The Morning Hark - 28 May 2024
Today’s focus...Sleepy start to the shortened week and looks like nothing on the slate to liven things up. Go back to bed!
Overnight Highlights
Prices are at 6.30 BST/1.30 EST, with changes reflecting movement from midnight GMT
Oil - Oil continuing to trade firmly in Asia with Brent and Crude July futures currently at 83 and 78.90. The Israeli escalation of strikes on Rafa have set the bid tone for the sector with next week’s OPEC+ meeting also starting to garner more attention.
EQ - Asian equity markets quiet overnight with the Hang Seng and Nikkei futures trading at 18,760 and 38,860 respectively.
The US indicies equally quiet with the S&P and Nasdaq futures now at 5330 and 18,923 respectively.
Gold - Gold unchanged in Asia with the June futures trading currently at 2353.
FI - US yields off smalls overnight with currently the US2y futures trading at 4.94% whilst the US10y futures yield at 4.46%.
European yields closed a touch softer to start the week with the German 10y closing at 2.55% and the Italian 10y yield at 3.85%.
UK gilt 10y at 4.26%.
FX - The USD off smalls overnight with the USD Index currently at 104.45 and continuing its weakness from yesterday, on the lack of news and participants despite US yields holding up. The majors now trading at; JPY, EUR and GBP 156.70, 1.0880 and 1.2780 respectively.
Today’s major FX option expiries sees; in the EUR sees €2.4bn between 1.0875 and 1.0910.
Others - Bitcoin and Ethereum saw another rejection of the recent highs and is trading soft to start the week. Currently the pair at 67,820 and 3845 respectively.
Mt. Got, the old bankrupt crypto exchange, has moved around $5bn worth of its holdings (approx half of them) to a new wallet. The majority of the funds are held in BTC and potentially explaining some of the pullback we have seen today.
Macro Themes At Play
Recap
UK Retail Sales Report for April was soggy as. The MoM was well below expectations at -2.3% taking the YoY to -2.7%. The wet weather was to blame according to retailers.
Canada Retail Sales Report for March also disappointed although not to the extent of the UK print. MoM dropped 0.2% on the month taking the YoY measure to 1.9%.
US Durable Goods Orders for April rose unexpectedly for the third month in a row.
US Michigan Consumer Sentiment Survey final reading for May provided some comfort with the headline coming in better than expected, although still way down on the previous month, at 69.1. More encouragingly the inflation expectations dipped to 3.3% and 3% for the 1y and 5y prints respectively.
The German Ifo Survey yesterday came in a touch weaker than expected. Current conditions dipped below expectations and last month to 88.3 although more encouragingly expectations beat last months coming in at 90.4, a year’s high.
Central Bank Speakers
Fed’s Waller pointed to US financing pressures as a reason why the long term neutral rate may rise in the coming years.
Bowman would have backed waiting to taper the Fed balance sheet run off.
Mester suggested that Fed statements would benefit from some added length. God forbid!
ECB’s Schnabel felt that some elements of inflation new proving persistent and hence would caution against moving too fast on rates. Possible June rate cut would be a compromise decision.
Nagel said the likelihood of a June cut is winning traction.
Muller felt that the wage jump would not derail a slowdown in inflation. However the ECB must stay cautious as prices can surprise to the upside. However if inflation slows more then the ECB has scope to ease further.
Lane was warming to looser monetary policy and drops “caution” which has featured heavily in his previous pronouncements. He claimed that a rate cut next week would not be seen as a declaration of victory. Expects to see another phase of disinflation bringing us back to target later next year.
Villeroy was noncommittal on a July cut but was keen to keep options open on the timings and pace of further cuts. There is significant room for cuts.
SNB’s Jordan stated the Bank doesn’t have to follow other central banks on rates.
The Week Ahead
Australia Inflation. A modest decline is expected after last month’s uptick. However inflation is still sitting well above 3% and the RBA target. Gasoline prices peaked in April which could provide a headwind to any steep inflation decline for the month. In addition there are seasonal factors, for April, which could see further stickiness for this series. Remember last week’s RBA minutes pointed to the fact that a rate hike had been considered at the early May meeting. Members also alluded to increased risks of inflation staying elevated for longer.
Germany Inflation. A good precursor to the Eurozone print later in the week. Consensus sees inflation tick higher after a couple of months of prints which have threatened to take inflation back below 2%. However the higher expected print of 2.4% is still close to the three year lows.
Switzerland GDP. Expectations are for a third quarter in a row of growth at 0.3%, matching the two previous quarters.
Japan Data Dump. Usual Japanese data dump with by far the most important piece being the Tokyo CPI print. After last month’s sharp decline the series is seen rebounding back towards 2% for the core measure. The previous month’s print was distorted by the expansion of the free education programme. Elsewhere we get the unemployment rate which is expected to print 2.6% for the third straight month. Industrial production is expected to pull back after its near two year peak last month whilst retail sales are again expected to rebound from last month’s dip.
China PMI. Will China follow the rest of the world with an uptick in manufacturing? Expectations are for a small uptick in both the manufacturing and non-manufacturing measures as they both continue to slowly push further into growth territory.
