The Morning Hark - 7 May 2024
Today’s focus...RBA’s hawkish hold. Fed speakers insist no hikes. The Week Ahead or what’s left of it.
Overnight Highlights
Prices are at 7.00 BST/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil trading unchanged with Brent and Crude July futures currently at 83.50 and 78.30.
Whipsaw time for oil though with Hamas’s agreement to a ceasefire proposal being first seen as a ruse by the Israelis before being outright rejected. The Israelis have now made strikes in Rafah although the peace talks continue.
EQ - Asian equity markets backing off a touch overnight with the Hang Seng and Nikkei futures off smalls at 18,450 and 38,755.
The US indicies unchanged in Asia, with the S&P and Nasdaq futures now at 5205 and 18,180 respectively.
Gold - Gold continuing to be supported with the June futures trading currently at 2331.
FI - US yields continuing to soften overnight with currently the US2y futures trading at 4.82% whilst the US10y futures yield at 4.47%.
European yields softening in line with the US yesterday with the German 10y closing at 2.47% and the Italian 10y yield at 3.77%.
UK gilt 10y closed similarly at 4.22%.
FX - The USD little changed from where we left it on Friday with the USD Index currently at 105.20. The majors now trading at; JPY, EUR and GBP 154.50, 1.0765 and 1.2550 respectively.
Today’s FX option expiries sees in the EUR; €1bn each at 1.0725 and 1.07 respectively. In USDCAD we see $1.3bn at1.37.
Others - Bitcoin and Ethereum have recovered from their woes of last week touching above 65k yesterday before a pullback. The pair currently at 63,600 and 3075 respectively.
Macro Themes At Play
Recap
The final April Germany Services PMI was revised a touch lower to 53.2 with the equivalent EU one revised up to 53.3.
RBA
As expected held rates steady at 4.35%.
Statement was firmly on the hawkish side of the debate with rates remaining on hold into mid 2025 according to the RBA forecast, 9 months longer than the previous forecast in February.
Some of the money lines:
Returning inflation to target within reasonable timeframe remains the priority;
Inflation remains high and is falling more gradually than expected, due in a large part to services inflation;
Path of rates remains uncertain and the Board is not ruling anything in or out;
Labour market remains tight; and
Outlook looks highly uncertain.
The Week Ahead
Sparse US week but couple of interesting central bank meetings with the Riksbank close to a move and the BoE expected to signal their summer intent. Elsewhere the BoJ and ECB minutes may give better clarity to those particular Banks’ future rate trajectories.
Riksbank Interest Rate Decision. The previous guidance from the Riksbank was a May or June cut if inflation prospects remain favourable. The latest print, for March, certainly alluded to that with a cooling picture for inflation below both the market’s and the Bank’s forecasts. Indeed the YoY has fallen below 3% for the first time in over two years. On top of that the unemployment rate remains well above the pre-pandemic average and the country has now witnessed 4 consecutive quarters of negative growth. However the flip side to that argument is that the SEK is weaker by some 8% versus the USD and 5% against the EUR thus far this year. In addition inflation is volatile in Sweden and hence they may wish to hold off until June when they will have had two additional inflation prints to assess. Finally in the last two cutting cycles, the Riksbank have always waited until after the ECB moves before following suit. So knife-edge on whether its a hawkish cut or a dovish hold. We veer towards the latter.
BoJ Summary of Opinions. The opinions from the April meeting. Focus will fall on any hint as to the rate trajectory for the BoJ but all signs are it will be a slow. Also maybe some clarity over the JGB buying with the statement dropping the reference to such buying but later statement and commentary suggesting that the policy remained intact. Little to look for other than that with Ueda maintaining the data dependent stance and easy monetary conditions maintained for the time being.
BoE Interest Rate Decision. Nothing expected rate wise but the market’s focus will fall on whether the Bank follow the ECB in June or hold off until August for that first cut. Remember the vote last time was 8/1 in favour of on hold with Dhingra remaining the strident dove in the camp. The backdrop sees inflation cooling with headline at a 30 month low but services remaining sticky, PMIs have shown an upward trajectory but unemployment rate has ticked up with wages growing at their slowest pace in well over a year. There has been quite a bit of divergence from recent speakers with Ramsden pointing to persistence in inflation easing but Pill insisting that any cuts are some way off. Whilst Bailey has indicated that there is no problem with the Bank cutting ahead of the Fed. Key will be the vote split and if the statement turns a touch more dovish. Will they alter the “policy will need to remain restrictive for sufficiently long” line?
Norway Inflation Report. Expectations for a further cooling in this series with the Core measure expected to dip to 4.3% which would take it to a near two year low and below the Norges Bank’s forecast. If so this will go against the Norges Bank’s latest guidance, of only last week, which suggested that rates may need to remain restrictive for longer.
UK GDP. The modest recover in the quarter for growth is expected to play out with a 0.4% reading for q1. Hardly the stuff of legends but I’m sure the politicians will swoon over such a reading!
