Weekly Market Recap (01-05 April)

Monday

Over the weekend,
the Chinese March PMIs beat expectations across the board:

• Manufacturing PMI
  50.8 vs. 50.1 expected and 49.1 prior.
• Services PMI 53.0
  vs. 51.5 expected and 51.4 prior.

ECB’s Stournaras (dove – voter) over the weekend
shared his views on monetary policy:

• If inflation
  develops in line with our March forecast and if this trend continues until
  the end of the year, I believe that this year we will have reductions in
  key interest rates from the ECB.
• Personally, I think
  the reduction of interest rates by four times this year, by 25 basis
  points each time, is possible.
• This is not yet a
  unified view. Some colleagues are more cautious and believe
  that interest rate cuts should be more moderate.
• The differences of
  opinion within the governing council of the ECB are much smaller than the
  image in the media.

ECB’s Holzmann (hawk – voter) said that the central
bank could cut interest rates before the Fed and overall he sounded pretty
dovish compared to his usual uber-hawkish stance:

• Europe could cut
  interest rates before the U.S.
• From today’s
  perspective, I’d say: interest rate cuts are likely to come. When will
  depend largely on what wage and price developments look like by June.
• Don’t have an
  objection to cutting rates in June.
• But want to see more
  supportive data.
• Cutting rates
  out-of-sync with the Fed would diminish the impact of policy easing by the
  bank.
• With Eurozone
  productivity very weak, a 3.0% deposit rate could prove too tight over the
  long-term.
• It’s possible that
  inflation could do better than what the bank is currently projecting.

The Chinese March Caixin Manufacturing PMI beat
expectations:

• Caixin Manufacturing
  PMI 51.1 vs. 51.0 expected and 50.9 prior.
• In expansion for a
  5th consecutive month.
• Manufacturers’
  output and new orders accelerated last month.
• External demand also
  improved; the new export orders sub index hit its highest level since
  February 2023.
• Drop in raw material
  prices reduced production costs.
• Employment sub-index
  remained negative; it has been since August 2023.

The Canadian
Manufacturing PMI improved slightly in March:

• Manufacturing PMI 49.8 vs. 49.7 prior.

The US March ISM Manufacturing PMI beat expectations
by a big margin with the prices index rising further:

• ISM Manufacturing
  PMI 50.3 vs. 48.4 expected and 48.4 prior.
• Prices paid 55.8 vs. 52.5 prior.
• Employment 47.4 vs. 45.1 prior.
• New orders 51.4 vs. 49.2 prior.
• Inventories 48.2 vs. 45.3 prior.
• Production 54.6 vs. 48.4 prior.
• First expansion
  after 16 months of contraction.

The BoC released the Q1 Business Outlook Survey, which
showed an improvement:

• Uptick reported
  widely across nearly all sectors and regions.
• Future sales
  improves to +4 from +10.
• Overall indicator to -2.42 from -3.09.
• 27% of firms expect
  recession in next 12 months from 38% in Q4.
• 40% of firms expect
  inflation above 3% over next two years, down from 54%.
• 17% of firms think
  it will take longer than four years to return inflation to 2%, down from
  27%.
• Wage growth remains
  high, but firms expect it to slow.
• 74% of firms think
  wage growth will be back to normal in 2025.
• 24% of firms
  reported sales declines over previous 12 months, down from 39% in Q4.
• Separate consumer
  survey sees 52% expecting recession vs 61% in Q4.
• Expectations for
  5-year inflation in consumer survey to 3.12% from 2.62%, two-year down to
  3.76% from 3.94%.

Tuesday

The RBA released the Minutes of its March Monetary
Policy Meeting:

• No mention in
  minutes that board considered option to raise rates.
• Board agreed it was
  difficult to either rule in or out future changes in cash rate.
• Economic outlook
  uncertain but risks seemed broadly balanced.
• Would take
  “some time” before board could be confident inflation returning
  to target.
• Upside risks to
  inflation had not yet materialised, while consumption was very weak.
• Inflation high but
  gradually returning toward target, labour market easing.
• Gap between demand
  and supply in economy “closing relatively quickly”.
• Board judged demand
  would continue to exceed supply for a time.
• Labour market a
  little tighter than consistent with inflation at target.
• Wage growth may have
  peaked, but not expected to decline quickly.
• Recovery in
  productivity needed to balance high unit labour costs.
• Overall financial
  conditions remained restrictive, particularly for households.

