GDP and activity data from China, inflation data from the UK, Japan, Canada and New Zealand, employment data from the UK and Australia as well as consumption data from the US will highlight the week ahead of us.
USD
March inflation report came in hotter than expected. Headline CPI came in at 3.5% y/y vs 3.4% y/y as expected and up from 3.2% y/y in February. It showed an increase of 0.4% m/m vs 0.3% m/m as expected. This makes it a third consecutive month of 0.4% m/m increases. Rising oil prices caused energy to contribute to growth in inflation. Core reading came unchanged at 0.4% m/m and 3.8% y/y while 0.3% m/m and 3.7% y/y were expected. Shelter component rose 0.4% m/m and was the biggest contributor to the core reading. Supercore, services (services ex energy, ex housing), rose 0.65% m/m. This report basically wiped out June rate cut and now September seems the most likely for a rate cut. However, it is questionable whether Fed will want to cut so close to the election in order to avoid looking politically influenced.
FOMC minutes from the March meeting showed us that members are disappointed with the latest inflation readings. Additionally, the Fed is working on creating the way for a slowing down its Quantitative Tightening programme. Most likely they will reduce the amount of Treasuries and leave the MBS rolling off at the same amount. Gold continued its massive uptrend reaching $2400 level on Friday.
The yield on a 10y Treasury started the week at 4.40%, rose to 4.6%, post CPI and after a horrendous 10y auction that saw a 3bp tail, which is the high for the year and finished the week at around 4.51%. The yield on 2y Treasury started the week at 4.76% and reached the high of 4.98%. Spread between 2y and 10y Treasuries started the week at -35bp then widened to -39bp as curve continued to invert further. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 98% while probability of a rate cut is around 2%. Probability of a June rate cut plunged after the strong CPI report and sits at around 26%.
This week we will get consumption data.
Important news for USD:
Monday:
Retail Sales
EUR
ECB has left key interest rates unchanged as was widely expected. The accompanying statement shows that most measures of underlying inflation are easing while wage growth is gradually moderating. Inflation shows lower food and goods inflation while domestic price pressures keep services inflation elevated. ECB plans to stop reinvesting PEPP proceeds at the end of 2024. Governing Council will remain data dependent and if their “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.” They are laying the ground for a rate cut which will occur if incoming inflation data permits it. President Lagarde stated that some members were in favor of immediate rate cut but majority voted for no change as they wished to see more data.
GBP
The UK economy rose by 0.1% m/m in February as expected. Improvements were seen in manufacturing and in industrial production while construction output reported a decline. Services rose by 0.1% m/m. This is the second consecutive month of rising GDP indicating that economic activity is starting to rebound and that we will get a positive Q1 GDP print.
This week we will get employment and inflation data.
Important news for GBP:
Tuesday:
Payroll Change
Unemployment Rate
Wednesday:
CPI
AUD
March CPI data from China saw a 0.1% y/y increase vs 0.4% y/y as expected and down from 0.7% y/y in February. The report shows that prices for transportation and household appliance were the biggest drag on inflation. Overall, non-food inflation still stays positive while food prices continue to decline (-2.4% y/y). PPI has continued its downward trajectory as it printed -2.8% y/y.
This week we will get employment data from Australia as well as GDP, production and consumption data from China.
Important news for AUD:
Tuesday:
GDP (China)
Industrial Production (China)
Retail Sales (China)
Thursday:
Employment Change
Unemployment Rate
NZD
RBNZ has left the cash rate unchanged at 5.5% as was widely expected but sounded more hawkish. Their stance was revealed at the end of the statement where it said “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 committee sees economy developing as anticipated but the growth remains weak. Members agreed that current level of rates is putting restraints on the demand.
This week we will get Q1 inflation data.
Important news for NZD:
Wednesday:
CPI
CAD
BoC has left the overnight rate at 5% as was widely expected. The statement shows that “economic growth stalled in the second half of last year and the economy moved into excess supply.” New projections see 2024 GDP at 1.5%, 2025 at 2.2% and 2026 at 1.9%. Inflation is seen gradually coming down with shelter inflation staying elevated. Inflation is expected to reach 2% target in 2025. Bank members noticed some signs of moderating wage pressures. The statement shows that thee Council will look for evidence that downward momentum in inflation, seen in recent months, is sustained. The statement concludes with “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.”
During the press conference BoC Governor Macklem clarified that bank members are satisfied with the progress they are seeing on inflation but they need to see it for a longer period of time in order to be confident that the move down is sustained. He clarified that “We need to be assured this is not just a temporary dip.”
This week we will get inflation data.
Important news for CAD:
Tuesday:
CPI
JPY
Wages data for the month of February saw increase of 1.8% y/y as expected. However, when inflation is taken into account, real wages have dropped 1.3% y/y which makes it a 23 consecutive month of falling wages. After the hot US CPI report USDJPY broke 153 level making it the highest level for the pair since 1990.
CHF
SNB total sight deposits for the week ending April 5 came in at CHF460.9bn vs CHF456.8bn the previous week. A move back into the well-established range, nothing out of the ordinary. SNB Vice chairman Shlegel, most likely to succeed Jordan as the new Chairman, stated the role of FX interventions in complementing monetary policy adding that rates would need go higher if there were no forex sales.
