Weekly Market Recap (08-12 April)

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The Japanese
February Wage data came in line with expectations:

  • Average Cash
    Earnings Y/Y 1.8% vs. 1.8% expected and 2.0% prior.
  • Real Wages Y/Y -1.3%
    vs. -1.4% expected and -0.6% prior.

Japan Average Cash Earnings YoY

The Switzerland
Unemployment Rate ticked higher in March:

  • Swiss unemployment
    rate unadjusted 2.4% vs. 2.4 expected and 2.4% prior.
  • Swiss unemployment
    rate adjusted 2.3% vs. 2.2% expected and 2.2% prior.

Switzerland Unemployment Rate n.s.a.

The New York Fed released
the March inflation expectations survey:

  • One year inflation
    3.0% vs. 3.0% prior.
  • Three-year inflation
    expectations 2.9% vs. 2.7% prior.
  • Five-year inflation
    2.6% vs. 2.9% prior.
  • Expected home price
    increase 3.0% vs. 3.0% prior.
  • Year ahead expected
    wage growth 2.8% vs. 2.8% prior.
  • Fear of missing debt
    payments was highest in four years.
  • Household view of
    personal finances improved modestly in March.
  • Median household
    spending growth 5.0% vs. 5.2%.

New York Federal Reserve

Fed’s Goolsbee (dove –
non voter) didn’t add anything new on the monetary policy outlook:

  • Fed’s lender of last
    resort system functioning well.
  • Economy was on a
    golden path in 2023.
  • Economy remains
    strong, jobs data confirm that.
  • Fed has to determine
    how long to be restrictive on monetary policy.
  • Undeniable that many
    are upset with economy.
  • Sees breakdown
    between data and consumer mood.
  • Economy is getting
    back into better balance.

Fed’s Goolsbee

Fed’s Kashkari (hawk –
non voter) delivered some token remarks about the inflation goal and the crypto
market:

  • The inflation rate
    is running around 3% and the Fed has to get back down to 2%.
  • Says the bank cannot
    ‘stop short’ on the inflation fight.
  • Says the labour
    market is not ‘red hot’ like it was 12 months ago but it’s still tight.
  • Says crypto is just
    a toy.
  • It’s not being used
    in daily lives.
  • Crypto is too
    volatile to be a store of value.
  • Not an inflation hedge.

Fed’s Kashkari

BoJ Ueda didn’t offer
anything new on the monetary policy outlook as the central bank continues to
deliver mixed messages to keep the market wondering when the next change will
happen:

  • Japan’s economy
    showing some weakness but recovering moderately.
  • Chance of solid wage
    growth this year heightening.
  • Inflation likely to
    exceed 2% this fiscal year, slow thereafter.
  • Must watch FX,
    market developments and their impact on economy, prices.
  • Trend inflation
    likely to gradually accelerate towards end of current forecast period
    under quarterly report.
  • BoJ will guide
    policy appropriately with eye on economy, price developments with
    short-term rate as policy target.
  • BoJ expects
    accommodative monetary conditions to continue for time being
    .
  • Expects consumption
    to increase gradually as wage gains push up household income.
  • Temporary factors
    that are weighing on consumption likely to dissipate.
  • Important to
    maintain accommodative monetary conditions as trend inflation yet to hit
    2%.
  • If economy, price
    developments proceed as we project now, we need to think about reducing
    degree of monetary support.
  • Whether this will
    happen will depend on upcoming data.
  • Have no preset idea
    now on how and when we will adjust interest rate levels.
  • Even after March
    policy shift, expect interest rates to stay low, real interest rates to
    remain at deeply negative territory.
  • Expect to reduce our
    bond buying in future but can’t say now when and by how much.
  • Won’t immediately
    start unloading BoJ’s ETF holdings.
  • Won’t comment
    specifically on FX levels, moves.
  • Various factors are
    behind FX moves.
  • FX rates should move
    stably reflecting fundamentals.
  • Monetary policy is
    among fundamental factors that affect FX moves.
  • Monetary policy does
    not explicitly seek to control FX moves.
  • Ueda says that their
    current guidance does not promise to keep overnight call rate target at
    0-0.1% until a certain condition is met.

BoJ Ueda

The NFIB Small Business
Optimism Index missed expectations falling to the lowest level since 2012:

  • NFIB 88.5 vs. 90.2
    expected and 89.4 prior.

