FOMC meeting, QRA announcement, inflation data from the Eurozone and Switzerland, NFP, preliminary Q1 GDP for the Eurozone, employment data for New Zealand as well as ISM PMI data from the US and PMI data from China will be the highlights of this very busy week.
USD
Q1 GDP surprised to the downside and printed a 1.6% annualised growth vs 2.4% as expected. The details of the report show that net trade was the biggest drag on growth deducting 0.86pp from the final figure. Additionally, inventories also deducted 0.37pp from the GDP while contribution of government spending was at 0.21pp, a big down from 0.79pp in the Q4. Personal consumption contributed 1.68pp to the final reading, down from Q4 of 2023 but business investment contribute 0.56pp, up from 0.15pp in the previous quarter. On the inflation front, PCE deflator was 3.1% vs 3% as expected while core PCE printed 3.7% vs 3.4% as expected. Fed will not be forced to cut rates sooner than expected after this reading.
March PCE data came in slightly hotter than expected. Headline number printed 2.7% y/y, up from 2.5% y/y in February while 2.6% y/y print was expected. Core reading was unchanged at 2.8% y/y while expectations were for a tick down to 2.7% y/y. Personal spending rose 0.8% m/m while personal income was up 0.5% m/m. Overall, numbers came in along the line of expectations and markets seem to be well positioned. Chances of a rate cut slightly rose but it will not affect next week’s meeting.
The yield on a 10y Treasury started the week at 4.63%, rose to 4.73%, a new high for the year and finished the week at around 4.65%. The yield on 2y Treasury started the week at 4.99% and reached the high of 5.03%. Spread between 2y and 10y Treasuries started the week at -37bp then tightened to -31bp as curve proceeded to bear steepen. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 97% while probability of a rate cut is around 3%. Probability of a June rate cut sits at around 12%.
This week we will have ISM PMI data, FOMC meeting, QRA announcement and NFP. No change to the rate is expected and with recent inflation data we may get more hawkish tone from the Chair Powell. Headline NFP number is seen at around 190k while unemployment rate should remain at 3.8%. Wages data will be closely watched for further signs of inflation pressures.
Important news for USD:
Wednesday:
ISM Manufacturing PMI
QRA Announcement
Fed Interest Rate Decision
Friday:
NFP
Unemployment Rate
ISM Services PMI
EUR
Preliminary PMI data for the month of April accentuated the divide between two sectors. Manufacturing PMI came in at 45.6 vs 46.6 as expected and down from 46.1 in March. German manufacturing is at very weak 42.2. The report shows the slowest decline in production for the year. Services PMI jumped to 52.9 from 51.5 while improvement to 51.8 was expected. The report shows that new businesses continue to grow as well as that companies have more confidence when setting prices. Composite increased to 51.4 from 50.7 the previous month. Q2 has started on a positive note for the Eurozone and today’s reading suggests positive GDP number.
This week we will get preliminary Q1 GDP reading as well as preliminary April inflation data.
Important news for EUR:
Tuesday:
GDP
CPI
GBP
Preliminary April PMI data showed the same dichotomy between sectors as in the Eurozone. Manufacturing printed 48.7 vs 50.3 in March and dropped into contraction while services jumped to 54.9 from 53.1 the previous month. This all helped lift composite to 54 from 52.8 in March. The report shows that PMI numbers should translate to 0.4% q/q growth in the second quarter.
BoE Chief Economist Huw Pill stated that signs of downward shift in inflation pressures are start to be more clear. He added that a cut in rate would not entirely undo the restrictive policy stance but the timing for rate cuts is still some way off. Other MPC members, most notably Deputy Governor David Ramsden, a hawk, came out with dovish comments suggesting that timing for rate cuts is drawing near. Markets have been selling GBP since Friday of last week, after the weak retail sales report but then reversed mid week with GBPUSD climbing over the 1.25 level.
