The Morning Hark - 9 May 2024
Today’s focus...Quiet markets continue. Riksbank go for the cut. BoE up next.
Overnight Highlights
Prices are at 6.35 BST/1.35 EST, with changes reflecting movement from midnight GMT
Oil - Oil trading a touch firmer with Brent and Crude July futures currently at 83.90 and 79.
US suspended military shipments to Israel on the back of the Rafa incursion. The EIA data saw a draw for crude but a build for cushing.
EQ - Asian equity markets little changed overnight with the Hang Seng and Nikkei futures trading at 18,500 and 38,170.
The US indicies also unchanged in Asia, with the S&P and Nasdaq futures now at 5210 and 18,150 respectively.
Gold - Gold flat with the June futures trading currently at 2325.
FI - US yields continuing to firm up a touch overnight with currently the US2y futures trading at 4.85% whilst the US10y futures yield at 4.51%.
European yields little changed yesterday with the German 10y closing at 2.46% and the Italian 10y yield at 3.76%.
UK gilt 10y closed similarly lower at 4.14%.
FX - The USD unchanged from yesterday’s open with the USD Index currently at 105.56. The majors now trading at; JPY, EUR and GBP 155.60, 1.0740 and 1.2490 respectively.
Today’s FX option expiries sees in the EUR; €1.2bn at 1.0775.
Others - Bitcoin and Ethereum continuing to drift with the pair currently at 61,500 and 3005 respectively.
Macro Themes At Play
Recap
Germany Industrial Production MoM for March came in slightly better than expected at -0.4%.
Riksbank
The knife edge fell on the dovish side with a 25bp cut taking rates to 3.75%. A big statement, given that they normally act after the ECB moves and the worries the central bank has over the SEK’s weakness.
The fact they moved suggests that they are concerned with weakness in the domestic economy, with 4 quarters of negative growth coupled with a cooling labour market.
Guidance suggested a further two cuts for the year which would keep them in step potentially with the ECB’s intentions.
BoE Preview
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?
The probability is that they tilt a touch further into dovish territory, although expectations are for the vote to remain at 8/1. Potentially the next cab off the rank to join the dove Dhingra is Ramsden so there is an outside chance of a 7/2.
Given the vote is unlikely to change, the dovish tilt will probably manifest itself in either the statement but will they be brave enough to take that money line out? Or in the MPR and its updated forecasts via a lower inflation trajectory.
BoJ Summary of Opinions - April Meeting
Little of major note but some nuggets of interests within the Board.
If inflation overshoot continues against the backdrop of the weak JPY then the pace pf policy normalisation may become faster.
There were calls for further discussions on the timing of hikes.
If forecasts under quarterly report are met, interest rates might rise to levels beyond market expectations.
Overall a touch hawkish but its a stretch.
Central Bank Speakers
Fed’s Collins felt that holding rates steady for longer would slow the economy. She suggested that there were risks cutting rates too soon but that recent inflation setbacks were not a surprise.
ECB’s Wunsch saw a path for initiating rate cuts this year. The costs for remaining too tight for too long seem to outweigh the cost of premature easing. There is room to cut 50bps but that will depend on data.
Holzmann, on the other hand, saw no reason to lower rates too much too quickly.
BoJ’s Ueda stated that the BoJ will raise rates if trend inflation meets forecast. He also said that risks remain for both upside and downside for prices. There is a chance that inflation expectations overshoot expectations.
He claimed the Bank will buy JGBs at roughly the same amount amount but will adjust taking into account market developments.
The Day Ahead
Main and only highlight today is the BoE Rate Decision.
As we go to print tomorrow we get the Norwegian Inflation Report for April as well as the UK Data Dump with GDP being the highlight.
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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
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)
Early Friday
Norway Inflation Rate MoM Apr consensus 0.7% 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)
Good luck.
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