The Switzerland March Manufacturing PMI beat
expectations:

• Manufacturing PMI
  45.2 vs. 44.9 expected and 44.0 prior.

The US February Job
Openings came basically in line with expectations with a negative revision to
the prior figure:

• Job Openings 8.756M
  vs. 8.750M expected and 8.748M prior (revised from 8.863M).
• Quits rate 2.2% vs.
  2.2% prior (revised from 2.1%).
• Layoffs and
  discharges 1.7M vs. 1.6M prior.
• Hires 5.8M vs. 5.7M prior.
• Separations 5.6M vs.
  5.4M prior.

Fed’s Mester (hawk – voter)
still expects three rate cuts this year despite the recent economic data:

• Doesn’t see case to
  cut at the next Fed meeting.
• Fed policy in a good
  place to navigate risks.
• Fed can cut rates
  gradually if economy meets expectations.
• Bigger risk to policy
  is to cut rates too soon.
• Strong economy gives
  Fed space to take stock before cutting rates.
• Does not expect
  smooth path back to 2% inflation.
• Risks to economic
  outlook have become more balanced.
• New sees longer-run
  Fed funds at 3.0% vs. 2.5%.
• Now sees GDP just
  above 2% this year.
• Sees labour market
  in better balance.
• In her view, the
  inflation picture hasn’t changed much this year. She had assumed slower progress on inflation.
• Says her forecast is
  similar to the median in the SEP.
• Seeing some slowing
  in the economy, but it’s rebalancing.
• Disinflation can
  happen despite economic strength.
• Does not think the
  neutral rate will be as low as it was.
• Expects slower
  employment growth, slight uptick in the unemployment rate.
• Healthy labour
  markets should remain in place.
• Average family still
  struggling with inflation, explains sour consumer mood.
• Fed doing a lot of
  work to make sure banks ready for discount window.
• Banks commercial
  real estate risks are manageable.
• Won’t prejudge
  meetings but won’t rule out a June cut.
• Three cuts this year
  is reasonable but is a ‘close call’.
• Election won’t
  affect Fed considerations; data will determine path.
• Watching oil prices
  but rise would need to be sustained to be an issue.
• Probability of
  recession isn’t something that’s worrying me.

Fed’s Daly (neutral –
voter) sounded resolute on the central bank’s goal of bringing the inflation
rate sustainably back to the 2% target and added that three rate cuts this year
is a reasonable baseline although it’s not a promise:

• We need to see how
  long to leave rates where they are.
• Inflation is coming
  down. It’s bumpy and slow.
• No urgency to adjust
  Fed funds rate.
• We are making progress.
• There is a real risk
  of cutting rates too soon.
• If we lock inflation
  at this level, it’s a ‘toxic tax’.
• We want to fully
  bring inflation back to 2%.
• Economy is
  improving, there is a path where interest rates start to adjust this year,
  just not there yet.
• Three cuts is a
  reasonable baseline this year.
• Projection of three
  rate cuts is not a promise.
• When we say 2% is inflation
  goal, we mean 2%.
• We’re resolutely
  committed to restoring inflation to the 2% level.
• It’s not on the
  table now to change the inflation target.

Wednesday

The Chinese March Caixin
Services PMI came in line with expectations:

• Caixin Services PMI
  52.7 vs. 52.7 expected and 52.5 prior.

The Eurozone March CPI
missed expectations:

• CPI YY: 2.4% vs.
  2.6% expected and 2.6% prior.
• Core CPI Y/Y 2.9%
  vs. 3.0% expected and 3.1% prior.

The US March ADP beat expectations with a jump in wage
growth for job switchers:

• ADP 184K
  vs. 148K expected and 155K prior (revised from 140K).

The median change in annual
pay:

• Job stayers 5.1% vs. 5.1% last month.
• Job changers 10.1% vs. 7.6% last month.

