The Morning Hark - 3 June 2024
Today’s focus...The Week Ahead…..will the BoC steal the ECB’s thunder?
Overnight Highlights
Prices are at 6.40 BST/1.40 EST, with changes reflecting movement from midnight GMT
Oil - Oil off smalls in Asia with Brent and Crude July futures currently at 81.60 and 76.90. Mixed news for oil over the weekend, with OPEC+ extending its production cuts into at least early 2025. Meanwhile in the Middle East ceasefire negotiations look like rumbling on this week.
EQ - Asian equity markets rebounding overnight with the Hang Seng and Nikkei futures trading up close to one percent at 18,430 and 38,985 respectively.
The US indicies also up with the S&P and Nasdaq futures now at 5310 and 18,650 respectively.
Gold - Gold unchanged in Asia with the August futures trading currently at 2343.
FI - US yields coming off a touch overnight with the US2y futures trading at 4.88% whilst the US10y futures yield at 4.49%.
European yields closed the week little changed with the German 10y closing at 2.67% and the Italian 10y yield at 3.97%.
UK gilt 10y at 4.32%.
FX - The USD flat to start the week in Asia with the USD Index currently at 104.60. The majors now trading at; JPY, EUR and GBP 157.40, 1.0850 and 1.2740 respectively.
Today’s major FX option expiries sees in the EUR €1.8bn at 1.0850/60.
Others - Bitcoin and Ethereum nothing new and continues to be very rangy with currently the pair at 68,700 and 3820 respectively.
Macro Themes At Play
Recap
The German Retail Sales for April were again disappointing coming in well below expectations at -1.2% MoM driven down by a poor month for the food sector.
Eurozone Inflation Report for April, the last hurdle for the ECB and didn’t do them a whole lot of favours to be honest. Both headline and core YoY prints were a touch higher than expected at 2.6% and 2.9% respectively. The main drivers for the higher print appear to be energy and services. Although not enough to derail the ECB rate cut this week it makes an immediate July follow up a lot less likely.
Canadian q1 GDP print was a mixed bag with a 0.4% for the quarter which equates to a 1.7% annualised rate which was well below expectations. The monthlies however offered a touch more hope with April’s preliminary reading coming in at 0.3%.
US PCE Report for April all bang in line with expectations apart from the core MoM print coming in at 0.2% a touch lower than anticipated. Indeed thats the lowest monthly print this year and offered some signs of encouragement for the Fed.
Personal Income and Spending MoM for April came in at 0.3% and 0.2% respectively and was the first month in three where income surpassed spending.
Chicago PMI for May plumbed the depths with its lowest print since the pandemic at 35.4. The sixth consecutive month of declines for the series.
The Week Ahead
US ISMs. Manufacturing had showed signs of recovering in March after it pushed into growth territory for the first time since October 2022. However last month the contractionary trend resumed and focus this month will be on whether this will continue or if there is light at the end of the tunnel for the sector. Expectations are for a rather benign 49.8, so better than previous but still in contractionary territory. In the underlying measures, employment is on a three month winning streak but prices had a rather sharp spike; let’s see if these trends continue. On the services side, last month saw the first dip back into contractionary territory since the end of 2022 on the back of a fourth month of declines. Expectations are for the sector to drag itself out of trouble and back into growth. Underneath the hood, prices again had a spike last month so worth keeping an eye on.
BoC Interest Rate Decision. Expectations are for the BoC to steal the ECB’s thunder and cut rates the day before their European counterparts. However, unlike the ECB, this is no foregone conclusion. The backdrop shows both measures of inflation within the BoC’s 1-3% target zone whilst unemployment is continuing to rise and now sits above 6%. In addition the BoC is known for its bold moves on monetary policy. The flip side would suggest that they use this meeting to tee up a July cut given the lack of real backing for a June move from recent BoC speakers. Remember as recently as early May Governor Macklem wanted “months” of further evidence before cutting rates. In addition by holding off until July, which is also an updated forecast meeting, they will get two further prints of labour, inflation and GDP. If they do go expect them to be fairly noncommittal on the future rate path. Not quite a hawkish cut but they certainly won’t want the market getting ahead of itself and pricing in more cuts, hence creating a divergence from the Fed with the obvious consequences for the CAD.
ECB Interest Rate Decision Friday’s inflation print didn’t help but the ECB should still follow through with their 25bp rate cut this week. However it does throw doubts on the exact nature of the future rate path and almost certainly precludes the ECB from making back to back cuts in June and July. It will also make them emphasis the fact that they will be even more data dependent going forward. After Friday’s print, the market sees just over two cuts priced in for the rest of the year which, after this week’s cut, feels like a long time to feast on just one more for the remainder of the year. We also get updated staff projections which will no doubt fit the narrative tone with a trim to inflation and an uptick for growth. Pretty much all the focus for Thursday will be on “what’s next?” after, what feels like, the “ceremonial” rate cut.
US NFP. The usual bagatelle for the markets with headline, wages and the unemployment rate all to digest as the algos smash the market one way before realising the revisions have more of a say in things, and drag everything over the other side of the boat. Its a blast! However, if expectations are to be believed we may be having a quiet time of it though with all estimates not far off last month’s steady as she goes pace of growth for all measures. No doubt during the week things will change of course but for now, with all else going on, its the backseats until Thursday is over with.
The Day Ahead
We had the start of the final May Manufacturing PMI prints overnight with Australia coming in a touch higher than previously at 49.7. Meanwhile in Japan a tiny revision down to 50.4.
