The Morning Hark - 8 Apr 2024
Today’s focus...Fed chatter continues to push yields higher. Payrolls continue to impress. USDJPY eating premium. The Week Ahead but see you on Wednesday.
Overnight Highlights
Prices are at 7.00 BST/2.00 EST, with changes reflecting movement from midnight GMT
Oil - Oil at last taking a step back with a near two percent drop in Asia with Brent and Crude June futures trading at 89.60 and 84.80. Tensions in the Middle East are seen to have cooled somewhat after last week’s sabre rattling from both sides. Israel continued to withdraw troops from Southern Gaza and agreed to fresh talks on a potential ceasefire. It seems that, after the tragic missile attack on aid workers last week, the ratchet up in pressure from the West has, at last, had an effect.
EQ - Asian equity markets quiet overnight with the Hang Seng and Nikkei futures flat at 16,770 and 39,325 respectively.
The US indices similarly with the S&P and Nasdaq futures currently at 5250 and 18,300 respectively.
Gold - Gold continues to remain bid with the June futures currently trading at 2352. Quite the run for gold with it up now 10 of the last 11 days despite yields rallying. We all know China has been buying consistently for well over a year now but it does feel like a hedge bet for a wider financial crisis is part of the reasoning too.
FI - US yields firm overnight with the US2y futures trading at 4.78% whilst the US10y futures yield at 4.43%. Yields consolidating their post payrolls gains and the Fed hawk chatter as US rate cuts for the year get further nibbled away at and the June meeting now less than a 50% chance.
European yields followed the firmer tone of the US yesterday and we’d expect them to open with a bid tone today with the German 10y closing at 2.40% and the Italian 10y yield at 3.79%.
UK gilt 10y similarly at 4.07%.
FX - FX in Asia saw the USD flatline with the USD Index currently at 104.32 exactly where we opened on Friday. The post payrolls firework USD gains have slowly dribbled away. The majors equally mundane; JPY, EUR and GBP currently at 151.80, 1.0835 and 1.2630 respectively.
Today’s FX option expiries sees nothing of note.
Interesting that, despite all the chatter about intervention and all the interest around the BoJ’s historic rate move, USDJPY has had its narrowest 13 day range in well over 40 years. Lot of option premium going down the drain there.
Others - Bitcoin and Ethereum have overcome all the GBTC selling and survived, at least thus far, and they’ve had a supportive weekend with the pair currently trading at 69,700 and 3430 respectively.
Macro Themes At Play
Recap
Germany Factory Orders MoM for February bounced back after last month’s shocker of a print but only just into positive territory to 0.2%.
EU Retail Sales Report for February showed a -0.5% MoM reading and continuing the trend that has seen no growth in the series since November.
Canada Employment Change for March was far from inspiring with a first negative print in 8 months at -2.2k. The Unemployment Rate rose to an over 2 year high at 6.1% whilst Average Hourly Wages YoY ticked back up to 5%. Overall a stinker and the probability of a rate cut in June from the BoC rose sharply to 80%.
Canada Ivey PMI s.a. for March was a belter at 57.5 much stronger than anticipated and previous, its best print in a year.
Central Bank Speakers
There’s a theme emerging as the pivot from we’re relaxed about the uptick in inflation seems to have morphed into we may have to cut less this year and indeed may have to hike.
Fed’s Barkin understated as ever…..”that’s a quite strong jobs report”. Reduction in inflation has been an unbalanced mix but the job market’s very strong.
Logan wanted to see more of the uncertainty resolved about the economic path and hence it is too soon to cut rates given the upside risks to inflation.
She believed that the time will be appropriate soon for the FOMC to decide when to slow, not stop, the runoff of our asset holdings.
Bowman laid it on the table when she stated that, although not likely, it is possible that the Fed will have to hike again to cool inflation. She felt that progress on lowering inflation had stalled and the Fed will not be comfortable cutting until disinflation returns.
On the balance sheet she claimed that it was critical for the Fed to continue to shrink its size.
NFP Review
Headline NFP for March printed well above expectations, once again, to 303k with a small downward revision to the previous month. Once again government jobs showed big gains but more encouragingly so did construction. The Unemployment Rate ticked down to 3.8% whilst
Average Hourly Earnings MoM gauge came in as expected at 0.3% but the YoY dipped to 4.1% a near 3 year low.
A lot of analysis as to how much of the gains are down to immigration but which ever way you look at the report its positive. Q1 average is now 276k which is the strongest quarter in a year and well above the average we saw last year, 251k. Admittedly a big revision may bridge the gap but as things stand there seems to be no major cooling in the labour market.