“Small
business optimism has reached the lowest level since 2012 as owners continue to
manage numerous economic headwinds,” said NFIB Chief Economist Bill
Dunkelberg
. “Inflation has once again been reported as the top business
problem on Main Street and the labour market has only eased slightly.”

US NFIB Small Business Optimism Index

Fed’s Bostic (hawk –
voter) said that if the disinflationary progress were to halt, rate cuts could
move even further out:

  • Expects a slow pace
    of disinflation in 2024.
  • CPI coming in at
    consensus would be a welcome development.
  • He cannot eliminate
    the possibility that rate cuts move even further out.
  • It is always
    possible Fed’s growth forecast could rise.
  • If disinflation pace
    continues, they could pull cuts in closer.
  • Not hearing much
    from businesses that they are seeing “coming pain” in employment.
  • If a labour cliff
    seems to be approaching, it might influence policy.

Fed’s Bostic

The Japanese March PPI
missed expectations:

  • PPI M/M 0.2% vs.
    0.3% expected and 0.2% prior.
  • PPI Y/Y 0.8% vs. 0.8%
    expected and 0.7% prior (revised from 0.6%).

Japan PPI YoY

The RBNZ left the
OCR unchanged at 5.50% as expected:

  • Committee is
    confident that maintaining the OCR at a restrictive level for a sustained
    period will return consumer price inflation to within the 1 to 3 percent
    target range this calendar year.
  • The New Zealand
    economy continues to evolve as anticipated by the monetary policy
    committee.
  • A restrictive
    monetary policy stance remains necessary to further reduce capacity
    pressures and inflation.
  • Economic growth in
    New Zealand remains weak.

From
the minutes of the meeting
:

  • Members agreed they
    remain confident that monetary policy is restricting demand.
  • Restrictive monetary
    policy is contributing to an easing in capacity pressures to ensure
    inflation returns to target.
  • Further decline in
    capacity pressure is expected, supporting an ongoing decline in inflation.
  • Members agreed they
    remain confident that monetary policy is restricting demand.
  • Measures of business
    confidence have declined and firms’ own expectations for activity and
    investment have weakened.
  • Near-term business
    pricing intentions have declined but remain elevated, in part reflecting
    an uptick in both realised and expected costs.
  • Continued strength
    in net migration, is supporting aggregate consumer spending and rising
    dwelling costs.
  • The committee agreed
    that interest rates need to remain at a restrictive level for a sustained
    period.
  • Members agreed that
    the balance of risks was little changed since the February.
  • Members agreed that there
    remains limited tolerance to increase the time to achieve the inflation
    target while inflation remains outside the target band and while inflation
    expectations and pricing intentions remain elevated.
  • Members agreed that
    persistence of services inflation remains a risk and goods price inflation
    remains elevated.
  • Ongoing restrictive
    monetary policy in an environment of weak global growth could lead to a
    more rapid decline in inflation than expected.

RBNZ

The US March CPI
beat expectations across the board for the third consecutive month with the market pricing out the June rate cut and now seeing just 50 bps of cuts in 2024:

  • CPI Y/Y 3.5% vs. 3.4% expected and 3.2% prior.
  • CPI M/M 0.4% vs. 0.3% expected and 0.4% prior.
  • Core CPI Y/Y 3.8% vs. 3.7% expected and 3.8%
    prior.
  • Core CPI M/M 0.4% vs. 0.3% expected and 0.4%
    prior.
  • Core CPI Services ex-Housing Y/Y 4.8%.
  • Real weekly earnings 0.3% vs. 0.0% prior.

US Core CPI YoY

The BoC left
interest rates unchanged at 5.00% as expected:

  • While inflation is still too high and risks remain, CPI and core inflation
    have eased further in recent months. The Council will be looking for evidence
    that this downward momentum is sustained.
  • Governing Council is
    particularly watching the evolution of core inflation and continues to
    focus on the balance between demand and supply in the economy, inflation
    expectations, wage growth, and corporate pricing behaviour.
  • There are some
    recent signs that wage pressures are moderating.
  • The line about the
    BoC being concerned about inflation risks removed.
  • The US economy has
    again proven stronger than anticipated, buoyed by resilient consumption
    and robust business and government spending.
  • A broad range of
    indicators suggest that labour market conditions continue to ease.
  • CPI inflation slowed
    to 2.8% in February, with easing in price pressures becoming more
    broad-based across goods and services.

