aussie inflation too hot for the RBA. Will Trump save the Japanese?
Overnight Highlights
Prices are at 6.35 BST/1.35 EST, with changes reflecting movement from midnight GMT
Oil - Oil trading up smalls overnight with Brent and Crude June futures trading at 88.50 and 83.50. Oil was supported yesterday by the bigger draw than had been anticipated in inventories from the API data as we head towards the US heavy travel season.
EQ - Asian equity markets a sea of green with both the Hang Seng and Nikkei futures trading up well over one percent at 17,170 and 38,430 respectively. Seems the Tesla bounce after the promise of new models and some stronger than expected earnings gave the Asian indicies some wings.
The US continued their bid tone in Asia, with the S&P and Nasdaq futures up at 5125 and 17,735 respectively. All eyes on the earnings after the Tesla bounce. Later in the week we get Alphabet, Microsoft and Meta.
Gold - Gold little changed in Asia with June futures trading at 2340.
FI - US yields regaining some poise after yesterday’s sell off overnight with currently the US2y futures trading up at 4.93% whilst the US10y futures yield at 4.62%. Poor US PMI and a strong 2y auction were behind the sell off yesterday in US yields. We saw yet another rejection of the 5% level in the 2y.
European yields closed yesterday little changed with the German 10y closing at 2.51% and the Italian 10y yield at 3.81%.
UK gilt 10y closed a touch higher on the back of Pill’s hawkish comments at 4.24%.
FX - The USD once again flat overnight with the USD Index currently at 105.69 after yesterday’s sell off fuelled by the PMI miss and lower US yields. The majors seeing some relief, apart form the JPY, and now trading at; JPY, EUR and GBP 154.90, 1.07 and 1.2450 respectively.
Today’s FX option expiries sees in the EUR €2.2bn at 1.07.
Others - Bitcoin and Ethereum continuing their steady recovery from their recent lows with them currently at 66,700 and 3255 respectively.
Macro Themes At Play
Recap
Germany Flash PMIs for April were a mixed bag with that bottoming out for the manufacturing sector failing to materialise with much conviction. Although it was up on last month at 42.2, it was well down on expectations. The main drag appears to be new orders which fell the most in 5 months. Services however had a nice upside beat to 53.3 well above both expectations and the previous months print driven by rising demand taking the measure to its best print since June.
EU had a similar mix with manufacturing disappointing at 45.6, its worst print of the year. However the services sector improved again to 52.9 its best print in almost a year fuelled by strong new orders and employment.
UK followed suit with the same pattern a disappointment for manufacturing dipping back to 48.7 and back into contraction after its one month above the 50 line. Apart from last month’s reading we have been in contraction since July 2022. Another worry is that the prices element had its sharpest rise in 14 months. On the services side, once again we saw a strong upside beat to 54.9, its best in almost a year. Rising spending helped the measure reach such heights but once again cost pressures were evident.
US had a couple of downside surprises. Manufacturing dipped back into the contraction zone with a 49.9 print. This is the first print under 50 this year and looks like it was driven by stock drawdowns. The services sector also showed some weariness with its worst print in 5 months to 50.9 following a decline in new business and employment.
US New Home Sales for March showed a six month high to 0.693m much better than expected. However the gloss was taken off with the downward revision to the previous month’s number making it pretty much a wash.
US Richmond Fed Survey was in line for manufacturing at -7 but services suffered and printed at -13.
Central Bank Speakers
BoE’s Haskell still felt the Bank needed to consider upside risks to the inflation profile. He pointed to the labour market as remaining tight and sees inflation remaining high unless the jobs market weakens.
Pill rather bizarrely suggested that a combination of little news and the passage of time have brought a rate cut somewhat closer. However he then went onto say that the outlook has not changed much since the start of March. He did point to utility bills which are set to cut inflation in the coming months, however we may see a bounce back up from 2%.
Its right that the MPC focuses on the persistent nature of CPI but that there are no signs of a downward shift in that persistence dynamic.
He believes that the MPC need to maintain a restrictive stance at present although a cut would not entirely take this restrictive nature away. There remain greater risks to easing too soon than too late.
The BoE does not need to move rates in lockstep with the Fed or ECB.
Something to keep an eye on as we head into the US elections. According to Politico, Trump’s former trade advisor Lighthizer would seek to make US trade more competitive by purposely weakening the USD. Can’t come quick enough for Suzuki and co!
BoC Summary of Deliberations
Minutes from the April 10th meeting which ended on a dovish tone with Governor Macklem saying that June was a live meeting and confirming that thought last week at the IMF/World Bank Spring Meeting. Q1 inflation data has had a softer tone to it but we would think that the BoC members would wish to have more evidence that this downward trend is sustainable. On that basis the roadmap to a June rate cut is built around the GDP prints at the end of this month and next as well as the big two; labour and inflation reports in the middle of next month.
In addition developments with the oil price and in the Canadian housing market will be closely monitored.
As things stand its a knife edge decision for June.
The Day Ahead
Overnight we got the Australian Inflation Report with the q1 numbers coming in hotter than anticipated at 1% QoQ which takes the YoY up to 3.6%. Despite the disappointment this is the fifth quarter in a row we have seen a decline off the highs of 7.8%.
More troubling fr the RBA will be the uptick in the monthly indicator for March to 3.5% a first increase in the measure since November.
The trimmed and weighted measures for q1 also came in hotter than expected across the board.
Not a huge amount on today with German Ifo Survey in the morning and later we have the Canadian Retail Sales although a few months out of date. US durables and the BoC minutes plus an awful lot of ECBers.
👏 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:
Wednesday
Germany Ifo Business Climate Apr consensus 88.9 vs previous 87.8 (09.00 BST)
Germany Ifo Current Conditions Apr consensus 88.7 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)
US 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)
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.