The Morning Hark - 4 Apr 2024
Today’s focus...Powell’s rinse and repeat. ISM Prices go against the grain. Little to excite today.
Overnight Highlights
Prices are at 6.45 BST/1.45 EST, with changes reflecting movement from midnight GMT
Oil - Oil consolidating overnight in Asia after another strong day yesterday. Currently Brent and Crude June futures trading at 89.60 and 84.80. OPEC+ no change to output policy but support for the sector was seen with their declaration that Iraq and Kazakh had pledged to full conform to the output cuts and indeed compensate for their recent overproduction. The EIA data was a small initial headwind to oil’s strength with a larger build than had been expected but the gasoline figures had a larger draw.
EQ - Asian equity markets quiet overnight with China and Hong Kong out. The Nikkei futures off smalls at 39,840.
The US indices up smalls in Asia with the S&P and Nasdaq futures currently at 5277 and 18,430 respectively.
Gold - Gold continues to go from strength to strength although quiet in Asia with June futures currently trading at 2318 having rung the bell at another all time high. The weaker USD justifying the move for once!
FI - US yields flat overnight with the US2y futures trading at 4.68% whilst the US10y futures yield at 4.37%.
European yields little changed yesterday with the German 10y at 2.40% and the Italian 10y yield at 3.82%.
UK gilt 10y similarly at 4.06%.
FX - FX in Asia saw the USD flatlining after selling off yesterday on the ISM prices number. The USD Index currently at 104.18. The majors equally quiet but all happy to have a decent bounce on the USD weakness; JPY, EUR and GBP currently at 151.70, 1.0845 and 1.2660 respectively.
Today’s FX option expiries sees in the EUR €3.2bn in the 1.0785/90 and in USDJPY we see $1.5bn at 151.50.
Others - Bitcoin and Ethereum off close to one percent overnight again but for now holding onto this 65k level but looking vulnerable. Currently trading at 65,460 and 3288 respectively.
Macro Themes At Play
Recap
The flash EU Inflation Report for March continues to ease with Headline and Core YoY now at 2.4% and 2.9% respectively. The Core rate is at a two year low and paving the way for an ECB rate cut. Remember we have a further two prints before the June meeting.
The ADP Employment Report for March showed private employment rise by 184k a strong beat on both consensus and previous print. Its best monthly print since July. Slightly more troubling for the Fed is that pay gains for people remaining in their jobs remain steady at 5.1% after seeing months off downturn however for job changers that gain was 10%.
March’s Canada Services PMI small downtick from last month to 46.4 a tenth straight month of contraction for the sector.
Meanwhile the final US Services PMI for March was in line with the preliminary reading at 51.7 and a small dip from last month’s reading but still now well over a year of growth for the services sector in the US.
US ISM Services PMI for March surprised to the downside as it dipped back to 51.4 and its weakest print since December’s blip. Indeed if you take that “blip” out it was the poorest showing since May. The underlying measures all disappointing with Employment at 48.5, New Orders dipping to 54.4 and, somewhat out of kilter from what we’ve seen of late from other surveys, Prices fell to 53.4 and their lowest print since the start of the pandemic. As we said yesterday watch those ISM prices! We just got the direction wrong!
Overall a mixed bag of data out of the US with a good ADP beat with wages pressing higher, the Services PMI showed a dip for the headline but prices were higher, like we have witnessed from the other recent surveys, whilst the Services ISM dipped lower as did the prices component.
As is its want the algos/market jumped on the outlier of the ISM prices piece and sent stocks and gold rallying with the USD and US yields suffering. Go figure!
Central Bank Speakers
Nothing new of note from the Feders. Powell was pretty much a rinse and repeat from Friday. ECB wise Holzmann seems to have erased from the script his comments regarding the possibility of no ECB rate cuts this year although he did step out of line again when he said he was keeping an eye on the Fed going against his fellow council members who have been keen to stress, of late, the ECB’s independence from their US counterpart.
Fed’s Bostic felt the economy is maintain a strong momentum. He thought that the US economy can still grow whilst inflation continues to moderate but in that environment inflation comes down much slower and on that basis he changed his interest rate outlook to one cut this year.
Powell was in somewhat of a cheery mood claiming that policy was in a pretty good place. He stressed that the recent data does not materially change the Fed’s outlook where they see; solid growth, strong but moderating labour market and inflation heading back to target albeit on a now bumpy path.
Rate cuts are likely to be appropriate this year but we do not need to be in a hurry. The job of bringing inflation down is not yet done and the Fed needs clearer signs that inflation is moving sustainably down to the target 2%. However he did not think that inflation is reversing higher.
ECB’s Holzmann continues to be the maverick! Having previously intimated that the ECB may not cut rates this year he is now warming to a June cut although he does wish to see more supportive data. Furthermore, and again going against general consensus, he is keeping an eye on the Fed!
He pointed to weak productivity in the EU as a reason why 3% rates may be too high in the long run. He even alluded to inflation potentially being better than ECB projections.
De Cos pointed to the recent decline in general and core inflation as evidence that monetary policy is being transmitted forcefully. The central scenario points to a June rate cut.
The Day Ahead
Overnight the final Australia Services PMI for March hit the tapes and was a nice upside beat to 54.4 and its best print in nearly 2 years.
Morning highlight is the March Swiss Inflation Report. In addition we have the Riksbank and ECB minutes as well as the Final March Services PMIs.
Once again a plethora of Fed speakers.
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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:
Thursday
Switzerland Inflation Rate MoM Mar consensus 0.3% vs previous 0.6% (07.30 BST)
Switzerland Inflation Rate YoY Mar consensus 1.3% vs previous 1.2% (07.30 BST)
Riksbank Monetary Policy Meeting Minutes (08.30 BST)
Germany HCOB Services PMI Mar Final consensus 49.8 vs previous 48.3 (08.55 BST)
EU HCOB Services PMI Mar Final consensus 51.1 vs previous 50.2 (09.00 BST)
UK S&P Global Services PMI Mar Final consensus 53.4 vs previous 53.8 (09.30 BST)
ECB Monetary Policy Meeting Accounts (12.30 BST)
Fed Speakers
Harker (14.45 BST)
Barkin (17.15 BST)
Goolsbee (17.45 BST)
Mester (19.00 BST)
Good luck.
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