BoC

Moving on to the
Governor Macklem’s Press Conference:

  • We’re looking for
    evidence that the recent further easing in underlying inflation will be
    sustained.
  • Growth in the
    economy looks to be picking up. We expect GDP growth to be solid this year
    and to strengthen further in 2025.
  • We have revised up
    our outlook for global growth. US economic growth again exceeded
    expectations, and while growth is expected to slow later this year,
    economic activity is stronger than previously forecast.
  • There are also some
    signs that wage pressures are beginning to ease.
  • We don’t want to
    leave monetary policy this restrictive longer than we need to.
  • Overall, the data
    since January have increased our confidence that inflation will continue
    to come down gradually even as economic activity strengthens.
  • We’re encouraged by
    what we’ve seen in the economy.
  • Things are moving in
    the right direction, we need to see that progress continue.
  • If things evolve
    broadly as we expect it will be appropriate to cut rates.
  • We have seen
    progress across our inflation indicators.
  • Pricing behaviour
    from companies is starting to normalize.
  • The decline we’ve
    seen in inflation momentum “is very recent”.
  • We are seeing what
    we hoped and need to see, we just need to see it for longer.
  • Main driver of GDP
    forecast increase has been population growth
  • We did discuss when
    to cut rates
    , there was a ‘clear consensus’ to hold.
  • There is some
    diversity of views in the governing council as to when we’re going to see
    what we’re looking for.
  • We will be
    particularly focused on core inflation, when we talk about sustained
    progress that’s what we mean.
  • Housing will
    continue to contribute to inflation.

BoC’s Macklem

The Federal
Reserve released the Minutes of its March Monetary Policy Meeting, although
they were very stale given the recent data and the CPI report:

  • Consumer price
    inflation continued to decline, but recent progress was uneven.
  • Disinflation process
    was continuing along a path that was generally expected to be somewhat
    uneven.
  • Participants
    generally judged that risks to the achievement of the Committee’s
    employment and inflation goals were moving into better balance.
  • Participants
    generally noted their uncertainty about the persistence of high inflation
    and expressed the view that recent data had not increased their confidence
    that inflation was moving sustainably down to 2%.
  • A few participants
    remarked that they expected core non housing services inflation to decline
    as the labour market continued to move into better balance and wage growth
    moderated further.
  • Participants
    discussed the still-elevated rate of housing services inflation and
    commented on the uncertainty regarding when and by how much lower readings
    for rent growth on new leases would pass through to this category of
    inflation.
  • Some participants
    noted that increased immigration, which had likely been boosting the
    growth of personal consumption spending, may also have been adding to the
    demand for housing.
  • Many participants
    pointed to indicators such as higher credit card balances, greater use of
    buy-now-pay-later programs or rising delinquency rates on some types of
    consumer loans as evidence that the finances of some lower- and
    moderate-income households might be coming under pressure.
  • The economic
    projection prepared by the staff for the March meeting was stronger than
    the January forecast. The upward revision in the forecast primarily
    reflected the staff’s incorporation of a higher projected path for
    population due to a boost from immigration.

Federal Reserve

The Chinese March CPI
missed expectations by a big margin:

  • CPI Y/Y 0.1% vs. 0.4%
    expected and 0.7% prior.
  • CPI M/M -1.0% vs.
    -0.5% expected and 1.0% prior.
  • Core CPI Y/Y 0.6%
    vs. 1.2% prior.
  • Core CPI M/M -0.6% vs. 0.5% prior.
  • PPI Y/Y -2.8% vs.
    -2.8% expected and -2.7% prior.

China CPI YoY

BoE’s Greene (hawk –
voter) said that the rate cuts should still be a way off given the high
services inflation persistence and high wage growth:

  • Inflation
    persistence a greater threat in the UK than the US.
  • Markets now expect
    the Bank of England will cut rates earlier and by more than the Federal
    Reserve this year.
  • UK services
    inflation remains much higher than in the US.
  • Higher inflation
    expectations have translated to higher pay growth, by metrics now between
    6-7 per cent in UK.
  • Rate cuts in the UK
    should still be a way off as well.

