Weekly Market Recap (08-12 April)

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.

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.

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%.

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 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.

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.

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.”

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.

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%).

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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).

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 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 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.

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”.

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%).

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.

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.

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!