AUD
Q1 inflation data came in hotter than expected. Headline CPI rose 1% q/q vs 0.8% q/q as expected. Yearly figure did decline to 3.6% from 4.1% in Q4 of 2023 but expectations were for a decline to 3.4%. Headline core reading also printed 1% q/q increase while yearly number eased to 4% from 4.2% in the previous quarter, but expectations were for a decline to 3.8%. Inflation coming down is a good thing, but slower than expected pace of declines means that RBA will not move to rate cuts and will hold interest rate at current level.
This week we will get PMI data from China.
Important news for AUD:
Tuesday:
Manufacturing PMI (China)
Services PMI (China)
Composite PMI (China)
Caixin Manufacturing PMI (China)
NZD
March trade data showed first surplus since June of 2023. Kiwi has had a mixed week. It was up against weak USD, CHF and JPY but it was the weakest of so-called risk on currencies, losing the most against the AUD which was boosted by higher than expected inflation print.
This week we will get employment data.
Important news for NZD:
Wednesday:
Employment Change
Unemployment Rate
CAD
February retail sales were very weak. Headline number came in at -0.1% m/m vs 0.1% m/m as expected while ex autos category plunged -0.3% m/m vs 0% m/m as expected. Additionally, advanced reading for the March sees retail sales coming in flat. With January and February printing negative numbers and March seen coming flat it is clear that consumption will be a drag to Q1 GDP and CAD is suffering on the back of that.
JPY
Preliminary April PMI data saw further improvements across the sectors. Manufacturing jumped to 49.9, so close to returning into expansion, from 48.2 in March. The report shows slowest declines for outlook and new orders while employment continued to increase. Input prices have increased with the fastest rate of increase in the last nine months. Services rose to 54.6 from 54.1 the previous month due to big jump in new orders while composite improved to 52.6 from 51.7 in March. Input prices continue to rise in the services sector as well keeping the inflation pressures on.
BoJ has left interest rate unchanged at 0-0.10% as was widely expected. The voting was unanimous, 9-0. The part stating that BoJ buys JPY6tn of JGBs per month was removed from the statement indicating that the bank will return to their previously unlimited purchases. The statement shows that there are still extreme uncertainties around the economic and price outlook. Addiutionally, medium and long term inflation expectations heightened moderately while more firms starting to pass on rising wages to sales prices and it is expected that positive cycle of rising wages and inflation will continue. New projections see GDP for FY 2024 down to 0.8% from 1.2% and unchanged for FY 2025 at 1%. Ex fresh food CPI has been revised up for FY 2024 and is seen at 2.8% while ex fresh food, energy is seen unchanged at 1.9%.
BoJ Governor Ueda stated at the press conference that if underlying inflation rises there will be adjustments to monetary policy. For time being easy financial conditions will be maintained. He added that, so far, weak JPY is not having big impact on inflation trend. He clarified that there is non zero chance of prolonged weakness in JPY and added that BOJ’s policy is not aimed at directly controlling the exchange rate. Markets have pushed USDJPY over the 158 level as fears of intervention subside. Tokyo area inflation for the month of April dropped below the 2% target as headline number printed 1.8% y/y increase while ex fresh food category printed 1.6% y/y. They were at 2.6% y/y and 2.4% y/y respectively in March. Inflation is not moving in BoJ’s preferred direction, but it seems that some statistical quirks made it to drop and that this reading should not represent a reversal.
CHF
SNB Chairman Jordan spoke over the weekend and stated that monetary policy should be geared towards maintaining price stability rather than financing debt. SNB has raised minimum reserve ratio for banks to 4% from 2.5%. The decision will go into effect on July 1 and SNB describes the measure as “the adjustments will ensure that implementation of monetary policy remains effective and efficient”. SNB total sight deposits for the week ending April 19 came in at CHF481.3bn vs CHF477.9bn the previous week.
This week we will get inflation data.
Important news for CHF:
Thursday:
CPI