BoE’s Greene

The ECB left interest
rates unchanged at 4.00% as expected and opened the door for a June rate cut:

  • Most measures of
    underlying inflation are easing, wage growth is gradually moderating.
  • Not pre-committed to
    a particular rate path.
  • Will continue to follow
    a data-dependent approach and meeting-by-meeting approach.
  • Inflation has
    continued to fall, led by lower food and goods price inflation.
  • Domestic price
    pressure are strong and are keeping services price inflation high.
  • Intends to
    discontinue reinvesting PEPP at end of 2024.
  • If the Governing
    Council’s updated assessment of the inflation outlook, the dynamics of
    underlying inflation and the strength of monetary policy transmission were
    to further increase its confidence that inflation is converging to the
    target in a sustained manner, it would be appropriate to reduce the
    current level of monetary policy restriction.

ECB

Moving on to the
President Lagarde’s Press Conference:

  • The economy remained
    weak in the first quarter.
  • Production remains subdued,
    especially in energy-intensive industries.
  • Expects to pick up
    in coming quarters.
  • Governments should
    continue to roll-back support.
  • Tightness in labour
    market is gradually declining.
  • Highlights falling
    food and energy price inflation, along with goods.
  • Services price
    inflation remained high in March at 4%.
  • More-recent
    indicators point to further moderation in wage growth.
  • Inflation expected
    to decline to target next year.
  • Risks to economic
    growth remain tilted to the downside.
  • Growth could be higher
    if inflation comes down more than expected.
  • Inflation could turn
    out higher if wages climb or profit margins remain elevated.
  • If we achieve
    further confidence in outlook, it would be appropriate to lower rates.
  • We are not pre-committing
    to a particular rate path.
  • A few members felt
    sufficiently confident to cut rates.
  • In April, we get
    some data and in June we will have a lot more data and information, we
    will also have new projections.
  • We will be looking
    at data and whether it confirms our hope that inflation is on the path to
    our forecasts.
  • A very large
    majority wanted more data.
  • We are data
    dependent, not Fed dependent.
  • The size of our
    balance sheet has reduced quite a bit already.
  • Highlights
    differences in eurozone versus US inflation, including consumption and
    fiscal response.
  • If disinflation
    continues, rate path will reflect that.
  • We are observing a
    decline in inflation that’s comforting us.
  • We will be attentive
    to wages.

ECB’s President Lagarde

The US March PPI came
mostly in line with expectations:

  • PPI Y/Y 2.1% vs.
    2.2% expected and 1.6% prior.
  • PPI M/M 0.2% vs.
    0.3% expected and 0.6% prior.
  • Core PPI Y/Y 2.4%
    vs. 2.3% expected and 2.1% prior (revised from 2.0%).
  • Core PPI M/M 0.2%
    vs. 0.2% expected and 0.3% prior.

US Core PPI YoY

The US Initial Claims
beat expectations while Continuing Claims missed:

  • Initial Claims 211K
    vs. 215K expected and 222K prior (revised from 221K).
  • Continuing Claims
    1817K vs. 1800K expected and 1789K prior (revised from 1791K).

US Jobless Claims

Fed’s Williams (neutral –
voter) sounded pretty dovish since the comments came after another hot US CPI
report. He also commented on the Core Services ex-Housing measure oddly saying
that “it’s falling faster than expected”, although the trend actually reversed
and it’s now rising fast:

  • The outlook is
    uncertain and the FOMC must be data dependent.
  • Inflation is moving
    towards 2%, expect further bumps.
  • Fed has made
    considerable progress.
  • Inflation to stand
    at 2.25-2.50% this year.
  • Expects inflation to
    settle back to 2% next year.
  • Expects US GDP to
    hit 2% this year.
  • Job market remains strong.
  • Housing very strong
    but doesn’t see sign of a bubble.
  • Commercial real
    estate an area of concern, will take time to resolve.
  • Fed forecasts rate
    cuts starting this year.
  • There is a great
    deal of uncertainty over economy.
  • US economy has
    benefited from positive supply shock.
  • Inflation fell
    faster than expected last year.
  • Progress on
    inflation has hit some bumps with recent data being disappointing.
  • Better to focus on
    trend for inflation.
  • Doesn’t know exactly
    what lies ahead for monetary policy.
  • The economy is in a
    good place right now.
  • Monetary policy is
    well-positioned to achieve Fed goals.
  • Does not see a
    financial stability crisis from commercial real estate.
  • Fed working to make
    sure banks ready for discount window.
  • Access to the
    discount window is important during times of stress.
  • Banks should be
    ready for discount window before trouble arrives (the discount window was
    once thought as a lender of last resort place for banks to square their
    balances on a daily basis. The Fed used to shun banks from its use. Now
    they are saying that they encourage it more).
  • Eventually will need
    to cut rates.
  • Fed rate hike not
    part of baseline view for the outlook.
  • Fed policy making
    progress working out economic imbalances.
  • Core services
    ex-housing inflation falling faster than expected.
  • No need to change
    monetary policy in the very near term.
  • Shelter inflation
    slower to come down than expected.
  • Recent inflation
    setbacks are not a surprise to the Fed.