ECB Monetary Policy Meeting Accounts. Remember they kept the line regarding rates to be kept restrictive for sufficiently long and made not explicit reference to a rate cut in June. They did allude to the fact that if they gained further confidence, that inflation was converging to target inflation in a sustainable manner, then it would be appropriate to reduce the policy rate. Sources stories had pointed to a further July cut to appease those in the Board who had wanted an April cut but this has been dismissed by several commentators since who have pointed to a more likely pause after the initial June cut.
Canada Labour Report. Last month was a surprising downside miss after a couple months of strong growth in the series. Again a modest rebound is expected for April but the unemployment rate may tick higher on the back of the rapidly expanding population growth. Governor Macklem has pointed to an economy in better balance but has warned against a tick up in the unemployment rate but his core view remains that the country will not slip into recession.
US Inflation Expectations. The Michigan sentiment survey’s inflation expectations may get some more airtime than normal given the recent uptick in a large number of the inflationary gauges of late.
Central Bank Speakers
Fed’s Barkin stated that recent data makes you think less optimistically about how quickly inflation gets under control. He continued that he had not seen evidence that inflation is on track. However calmingly he believed that current rates are restrictive enough as the full effect of higher rates is still to come.
Williams felt that the next move in rates was lower and it will come eventually.
ECB’s Simkus expected the June rate cut to be followed by others, with 3 being his humber for cuts this year.
Vujcic meanwhile saw economic data consistent with projections hence rates will be lowered over time.
The Day Ahead
The final reading for the April Japan Services PMI was lowered a touch to 54.3.
Later in the day we have the EU Retail Sales print for March and the Canadian Ivey PMI for April.
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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
EU Retail Sales MoM Mar consensus 0.6% vs previous -0.5% (10.00 BST)
EU Retail Sales YoY Mar consensus % vs previous -0.7% (10.00 BST)
Canada Ivey PMI s.a. Apr consensus 58.1 vs previous 57.5 (15.00 BST)
Fed Speakers
Kashkari (16.30 BST)
ECB Speakers
de Cos (14.00 BST)
BoE Speakers
Hall (13.30 BST)
Wednesday
Germany Industrial Production MoM Mar consensus -1.1% vs previous 2.1% (07.00 BST)
Riksbank Interest Rate Decision rates to remain on hold at 4% (08.30 BST)
Fed Speakers
Jefferson (16.00 BST)
Collins (16.45 BST)
Cook (18.30 BST)
Thursday
BoJ Summary of Opinions April meeting opinions (00.50 BST)
BoE Interest Rate Decision rates to remain on hold at 5.25% (12.00 BST)
BoE Monetary Policy Report (12.00 BST)
BoE MPC Meeting Minutes (12.00 BST)
ECB Speakers
McCaul (08.55 BST)
Cipollone (13.15 BST)
de Guindos (13.15 BST)
BoE Speakers
Bailey (14.15 BST)
Pill (17.15 BST)
Friday
Norway Inflation Rate MoM Apr consensus % vs previous 0.2% (07.00 BST)
Norway Inflation Rate YoY Apr consensus 3.4% vs previous 3.9% (07.00 BST)
Norway Core Inflation Rate MoM Apr consensus 0.8% vs previous 0.2% (07.00 BST)
Norway Core Inflation Rate YoY Apr consensus 4.3% vs previous 4.5% (07.00 BST)
UK GDP Growth Rate QoQ Prel q1 consensus 0.4% vs previous -0.3% (07.00 BST)
UK GDP Growth Rate YoY Prel q1 consensus 0% vs previous -0.2% (07.00 BST)
UK GDP MoM Mar consensus 0.1% vs previous 0.1% (07.00 BST)
UK GDP 3m Avg Mar consensus 0.4% vs previous 0.2% (07.00 BST)
UK Industrial Production MoM Mar consensus -0.5% vs previous 1.1% (07.00 BST)
UK Industrial Production YoY Mar consensus 0.3% vs previous 1.4% (07.00 BST)
UK Manufacturing Production MoM Mar consensus -0.4% vs previous 1.2% (07.00 BST)
UK Manufacturing Production YoY Mar consensus 1.8% vs previous 2.7% (07.00 BST)
ECB Monetary Policy Meeting Accounts (12.30 BST)
Canada Employment Change Apr consensus 20k vs previous -2.2k (13.30 BST)
Canada Unemployment Rate Apr consensus 6.2% vs previous 6.1% (13.30 BST)
US Michigan Consumer Sentiment Prel May consensus 77 vs previous 77.2 (14.45 BST)
US Michigan Inflation Expectations Prel May consensus % vs previous 3.2% (15.00 BST)
US Michigan 5y Inflation Expectations Prel May consensus % vs previous 3% (15.00 BST)
Fed Speakers
Bowman (14.00 BST)
Goolsbee (17.45 BST)
Barr (18.30 BST)
ECB Speakers
Cipollone (08.00 BST)
Elderson (09.45 BST)
BoE Speakers
Pill (12.15 BST)
Good luck.
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