In addition we got the China Caixin Manufacturing PMI for May where we got a better than expected 51.7, the seventh month of expansion and the best print in almost 2 years.
The rest of the day sees all the other major economies printing their final Manufacturing PMIs for May. In addition we have the US Manufacturing ISM and the related measures.
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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
Switzerland procure.ch Manufacturing PMI May consensus 45.4 vs previous 41.4 (08.30 BST) Germany HCOB Manufacturing PMI Final May consensus 45.4 vs previous 42.5 (08.55 BST)
EU HCOB Manufacturing PMI Final May consensus 47.4 vs previous 45.7 (09.00 BST)
UK S&P Global Manufacturing PMI Final May consensus 51.3 vs previous 49.1 (09.30 BST)
Canada S&P Global Manufacturing PMI May consensus 50.2 vs previous 49.4 (14.30 BST)
US S&P Global Manufacturing PMI Final May consensus 50.9 vs previous 50 (14.45 BST)
US ISM Manufacturing PMI May consensus 49.8 vs previous 49.2 (15.00 BST)
US ISM Manufacturing Employment May consensus vs previous 48.6 (15.00 BST)
US ISM Manufacturing New Orders May consensus vs previous 49.1 (15.00 BST)
US ISM Manufacturing Prices May consensus 60 vs previous 60.9 (15.00 BST)
Tuesday
Switzerland Inflation Rate MoM May consensus 0.4% vs previous 0.3% (07.30 BST)
Switzerland Inflation Rate YoY May consensus % vs previous 1.4% (07.30 BST)
Germany Unemployment Rate May consensus 5.9% vs previous 5.9% (08.55 BST)
Germany Unemployment Change May consensus 7k vs previous 10k (08.55 BST)
US JOLTs Job Openings Apr consensus 8.35m vs previous 8.488m (15.00 BST)
US JOLTs Job Quits Apr consensus m vs previous 3.329m (15.00 BST)
US Factory Orders MoM Apr consensus 0.6% vs previous 1.6% (15.00 BST)
Wednesday
Australia Judo Bank Services PMI Final May consensus 53.1 vs previous 53.6 (00.00 BST)
Japan Jibun Bank Services PMI Final May consensus 53.6 vs previous 54.3 (01.30 BST)
Australia GDP Growth Rate QoQ q1 consensus 0.2% vs previous 0.2% (02.30 BST)
Australia GDP Growth Rate YoY q1 consensus 1.2% vs previous 1.5% (02.30 BST)
China Caixin Services PMI May consensus 52.6 vs previous 52.5 (02.45 BST)
Germany HCOB Services PMI Final May consensus 53.9 vs previous 53.2 (08.55 BST)
EU HCOB Services PMI Final May consensus 53.3 vs previous 53.3 (09.00 BST)
UK S&P Global Services PMI Final May consensus 52.9 vs previous 55 (09.30 BST)
US ADP Employment Change May consensus 180k vs previous 192k (13.15 BST)
Canada S&P Global Services PMI May consensus vs previous 49.3 (14.30 BST)
BoC Interest Rate Decision rates to be cut to 4.75% (14.45 BST)
US S&P Global Services PMI Final May consensus 54.8 vs previous 51.3 (14.45 BST)
US ISM Services PMI May consensus 50.5 vs previous 49.4 (15.00 BST)
US ISM Services Employment May consensus vs previous 45.9 (15.00 BST)
US ISM Services New Orders May consensus vs previous 52.2 (15.00 BST)
US ISM Services Prices May consensus vs previous 59.2 (15.00 BST)
BoC Press Conference (15.30 BST)
Thursday
Switzerland Unemployment Rate May consensus % vs previous 2.3% (06.45 BST)
Germany Factory Orders MoM Apr consensus 0.5% vs previous -0.4% (07.00 BST)
EU Retail Sales MoM Apr consensus 0.2% vs previous 0.8% (10.00 BST)
EU Retail Sales YoY Apr consensus % vs previous 0.7% (10.00 BST)
ECB Interest Rate Decision rates to be cut by 25bps to 4.25% (13.15 BST)
ECB Press Conference (13.45 BST)
Canada Ivey PMI s.a. May consensus 65.2 vs previous 63 (15.00 BST)
Friday
China Balance of Trade May consensus $71.5Bn vs previous $72.35Bn (04.00 BST)
China Exports YoY May consensus % vs previous 1.5% (04.00 BST)
China Imports YoY May consensus % vs previous 8.4% (04.00 BST)
Germany Industrial Production MoM Apr consensus 0.2% vs previous -0.4% (07.00 BST)
EU GDP Growth Rate QoQ 3rd Est q1 consensus 0.3% vs previous -0.1% (10.00 BST)
EU GDP Growth Rate YoY 3rd Est q1 consensus 0.4% vs previous 0.1% (10.00 BST)
Canada Unemployment Rate May consensus % vs previous 6.1% (13.30 BST)
Canada Employment Change May consensus k vs previous 90.4k (13.30 BST)
US NFP May consensus 180k vs previous 175k (13.30 BST)
US Unemployment Rate May consensus 3.9% vs previous 3.9% (13.30 BST)
US Average Hourly Earnings MoM May consensus 0.3% vs previous 0.2% (13.30 BST)
US Average Hourly Earnings YoY May consensus 3.9% vs previous 3.9% (13.30 BST)
Fed Speakers
Cook (17.00 BST)
ECB Speakers
Nagel (08.00 BST)
Schnabel (09.00 BST)
Holzmann (09.00 BST)
Lagarde (15.15 BST)
Good luck.
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