Fed’s Williams

Fed’s Barkin (hawk –
voter) said that the latest inflation report didn’t increase his confidence and
therefore they will wait for more data before gaining enough confidence:

  • Latest inflation
    data did not increase my confidence that disinflation is spreading in the
    economy.
  • Latest inflation
    data looks like it did at the end of 2023 with goods prices falling,
    shelter moving sideways and services increasing.
  • Fed is ‘not yet
    where we want to be’ on inflation though ‘headed in the right direction’
    over the longer time frame.

Fed’s Barkin

Fed’s Collins (neutral –
non voter) basically said that the recent inflation data argues for more patience,
but rate cuts this year are still the baseline scenario:

  • Recent data argue
    against imminent need to change rates.
  • Still expects rate
    cuts this year.
  • May take more time
    for economy to moderate as needed.
  • Economic strength
    may auger fewer rate cuts.
  • Disinflation likely
    to continue to be uneven.
  • Recent inflation
    data haven’t changed view about outlook.
  • Economy strength may
    mean Fed policy not as restrictive as thought.
  • Strong job market
    reduces urgency of rate cut need.
  • Expects inflation to
    continue to moderate.
  • Fed policy well
    positioned for current economy.
  • Economy resilient in
    face of Fed rate policy; may take longer to get inflation back to 2%.
  • Economic uncertainty is elevated.
  • Wage growth is
    consistent with path back to 2% inflation.
  • Too early to make
    sense of recent rising productivity.
  • Short-term inflation
    expectations are now consistent with 2% inflation goal.

Later she added:

  • Rate hike not part of baseline but not fully ruled out.
  • She says two rate cuts
    are possible for 2024 and expects inflation pressure to wane later this year.
  • She noted we can’t pre-judge when the Fed can start
    cutting rates.

Fed’s Collins

The New Zealand March
Manufacturing PMI fell further into contraction:

  • Manufacturing PMI
    47.1 vs. 49.1 prior.
  • 47.1 is the lowest
    since December 2023.
  • has now been in
    contraction for 13 consecutive months, the longest since 2009.

BNZ’s
Senior Economist Doug Steel
:

  • “The PMI’s average
    for the first quarter of the year is consistent with manufacturing GDP
    posting another quarter that is below that of a year earlier”.

New Zealand Manufacturing PMI

The UK GDP came in line
with expectations:

  • GDP M/M 0.1% vs. 0.1%
    expected and 0.3% prior (revised from 0.2%).
  • GDP Y/Y -0.2% vs. -0.4%
    expected and -0.3% prior (revised from -0.1%).

UK GDP MoM

The US April University of
Michigan Consumer Sentiment Survey missed expectations across the board with
inflation expectations ticking higher:

  • Consumer Sentiment 77.9
    vs. 79.0 expected and 79.4 prior.
  • Current conditions
    79.3 vs. 82.2 expected and 82.5 prior.
  • Expectations 77.0 vs.
    77.6 expected and 77.4 prior.
  • 1-year inflation
    expectations 3.1% vs. 2.9% prior.
  • 5-year inflation
    expectation 3.0% vs. 2.8% prior.

University of Michigan Consumer Sentiment

Risk aversion hit the
markets as Israel is said to be preparing for a direct attack from Iran on
southern or northern Israel in the next 48 hours. This follows an Israeli attack
last week in Syria where an Iranian general died. Iran since then publicly threatened
a retaliation.

Israel – Iran

The
highlights for next week will be
:

  • Monday: New Zealand
    Services PMI, Eurozone Industrial Production, US Retail Sales, US NAHB
    Housing Market Index, PBoC MLF.
  • Tuesday: China Industrial
    Production and Retail Sales, UK Labour Market report, Eurozone ZEW, Canada
    CPI, US Housing Starts and Building Permits, US Industrial Production.
  • Wednesday: New Zealand CPI,
    UK CPI.
  • Thursday: Australia Labour
    Market report, US Jobless Claims.
  • Friday: Japan CPI, UK
    Retail Sales.

That’s all folks. Have a
nice weekend!

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