The Morning Hark - 31 May 2024
Today’s focus...All eyes on US PCE. "Sell in May and go away" they said……we should have just done the latter tbh!
Overnight Highlights
Prices are at 6.15 BST/1.15 EST, with changes reflecting movement from midnight GMT
Oil - Oil off smalls in Asia with Brent and Crude July futures currently at 81.70 and 77.70. Oil continued its slide with Fed chatter dismissing any imminent rate cuts dampening oil’s price but the EIA data was the real catalyst. The survey showed the largest drop in crude inventories in 5 weeks however the market focused more on the gasoline measure, which showed a surprise rise in gasoline stocks. The data was seen to have more significance as it covered the period running up to the Memorial Day weekend and the traditional start of the US driving season.
Remember OPEC+ meeting over the weekend.
EQ - Asian equity markets rebounding overnight with the Hang Seng and Nikkei futures trading up close to one percent at 18,330 and 38,465 respectively.
The US indicies off smalls with the S&P and Nasdaq futures now at 5245 and 18,555 respectively.
Gold - Gold unchanged in Asia with the June futures trading currently at 2365 and holding onto yesterday’s gains on the back of the lower USD.
FI - US yields coming off a touch overnight after yesterday’s pullback. Currently the US2y futures trading at 4.93% whilst the US10y futures yield at 4.55%.
European yields closed lower in line with the US move with the German 10y closing at 2.65% and the Italian 10y yield at 3.96%.
UK gilt 10y at 4.35%.
FX - The USD up smalls but lower from yesterday’s open with the pullback in US yields weighing on it. The USD Index currently at 104.83. The majors now trading at; JPY, EUR and GBP 156.80, 1.0820 and 1.2720 respectively.
Today’s major FX option expiries sees in the EUR €1.6bn at 1.0875/80.
Others - Bitcoin and Ethereum nothing new and continues to be very rangy with currently the pair at 68,500 and 3760 respectively.
Macro Themes At Play
Recap
Switzerland GDP Growth Rate QoQ q1 was un upside surprise to 0.5%, its best quarterly growth in almost two years. The uptick was driven by a strong service sector.
US GDP Growth Rate QoQ 2nd est q1 came in as expected with a big downward revision to 1.3% with the majority of it due to a downward revision for consumer spending. All the prices components came in pretty much in line although still show underlying price pressures.
Pending Home Sales MoM for April were a shocker printing their worst level since February 2021 at -7.7%. Unsurprisingly escalating interest rates were the reason for the poor show.
Central Bank Speakers
Fed’s Williams felt that policy was well positioned to lower inflation. We don’t meed to be exactly at 2% to cut rates but he doesn’t see any urgency. There is ample evidence that monetary policy is restrictive. Sees inflation at 2.5% this year and closer to 2% next. Recently there has been a dearth of progress on lowering inflation.
Logan maintained that inflation likely still headed to 2% but it will be bumpy. Too early to think of rate cuts and indeed, policy may not be as restrictive as we think (contradictory to William’s thoughts). She worries that an energy shock, set off by geopolitical factors could disrupt inflation expectations.
The Day Ahead
Overnight the Japanese Data Dump.
Unemployment Rate for April steady as at 2.6%.
Tokyo Inflation Report for May showed an as expected rise to 1.9% for the Core CPI YoY measure with headline now at 2.2%.
Industrial Production for April dipped sharply after last month’s bumper print. Back into negative territory for this series at -0.1% for the MoM, with transport equipment being the big drag on the month.
Retail Sales for April rebounded after last month’s negative print to 1.2% growth taking the YoY measure to 2.4%.
Also China Manufacturing PMI for May dropped back into contractionary territory after a couple month’s of positive growth. Falls for both new orders and foreign sales contributed to the fall to a 49.5 print.
Non-Manufacturing PMI not as good as expected at 51.1 but still enough to maintain a 17 month run of growth for the sector.
As we go to print tomorrow the German Retail Sales for April are revealed.
Then a busy day with the May Swiss Manufacturing PMI opening things up followed up by the all important Eurozone Inflation Report for April, the last hurdle for the ECB next week.
The afternoon sees the Canadian q1 GDP print with the highlight the US PCE Report for April. In addition we get the Personal Income and Spending and close off with the Chicago PMI.
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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
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 Flash May consensus % vs previous 0.6% (10.00 BST)
EU Inflation Rate YoY Flash May consensus 2.5% vs previous 2.4% (10.00 BST)
EU Core Inflation Rate YoY Flash May consensus 2.8% 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 41 vs previous 37.9 (14.45 BST)
Fed Speakers
Bostic (23.15 BST)
Good luck and a good weekend to one and all.
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