The Morning Hark - 26 Apr 2024
Today’s focus..Tokyo CPI offers a bitter amuse bouche for the BoJ. USDJPY continues to poke the bear. An AI take on the BoJ Outlook Report. Good luck Ueda! Next US PCE..a high one get under your desk!
Overnight Highlights
Prices are at 6.45 BST/1.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil trading up smalls overnight with Brent and Crude June futures currently at 89.60 and 84. Oil had a bid tone yesterday with the underlying concerns surrounding the Middle East continuing to support the sector alongside a tighter supply side.
EQ - Asian equity markets up with the Hang Seng futures leading the way with an over two percent gain to 17,720 lead by a surge in the property sector. The Nikkei futures grabbing the coat tails to be up smalls at 38,000.
The US indicies holding onto their late gains from yesterday in Asia, with the S&P and Nasdaq futures up around one percent at 5125 and 17,765 respectively. The main surge came late in the day with the Microsoft and Alphabet AI fuelled q1 earning beats.
Gold - Gold smalls up in Asia after some upticks yesterday broke the recent downtrend. Currently June futures trading at 2350.
FI - US yields flat overnight with currently the US2y futures trading at 5% whilst the US10y futures yield at 4.70%. Yields holding onto their post GDP gains. Back at the 5% level again in the 2y. Can we break properly? Upside miss for PCE would guarantee that!
European yields closed yesterday higher on the back of the US move with the German 10y closing at 2.63% and the Italian 10y yield at 3.98%.
UK gilt 10y closed similarly at 4.37%.
FX - The USD once again flat overnight with the USD Index currently at 105.65. Big rally post GDP inflation numbers but a slow bleed lower for the rest of the day. The majors now trading at; JPY, EUR and GBP 156.15, 1.0725 and 1.25 respectively. The USD strength again being driven via the JPY with 156 the next stop taken out on the way to 160! The bear continues to get poked.
Today’s FX option expiries sees in USDJPY $1.4bn at 155. Whilst in the EUR we see €1.2bn at 1.0750.
Others - Bitcoin and Ethereum a round trip yesterday but pretty much back to where we started yesterday with the pair currently at 64,320 and 3140 respectively.
Rumours building that the SEC is expected to deny the spot ether ETF application next month.
Macro Themes At Play
Recap
US GDP Growth Rate QoQ Adv q1 a lot lower than anticipated and a sharp decline from the previous quarter at 1.6%. Thats the slowest pace of growth since mid 2022 but will be of some comfort to the Fed however the prices elements will not be welcome. The Core PCE QoQ back at levels last seen in q2 of last year after a couple of quarters of sharp declines. The economic gods giveth with one hand and taketh away with the other!
Markets took the prices rather than the growth for their cue to price out further the rate cuts for this year. Down to 35bps and a June cut a mere distant memory.
Canada Average Weekly Earnings YoY for February hit 4.5% its highest point in 3 years. That won’t please the BoC!
Central Bank Speakers
ECB’s Schnabel is expected a bumpy last mile of disinflation although wage growth does appear to be easing in line with projections.
Muller is opposed to starting with back to back cuts.
Makhlouf insisted that inflation persistence warrants caution.
Panetta reckoned the ECB would remain restrictive well into 2025 but warned of the risks of monetary policy becoming too tight. He was a fan of timely and small rate cuts to counter weak demand whilst large cuts could crate a credibility issue. He also warned against hesitations in adjusting rates.
BoJ Interest Rate Review
Here is a summary of the key points:
- Japan's economy is expected to continue growing at a pace above its potential growth rate, supported by moderate growth in overseas economies and a virtuous cycle of increasing income and spending domestically amid accommodative financial conditions.
- The consumer price index (CPI) is projected to rise around 2.5-3% in fiscal 2024, then around 2% in fiscal 2025 and 2026, as the effects of past import cost increases wane but are offset by higher crude oil prices and reduced government measures to lower inflation.
- Underlying inflation is expected to rise gradually as the output gap improves, medium-term inflation expectations increase, and a wage-price spiral intensifies.
- Downside risks include slower overseas growth, higher commodity prices squeezing incomes, and supply-side constraints. Upside risks include higher-than-expected wage growth feeding into prices.
- The Bank of Japan will adjust monetary policy accommodation if the outlook is realized and underlying inflation increases, while anticipating accommodative financial conditions for now.
⁃ Close attention will be paid to global financial/forex developments, commodity prices, and firms' wage/pricing behaviour which pose uncertainties.
Summary as per AI.
Some further details on the forecasts. Fiscal 2024 median CPI was moved to 2.8% (from 2.4%), 2025 to 1.9% (1.8%) and 2026 at 1.9%.
GDP wise a downward revision to 0.8% for 2024 (from 1.2%) whilst 2025 remains unchanged at 1% the same also for 2026.
So a small uptick for inflation and a downward revision for GDP but there remains high uncertainty for both.
Rates remain unchanged at 0% with a unanimous vote.
Probably the key point from the meeting is surrounding the bond buying which sees the BoJ drop the line about buying the same amount of bonds per month as before. Previously it had bought about JPY6tn worth of JGBs per month.
Over to you Ueda for your press conference as USDJPY ploughs through 156 and Tokyo CPI plummets through their 2% target. Good luck mate!
The Day Ahead
Overnight the Tokyo CPI Report for April was not the best amuse bouche for the BoJ with downside misses across the board. CPI dropped to 1.8% after a previous print of 2.6% whilst Core dropped even further to 1.6% from 2.4% its lowest print in 2 years. The ex food and energy measure plummeted even further to 1.4%. All measures below the BoJ 2% target. Ueda will have a lot of explaining to do in his presser.
Rest of the day is pretty much all about the March US PCE print. Powell indicated last week the Fed were looking for a touch higher. However the GDP report suggest could be a touch higher still. A lot of pressure on this number post yesterday’s debacle.
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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:
Friday
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 and a good weekend one and all.
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