The Morning Hark - 29 Apr 2024
Today’s focus...USDJPY rings the 160 bell but retreats swiftly. Golden Week in Japan. The Week Ahead.
Overnight Highlights
Prices are at 6.50 BST/1.50 EST, with changes reflecting movement from midnight GMT
Oil - Oil trading close to one percent lower overnight with Brent and Crude June futures currently at 87.60 and 83.20. Oil’s retreat being placed at the door of the ongoing Israel/Hamas peace talks set to take place in Cairo today.
EQ - Asian equity markets up with the Hang Seng futures leading the way again with a one percent gain to 17,750 lead, once again, by a surge in the property sector. The catalyst for the move was the major developer, CIFI, reaching an agreement with its bondholders over liquidity provisions. The Nikkei futures grabbing the coat tails to be up smalls at 38,590.
The US indicies holding onto their late gains from last week in Asia, with the S&P and Nasdaq futures up smalls at 5145 and 17,910 respectively.
Gold - Gold little changed in Asia with the June futures trading currently at 2343.
FI - US yields flat overnight with currently the US2y futures trading at 5% whilst the US10y futures yield at 4.65%. The 5% in the 2y continuing to prove problematic.
European yields closed the week a touch lower with the German 10y closing at 2.58% and the Italian 10y yield at 3.89%.
UK gilt 10y closed similarly at 4.33%.
FX - The USD off smalls overnight with the USD Index currently at 105.62. The majors now trading at; JPY, EUR and GBP 156.75, 1.0725 and 1.2540 respectively. The main event overnight was of course USDJPY spiking above 160 before swiftly reversing back onto the 155 handle. Couple of things to note. It is Golden Week in Japan so liquidity would be a lot lower than normal and the speed of the move up and back down suggests potential barrier attacks by the market to take out 160.
Today’s FX option expiries sees in the EUR; €1.5bn at 1.0750.
Others - Bitcoin and Ethereum after a steady weekend trading the pair seemed to take their cue from a rising USDJPY to sell off. Currently the pair trading at 62,350 and 3200 respectively.
Macro Themes At Play
Recap
US PCE report for March showed in line prints for the MoMs at 0.3% but slightly higher than anticipated for the YoYs. Headline now at 2.7% up from 2.5% last month. Core remains steady at 2.8% but higher than expected. The positive take is that at least it wasn’t as bad as the previous day’s GDP inflation measures had suggested it could be!
Personal income and spending for March continued the recent theme of spending outstripping income by some considerable margin 0.8% vs 0.5%. Indeed this was the sharpest rise in spending in well over a year. On the flip side the personal savings rate was at its lowest since late 2022.
US Michigan Consumer Sentiment for April was a touch softer than expected at 77.2. However the headline news was on the Inflation Expectations which saw the 1y print revised higher to 3.2% and the 5y steady at 3%.Both measures now at 5 month highs.
Central Bank Speakers
BoJ’s Ueda Presser
Little new although you wouldn’t know it by USDJPY’s reaction!
Despite the omission of the bond buying line in the statement he was keen to stress that there was no change in the BoJ’s bond buying stance. Furthermore there was no objection to our stance of continuing JGB buying at today’s meeting.
Monetary policy is not used to control FX rates directly.
He expressed no specific idea in terms if timing for the next rate rise but if prices move in line with the BoJ’s expectations then there would be reason to adjust monetary policy and hike rates further.
The Week Ahead
Feels like a big week with inflation data in Europe seen as a further tick box for the ECB June rate cut. Will the China PMIs point to a spluttering economy? Big US data week with further inflation measures; ECI, ISM prices and NFP wages, all having the potential to spook the market. Will NFP start to show weakness? Can Powell afford not to be hawkish? In addition we are at pivotal levels in USDJPY and the US2y.
Germany Inflation Report. Should help us get a good steer on tomorrow’s EU wide print. Forecasts suggest a small uptick but the general trend is lower. As many of the officials have stated of late, the last few months of disinflation will be bumpy and any small uptick will be written off as such. The YoY is expected to tick up to 2.3% but that should not derail the well signposted June rate cut.