Fed’s Bostic (hawk – voter) maintains his forecast of
just one rate cut in 2024 coming in Q4:

• Everyone has been
  expecting the economy to slow at a faster pace but I’m not hearing that.
  It’s picking up.
• If there’s any
  weakening, it’s at a very incremental level.
• Over the longer run,
  the economy needs to slow to get to longer-run inflation target.
• Says he is still
  thinking about just one rate cut this year.
• We’re going to have
  to watch and wait and see how things evolve.
• If the economy
  evolves as I expect, I think it will be appropriate to start cutting in
  Q4.
• Sees inflation
  coming to target in 2026.
• There are some
  secondary measures in the inflation numbers that have me concerned that
  things will move even slower.
• I’m not in a rush to
  try to disrupt the dynamic in the economy so long as inflation is moving
  towards target.
• My contacts are not
  giving me any concerns on employment.

ECB’s de Cos (dove – voter) commented on the Eurozone
inflation report and doubled down on the expectation of a June rate cut:

• Eurozone inflation
  is positive news.
• Recent decline in
  general inflation and core inflation show that monetary policy is being
  transmitted forcefully.
• We are not
  explicitly giving forecasts on future monetary policy, but recent
  inflation data is compatible with our mandate of inflation goal.
• Central scenarios
  point to a first rate cut in June.

The Canadian Services PMI
contracted further in March:

• Services PMI 46.4
  vs. 46.6 prior.
• Operating expenses
  continued to rise sharply, underpinned by increased wage costs.
• Competitive
  pressures restricted the degree to which costs were passed on to clients.
• Following two months
  of modest growth, employment numbers stalled.

The US March ISM Services PMI missed expectations with
a huge drop in the price sub-index to the lowest level since March 2020:

• ISM Services PMI
  51.4 vs. 52.7 expected and 52.6 prior.

Key details:

• Employment 48.5 vs. 48.0 prior.
• New orders 54.4 vs. 56.1 prior.
• Prices paid 53.4 vs.
  58.6 prior.

Other components:

• Inventories 45.6 vs. 47.1 last month.
• Supplier deliveries
  45.4 vs. 48.9 last month.
• Backlog of orders
  44.8 vs. 50.3 last month.
• New export orders
  52.7 vs. 51.6 last month.
• Imports 52.4 vs. 54.3 last month.
• Inventory sentiment
  55.7 vs. 56.7 last month.

Fed Chair Powell (neutral – voter) maintained his
neutral stance saying that the recent data didn’t change the overall picture
and that they are waiting for more information to see if the inflation rebound
was just a bump:

• Recent readings on job gains and inflation higher
  than expected but do not materially change overall picture.
• If economy evolves as Fed expects, most FOMC
  participants see it likely appropriate to begin cutting rates this year.
• Too soon to say whether recent inflation readings
  are more than just a bump.
• Fed has time to let incoming data guide its
  policy decisions, we’re deciding meeting by meeting.
• Outlook is still uncertain, Fed faces risks on
  both sides of his mandate.
• Labor market rebalancing seen in data on quits,
  job openings, employer and working survey and continued gradual decline in
  wage growth.
• Economy still one of solid growth, strong but
  rebalancing labour market, inflation moving down to 2% on a sometimes
  bumpy path.
• Inflation was not
  just a question of demand overheating, but also involved a supply shock.
• Needed to see an
  unwinding of the pandemic led distortions and the effects of tighter
  monetary policy.
• We think monetary
  policy is tight.
• There may be more
  supply-side gains to be had on inflation.
• Labor market is rebounding.
• Labor market has
  made substantial progress toward better balance.
• Fed is still
  committed to getting inflation to 2% over time.
• Because of origins
  of inflation, there was a path to getting inflation back down without the
  usual job losses. The
  reason is supply-side impact.
• I do think monetary
  policy is working.
• Economy rebalancing
  in interest sensitivity sectors such as housing.
• The supply-side
  recovery is creating new demand. It is also stimulating new supply and is
  why growth is increasing while inflation is moving lower.
• Risk to cutting
  rates too soon as well as waiting too long.
• If cut too soon, the
  progress on inflation could stop and reverse.
• The other risk is if
  we wait too long and cut too slowly in which case we may have a weakening
  of the labor market.
• The risk of moving
  too soon would be really quite disruptive.
• Price stability
  provides for long periods of strong employment.
• Productivity growth
  in output per hour is hard to predict. The question is can we sustain the
  productivity growth grown forward.
• AI should increase
  productivity, but too soon to see productivity from AI at the moment.
• Policy has gotten to
  a good place, neutral rate question is not a matter for today.