WSJ’s Timiraos was keen to stress (leak) that the Fed will decide whether its appropriate for a June rate cut via the inflation data and not the labour market.
The Week Ahead
RBNZ Interest Rate Decision. As with the other central bank meetings this week an on hold decision is expected from the RBNZ with a cut and paste “higher for longer” statement. The key piece of the statement to look out for will be the one regarding the OCR doing enough to restrain activity and return inflation to target but will likely have to remain at that level for a “sustained period”. The economic landscape shows a lower currency, at the margins weaker growth but more importantly inflation remains challenging. The market and RBNZ are out of sync, the market sees an August cut whilst the RBNZ have stated that they see no cut this year. This meeting’s guidance will hopefully help to bridge that gap somewhat but we may have to wait until the May meeting which, sees a new set of forecasts, to full reconcile the two parties.
Norway Inflation Report. Downward trend expected to continue this month with YoY headline and core expected to dip to 4% and 4.6% respectively. Such prints would be lower than the Norges Bank’s forecasts. Last month’s print was a decent downside surprise driven by food prices and that trend is expected to continue into March
US Inflation Report. Both headline and core MoM readings expected to remain firm at 0.3% and remaining above levels the Fed would want. The YoYs are expected to show an uptick for the headline print to 3.4% on the back of base effects but the core is expected to cool a tick to 3.7% and continue the slow and gradual decline we have seen from this series. Given the attention it has been getting of late watch for the housing measures. Also remember the regional surveys have all been indicating inflationary pressures returning although the ISMs have had contrasting fortunes on that front. Finally we have had three months of upside surprises on expectations anyone for a fourth?
BoC Interest Rate Decision. Very much an on hold decision was expected but Friday’s labour report has muddied that picture a touch. A 20% chance of a move has crept into the swaps curve although June remains the very firm favourite for the first BoC cut. The latest BoC business outlook survey was upbeat with fewer firms expecting a recession whilst there was some tempering of inflationary expectations. We expect the BoC to leave their options open and not signal imminent rate cuts whilst giving a nod to the weaker payrolls print.
FOMC Minutes. As a recap on hold decision with this year’s dots remaining at 3 with a small downward adjustment to longer dated rate cuts in 2025/26. Chair Powell was fairly relaxed on the early inflation prints this year and given the deluge of Fed speakers we have had of late it feels like these minutes, from a monetary policy point of view, are stale. Probably of most interest will be the discussions they had on the balance sheet reduction and QT especially with regard to any timeline for such events.
China Inflation Report. A moderation is expected after the higher food and travel prices jump we saw related to the Lunar New Year period. Anecdotal evidence from the PMIs would also suggest a slowing in price pressures.
ECB Interest Rate Decision. The one before the one? Last call before the June meeting so very much a set up one? Given the recent data if they hadn’t so blatantly signalled June would they have gone this week? A lot of questions but we probably won’t get many answers from Lagarde and co. The two things which we are looking out for centre around any change in communication and on the pace and magnitude of the cutting cycle. Taking communication first, Lagarde told us that we would know more in April, and a lot more in June so how much do we know and is it sufficient for them to change their gauge of “confidence”. Officially they remain at “not sufficiently” confident do they adjust that to an “almost”, “nearly” or does it remain as is. If they adjust expect June to be priced fully and maybe even have a nibble at a 50bp cut. Back win the day when they started their rate hiking cycle they explicitly said they would hike at their next meeting. They indeed did but by 50bps which was a major shock to the markets so worth remembering. On the pace and magnitude, the market expects 25bp cuts, but remember they were burnt on the way up! The pace is really up for grabs and once they get going on the cycle will be the major debate between the warring factions at the Bank.
Sweden Inflation Report. On a very obvious downward trend back to 2% with the Riksbank ready to pull the trigger on rate cuts at next month’s meeting. With that in mind this is the only print from this series prior to that meeting. The Bank forecast 2.7% but market expectations are for a softer number, 2.6%, potentially playing into the hands of those looking for a cut. The only other potential headwind to a cut would be the weak SEK which has seen a near 4% decline versus the EUR this year and an even worse 5.5% versus the USD.
The Day Ahead
Slow start to the week with nothing really hotting up until Wednesday. Couple of central bank speakers today and tomorrow and little else. See you Wednesday!