Japan Data Dump. Expectations are mixed for the three measures we see print early on Tuesday. The unemployment rate is expected to print a touch better to 2.5%. Retail sales are expected to dip lower after last month’s bumper report which saw the MoM hit levels last seen in September 2021. However the long trend of positive prints is expected to continue. Industrial production however is expected to show a decent recovery from the two negative prints we have had thus far this year. The positive print is seen driven by the automotive sector.
China PMIs. Expectations for a pullback after last month’s jump with holiday distortions being fingered for the lower prints. We still expect the measures to remain in growth territory although only just in the case of manufacturing.
EU Data Dump. Inflation the main highlight of the data dump with expectations for a steady print with higher oil prices offset by lower energy bills. It’s the second last print before the June cut so it would have to be a major outlier to have any major influence in the “baked in the cake” June rate cut. Predictions for core are a dip to 2.6% YoY which would be the lowest level seen since the start of 2022. GDP wise a slight recovery in q1 to 0.1% growth as the EU economies start to bottom out with the milder winter weather expected to have helped the construction sector numbers.
US Employment Cost Index. Given all the hullabaloo of last week on inflation the ECI print will garner more attention than normal. Last quarter was the first quarter, since the middle of 2021, to print below 1% however a return to such prints is expected this quarter with 1%. Given the sensitivity of the markets to last week’s inflation prints this will be closely watched anything higher than expected will set the markets off again.
US ISM. The puzzle continues. The ISM prints point to 0.5% growth but the GDP prints are closer to 3%. There was a general theme of softer PMIs for this month, with manufacturing dipping into contraction, so lets see if the ISMs pick that trend up. The underlying measures will be important with employment, given its payroll week, and prices, given the inflation rebound, the most closely examined.
FOMC Interest Rate Decision. On hold but surely a hawkish Powell presser to follow given the latest inflation data. Balance sheet run off chatter too? Surely Powell cannot look through the inflation prints this year now. As we’ve said; “three’s a disappointment” and its getting beyond that now. Does the statement give a nod to this disappointment and start to reintroduce upside risks for inflation to the wording? Does he set up the market for the new “dot plot” at next month’s meeting where surely those three dots will have to be downgraded? There is an ever growing realisation that the Fed are getting boxed in by the election and that they probably took the foot off the accelerator too quickly at the tail end of last year with regard to hiking. They are where they are now, but having gone from over 175bps of cuts to a mere 35bps the market is, as ever, exaggerating the Fed movements. The Fed need, in some way, to get back in line with the market and dare I say it; “take back control”. Do they ratchet up the rhetoric? Discount the chances of rate cuts before September? Explicitly state that they will hike again this year if inflation continues to rebound? Delay QT? Or just muddle through? Probably the last option and the weakest.
Swiss Inflation Report. Market looking for a further weak report. The MoM is expected at 0.2% which would tick the YoY up to 1.2% but still well within the SNB’s target band. Continued cooling of this series would put the SNB in play to match the ECB’s rate cut at their next meeting in June.
Norges Bank Interest Rate Decision. No change and probably little change in their future rate outlook either. Remember, as things stand, they have signalled a first cut in September with another one near the end of q1 next year. On the positive side the latest inflation print has come in softer than expected but still high at 4.5%. In addition GDP has weakened. However oil prices remain elevated, the NOK remains weak and the recent round of wage negotiations have returned higher than expected settlements. On that basis we’d expect a cautious Norges to hold their rate outlook steady.
US NFP. All the business surveys point to a lower headline print but haven’t we been here before? Government hires always seems to come to the rescue to pump the number before downward revisions the next month. Anyway as things stand expectations are for a healthy print of 243k mark, a slight cooling from last months bumper 303k. However given the inflation prints at the tail end of last week perhaps the average hourly earnings print will steal the headlines this month?