EU Inflation. Expectations are for headline to tick up smalls to 2.5% whilst core is seen steady at 2.7%. The uptick for headline is being touted to be due to higher energy prices. This is the last major release before the ECB June meeting so it obviously has huge significance in terms of the “final box tick”. There are some worries that last week’s wage growth numbers as well as some price pressures appearing in the PMIs, may filter into the CPI print but already ECB members have written off the wage growth data as due to one off factors. It would take a huge upside surprise for the ECB to change tack for a June rate cut.
US PCE. Steady as she goes print expected with both MoM and YoY measures all matching last month’s prints. MoMs are both seen at 0.3% whilst the headline and core YoYs are seen to be remaining at 2.7% and 2.8% respectively. If this transpires its a bit of a nothing report in terms of what to expect from the Fed over the next two meetings in June and July. Such a print won’t move the dial too much for these meetings but it may tempt the market to bring forward their first full rate cut expectations from the current December call.
The Day Ahead
Why did we bother coming back after the long weekend? Nothing of importance on tap apart from a few central bankers.
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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:
Tuesday
Fed Speakers
Kashkari (14.55 BST)
Cook (18.05 BST)
Daly (18.05 BST)
Wednesday
Australia Monthly CPI Indicator Apr consensus 3.4% vs previous 3.5% (02.30 BST)
Germany Inflation Rate MoM Prel May consensus 0.2% vs previous 0.5% (13.00 BST)
Germany Inflation Rate YoY Prel May consensus 2.4% vs previous 2.2% (13.00 BST)
Fed Speakers
Williams (18.45 BST)
Thursday
SNB Jordan Speaks (01.00 BST)
Switzerland GDP Growth Rate QoQ q1 consensus 0.3% vs previous 0.3% (08.00 BST)
Switzerland GDP Growth Rate YoY q1 consensus 0.6% vs previous 0.6% (08.00 BST)
US GDP Growth Rate QoQ 2nd est q1 consensus 1.4% vs previous 3.4% (13.30 BST)
US GDP Price Index QoQ 2nd est q1 consensus 3.1% vs previous 1.7% (13.30 BST)
US GDP PCE Prices QoQ 2nd est q1 consensus % vs previous 1.8% (13.30 BST)
US GDP Core PCE Prices QoQ 2nd est q1 consensus 3.7% vs previous 2% (13.30 BST)
US Pending Home Sales MoM Apr consensus -0.5% vs previous 3.4% (15.00 BST)
US Pending Home Sales YoY Apr consensus % vs previous 0.1% (15.00 BST)
Fed Speakers
Bostic (00.00 BST)
Williams (17.05 BST)
Logan (22.00 BST)
Friday
Japan Unemployment Rate Apr consensus 2.6% vs previous 2.6% (00.30 BST)
Japan Tokyo CPI YoY May consensus % vs previous 1.8% (00.30 BST)
Japan Tokyo Core CPI YoY May consensus 1.9% vs previous 1.6% (00.30 BST)
Japan Industrial Production MoM Prel Apr consensus 0.9% vs previous 4.4% (00.50 BST)
Japan Industrial Production YoY Prel Apr consensus % vs previous -6.2% (00.50 BST)
Japan Retail Sales MoM Apr consensus 1.9% vs previous 1.2% (00.50 BST)
Japan Retail Sales YoY Apr consensus % vs previous -1.2% (00.50 BST)
China NBS Manufacturing PMI May consensus 50.5 vs previous 50.4 (02.30 BST)
China NBS Non-Manufacturing PMI May consensus 51.5 vs previous 51.2 (02.30 BST)
Germany Retail Sales MoM Apr consensus 0.1% vs previous 1.8% (07.00 BST)
Germany Retail Sales YoY Apr consensus % vs previous 0.3% (07.00 BST)
Switzerland procure.ch Manufacturing PMI May consensus vs previous 41.4 (08.30 BST)
EU Inflation Rate MoM Apr consensus % vs previous 0.6% (10.00 BST)
EU Inflation Rate YoY Apr consensus 2.5% vs previous 2.4% (10.00 BST)
EU Core Inflation Rate YoY Apr consensus 2.7% vs previous 2.7% (10.00 BST)
Canada GDP MoM Mar consensus 0% vs previous 0.2% (13.30 BST)
Canada GDP MoM Prel Apr consensus % vs previous % (13.30 BST)
Canada GDP Growth Rate QoQ q1 consensus % vs previous 0.2% (13.30 BST)
US PCE Price Index MoM Apr consensus 0.3% vs previous 0.3% (13.30 BST)
US PCE Price Index YoY Apr consensus 2.7% vs previous 2.7% (13.30 BST)
US Core PCE Price Index MoM Apr consensus 0.3% vs previous 0.3% (13.30 BST)
US Core PCE Price Index YoY Apr consensus 2.8% vs previous 2.8% (13.30 BST)
US Personal Income MoM Apr consensus 0.3% vs previous 0.5% (13.30 BST)
US Personal Spending MoM Apr consensus 0.3% vs previous 0.8% (13.30 BST)
US Chicago PMI May consensus 40.8 vs previous 37.9 (14.45 BST)
Fed Speakers
Bostic (23.15 BST)
Good luck.
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