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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
SNB Jordan Speaks (16.15 BST)
BoE Speakers
Breeden (16.30 BST)
Tuesday
SNB Schlegel Speaks (17.30 BST)
Fed Speakers
Kashkari (00.00 BST)
Wednesday
RBNZ Interest Rate Decision expectations for rates to remain on hold at 5.5% (03.00 BST)
BoJ Ueda Speaks (07.00 BST)
Norway Inflation Rate MoM Mar consensus % vs previous 0.2% (07.00 BST)
Norway Inflation Rate YoY Mar consensus 4% vs previous 4.5% (07.00 BST)
Norway Core Inflation Rate MoM Mar consensus % vs previous 0.4% (07.00 BST)
Norway Core Inflation Rate YoY Mar consensus 4.6% vs previous 4.9% (07.00 BST)
US Inflation Rate MoM Mar consensus 0.3% vs previous 0.4% (13.30 BST)
US Inflation Rate YoY Mar consensus 3.4% vs previous 3.2% (13.30 BST)
US Core Inflation Rate MoM Mar consensus 0.3% vs previous 0.4% (13.30 BST)
US Core Inflation Rate YoY Mar consensus 3.7% vs previous 3.8% (13.30 BST)
BoC Interest Rate Decision expectations for rates to remain on hold at 5% (14.45 BST)
BoC Monetary Policy Report (14.45 BST)
BoC Press Conference (15.00 BST)
FOMC Minutes (19.00 BST)
Fed Speakers
Bowman (13.45 BST)
Goolsbee (17.45 BST)
Thursday
China Inflation Rate MoM Mar consensus % vs previous 1% (02.30 BST)
China Inflation Rate YoY Mar consensus % vs previous 0.7% (02.30 BST)
ECB Interest Rate Decision expectations for rates to remain on hold at 4.5% (13.15 BST)
US PPI MoM Mar consensus 0.3% vs previous 0.6% (13.30 BST)
US PPI YoY Mar consensus 2.3% vs previous 1.6% (13.30 BST)
US Core PPI MoM Mar consensus 0.2% vs previous 0.3% (13.30 BST)
US Core PPI YoY Mar consensus 2.3% vs previous 2% (13.30 BST)
ECB Press Conference (13.45 BST)
Fed Speakers
Williams (13.45 BST)
Collins (17.00 BST)
Bostic (18.30 BST)
BoE Speakers
Greene (19.00 BST)
Friday
China Balance of Trade Mar consensus $bn vs previous $125.16bn (04.00 BST)
China Exports YoY Mar consensus % vs previous 7.1% (04.00 BST)
China Imports YoY Mar consensus % vs previous 3.5% (04.00 BST)
Japan Capacity Utilisation MoM Feb consensus vs previous 7.9% (05.30 BST)
Japan Industrial Production MoM Feb Final consensus -0.1% vs previous -6.7% (05.30 BST)
Japan Industrial Production YoY Feb Final consensus vs previous -1.5% (05.30 BST)
Germany Inflation Rate MoM Mar Final consensus 0.4% vs previous 0.4% (07.00 BST)
Germany Inflation Rate YoY Mar Final consensus 2.2% vs previous 2.5% (07.00 BST)
Sweden Inflation Rate MoM Mar consensus 0.4% vs previous 0.2% (07.00 BST)
Sweden Inflation Rate YoY Mar consensus 4.4% vs previous 4.5% (07.00 BST)
Sweden CPIF MoM Mar consensus % vs previous 0.2% (07.00 BST)
Sweden CPIF YoY Mar consensus 2.6% vs previous 2.5% (07.00 BST)
UK GDP MoM Feb consensus 0.1% vs previous 0.2% (07.00 BST)
UK GDP YoY Feb consensus % vs previous -0.3% (07.00 BST)
UK GDP 3m avg Feb consensus 0.1% vs previous -0.1% (07.00 BST)
UK Industrial Production MoM Feb consensus 0% vs previous -0.2% (07.00 BST)
UK Industrial Production YoY Feb consensus % vs previous 0.5% (07.00 BST)
UK Manufacturing Production MoM Feb consensus 0.2% vs previous 0% (07.00 BST)
UK Manufacturing Production YoY Feb consensus % vs previous 2% (07.00 BST)
US Michigan Consumer Sentiment Prel Apr consensus 79 vs previous 79.4 (15.00 BST)
US Michigan Inflation Expectations Prel Apr consensus % vs previous 2.9% (15.00 BST)
US Michigan 5y Inflation Expectations Prel Apr consensus % vs previous 2.8% (15.00 BST)
Fed Speakers
Bostic (19.30 BST)
Daly (20.30 BST)
ECB Speakers
Elderson (12.00 BST)
BoE Speakers
Greene (08.40 BST)
Good luck.
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