The Day Ahead
Swedish GDP for q1 starts the week off as we go to press and is followed in the early afternoon by the preliminary April German Inflation Report.
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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
Sweden GDP Growth Rate QoQ Flash q1 consensus -0.1% vs previous -0.1% (07.00 BST)
Sweden GDP Growth Rate YoY Flash q1 consensus -0.2% vs previous -0.2% (07.00 BST)
Germany Inflation Rate MoM Prel Apr consensus 0.6% vs previous 0.4% (13.00 BST)
Germany Inflation Rate YoY Prel Apr consensus 2.3% vs previous 2.2% (13.00 BST)
ECB Speakers
de Cos (08.30 BST)
Lane (12.15 BST)
de Guindos (20.20 BST)
Tuesday
Japan Unemployment Rate Mar consensus 2.5% vs previous 2.6% (00.30 BST)
Japan Retail Sales MoM Mar consensus 0.6% vs previous 1.5% (00.50 BST)
Japan Retail Sales YoY Mar consensus 2.5% vs previous 4.6% (00.50 BST)
Japan Industrial Production MoM Prel Mar consensus 3.4% vs previous -0.6% (00.50 BST)
Japan Industrial Production YoY Prel Mar consensus -6.6% vs previous -3.9% (00.50 BST)
Australia Retail Sales MoM Prel Mar consensus 0.2% vs previous 0.3% (02.30 BST)
China NBS Manufacturing PMI Apr consensus 50.3 vs previous 50.8 (02.30 BST)
China NBS Non Manufacturing PMI Apr consensus 52.2 vs previous 53 (02.30 BST)
China Caixin Manufacturing PMI Apr consensus 51 vs previous 51.1 (02.45 BST)
Germany Retail Sales MoM Mar consensus % vs previous -1.9% (07.00 BST)
Germany Retail Sales YoY Mar consensus % vs previous -2.7% (07.00 BST)
Germany Unemployment Rate Apr consensus 5.9% vs previous 5.9% (08.55 BST)
Germany Employment Change Apr consensus 7k vs previous 4k (08.55 BST)
Germany GDP Growth Rate QoQ Flash q1 consensus 0.1% vs previous -0.3% (09.00 BST)
Germany GDP Growth Rate YoY Flash q1 consensus % vs previous -0.2% (09.00 BST)
EU GDP Growth Rate QoQ Flash q1 consensus 0.1% vs previous 0% (10.00 BST)
EU GDP Growth Rate YoY Flash q1 consensus 0.2% vs previous 0.1% (10.00 BST)
EU Inflation Rate MoM Flash Apr consensus % vs previous 0.8% (10.00 BST)
EU Inflation Rate YoY Flash Apr consensus 2.4% vs previous 2.4% (10.00 BST)
EU Core Inflation Rate YoY Flash Apr consensus 2.6% vs previous 2.9% (10.00 BST)
Canada GDP MoM Feb consensus 0.3% vs previous 0.6% (13.30 BST)
Canada GDP MoM Prel Mar consensus % vs previous 0.4% (13.30 BST)
US Employment Cost Index q1 consensus 1% vs previous 0.9% (13.30 BST)
US Chicago PMI Apr consensus 44.9 vs previous 41.4 (14.45 BST)
RBNZ Financial Stability Report (22.00 BST)
NZ Unemployment Rate q1 consensus 4.3% vs previous 4% (23.45 BST)
NZ Employment Change q1 consensus 0.3% vs previous 0.4% (23.45 BST)
NZ Labour Costs Index QoQ q1 consensus 0.8% vs previous 1% (23.45 BST)
NZ Labour Costs Index YoY q1 consensus % vs previous 3.9% (23.45 BST)
ECB Speakers
Buch (11.00 BST)
Wednesday
Australia Judo Bank Manufacturing PMI Final Apr consensus 49.9 vs previous 47.3 (00.00 BST)
Japan Jibun Bank Manufacturing PMI Final Apr consensus 49.9 vs previous 48.2 (01.30 BST)
UK S&P Global Manufacturing PMI Final Apr consensus 48.7 vs previous 50.3 (09.30 BST)
US ADP Employment Change Apr consensus 179k vs previous 184k (13.15 BST)
Canada S&P Global Manufacturing PMI Apr consensus 50.2 vs previous 49.8 (14.30 BST)
US S&P Global Manufacturing PMI Final Apr consensus 49.9 vs previous 51.9 (14.45 BST)
US ISM Manufacturing Apr consensus 50.1 vs previous 50.3 (15.00 BST)
US ISM Manufacturing Employment Apr consensus vs previous 47.4 (15.00 BST)
US ISM Manufacturing New Orders Apr consensus vs previous 51.4 (15.00 BST)
US ISM Manufacturing Prices Apr consensus 55.6 vs previous 55.8 (15.00 BST)
US JOLTs Job Openings Apr consensus 8.68m vs previous 8.756m (15.00 BST)
US JOLTs Job Quits Apr consensus m vs previous 3.484m (15.00 BST)
US Construction Spending MoM Mar consensus 0.3% vs previous -0.3% (15.00 BST)
FOMC Interest Rate Decision rates on hold at 5.5% (19.00 BST)
FOMC Press Conference (19.30 BST)
ECB Speakers
de Cos (18.30 BST)
Thursday
BoJ Monetary Policy Meeting Minutes March minutes - end of negative rates (00.50 BST)
Switzerland Retail Sales MoM Mar consensus % vs previous -0.1% (07.30 BST)
Switzerland Retail Sales YoY Mar consensus 0.2% vs previous -0.2% (07.30 BST)
Switzerland Inflation Rate MoM Apr consensus 0.1% vs previous 0% (07.30 BST)
Switzerland Inflation Rate YoY Apr consensus % vs previous 1% (07.30 BST)
Switzerland procure.ch Manufacturing PMI Apr consensus 45.5 vs previous 45.2 (08.30 BST)
Germany HCOB Manufacturing PMI Final Apr consensus 42.2 vs previous 41.9 (08.55 BST)
EU HCOB Manufacturing PMI Final Apr consensus 45.6 vs previous 46.1 (09.00 BST)
US Nonfarm Productivity QoQ Prel q1 consensus 0.8% vs previous 3.2% (13.30 BST)
US Unit Labour Costs QoQ Prel q1 consensus 3.2% vs previous 0.4% (13.30 BST)
US Factory Orders MoM Mar consensus 1.6% vs previous 1.4% (15.00 BST)
ECB Speakers
Lane (21.15 BST)
Friday
Australia Judo Bank Services PMI Final Apr consensus 54.2 vs previous 54.4 (00.00 BST)
Norges Bank Interest Rate Decision rates to remain on hold at 4.5% (09.00 BST)
UK S&P Global Services PMI Final Apr consensus 54.9 vs previous 53.1 (09.30 BST)
EU Unemployment Rate Mar consensus 6.5% vs previous 6.5% (10.00 BST)
US NFP Apr consensus 243k vs previous 303k (13.30 BST)
US Unemployment Rate Apr consensus 3.8% vs previous 3.8% (13.30 BST)
US Average Hourly Earnings MoM Apr consensus 0.3% vs previous 0.3% (13.30 BST)
US Average Hourly Earnings YoY consensus % vs previous 4.1% (13.30 BST)
Canada S&P Global Services PMI Apr consensus vs previous 46.4 (14.30 BST)
US S&P Global Services PMI Final Apr consensus 50.9 vs previous 51.7 (14.45 BST)
US ISM Services Apr consensus 52 vs previous 51.4 (15.00 BST)
US ISM Services Employment Apr consensus vs previous 48.5 (15.00 BST)
US ISM Services New Orders Apr consensus vs previous 54.4 (15.00 BST)
US ISM Services Prices Apr consensus vs previous 53.4 (15.00 BST)
Saturday
Fed Speakers
Goolsbee (00.45 BST)
Williams (00.45 BST)
Good luck.
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