Fed’s Kugler (neutral – voter) sees three rate cuts
this year as long as the inflation progress continues:

• My policy rate
  expectation is consistent with March FOMC meeting policymaker projections.
• If disinflation and
  labor market conditions proceed as I am currently expecting, then some
  lowering of the policy rate this year would be appropriate.
• Expect
  disinflationary trend to continue.
• Policy is currently
  restrictive, and my baseline expectation is that disinflation will
  continue without a broad economic slowdown.
• Such an outcome is
  not assured.
• Inflation progress
  has sometimes been bumpy.
• Annual core PCE at
  2.8% represents ‘considerable progress’ but is still ‘meaningfully above’
  Fed’s 2% target.
• Data on new tenant
  rent agreements suggest that housing inflation broadly will continue to
  cool.
• Continued
  disinflation will indeed require further progress in housing and
  non-housing services.
• Labor market has
  moved into better balance.
• Suspect strong
  population growth ‘helps resolve the puzzle’ of labor market growth and
  strong consumption even as inflation eases.
• Important that wage
  growth be consistent with 2% inflation over time; US is moving back toward
  that kind of wage growth.
• Anchored inflation
  expectations are evident in consumer and business surveys.
• Expect consumption
  growth to slow some this year.
• Consumer spending
  was soft in January and February, suggesting we are on track for lower
  consumption growth in Q1 vs. second half of 2023.
• Expect GDP growth
  this year to be solid but slower than 2023 pace of 3.1%.
• My baseline
  expectation is that further disinflation can be accomplished without a
  significant rise in unemployment.
• Appears supply
  networks are adapting to port of Baltimore disruption.
• New businesses are
  creating a lot of new jobs.
• Around 150,000 jobs
  a month have come from new businesses.

Thursday

The Switzerland March CPI missed expectations once
again with the market now fully expecting another rate cut in June:

• CPI Y/Y 1.0% vs.
  1.3% expected and 1.2% prior.
• CPI M/M 0.0% vs.
  0.3% expected and 0.6 prior.
• Core CPI Y/Y 1.0%
  vs. 1.1% prior.

The US Challenger Layoffs increased to 90,309 in March
from the 84,638 in February. In March, technology companies announced 14,224
cuts. Also, the government announced 36,044 job eliminations, the highest
monthly total since September 2011, including 10,000 cuts from the Veterans
Affairs and 24,000 cuts to the United States Army. In Q1, companies announced
plans to cut 257,254 jobs, down from the 270,416 cuts announced in Q1 2023, but
up 120% from the 117,163 in Q4 2023. The leading reason for job cuts in Q1 was
“Cost-Cutting,” which accounted for 66,302 of the reductions, followed by
“Restructuring”. “Many companies appear to be reverting to a ‘do more with
less’ approach. While technology continues to lead all industries so far this
year, several industries, including energy and industrial manufacturing, are
cutting more jobs this year than last,” said Andy Challenger, senior vice
president of Challenger, Gray & Christmas, Inc.

The ECB released the Minutes of its March Monetary
Policy Meeting:

• There had been
  further progress on all three elements, which warranted increased
  confidence that inflation was on track to reach the ECB’s target.
• More data and
  evidence were needed for the Governing Council to be sufficiently
  confident of this.
• Inflation was
  expected to continue its downward trend in the coming months.
• A bumpy profile and
  a trough were expected after the summer.
• There were signs
  that wage growth was starting to moderate.
• Members expressed
  increased confidence that inflation was on track to decline sustainably to
  the 2% inflation target in a timely manner.
• Important not to be
  complacent, as the disinflationary process remained fragile.
• The case for
  considering rate cuts was strengthening.

The US Initial Claims missed expectations while
Continuing Claims improved:

• Initial Claims 221K
  vs. 214K expected and 212K prior (revised from 210K).
• Continuing Claims
  1791K vs. 1813K expected and 1810K prior (revised from 1819K).

Fed’s Barkin (hawk – voter) said that the data in 2024
has been less encouraging for them and they will need more information to start
cutting rates:

• 2024 data is ‘less
  encouraging’ raises issue of whether outlook shifting.
• Still looking for
  slowdown in reported inflation to sustain and broaden.
• Fed officials are
  looking at the same data, but it is easy to draw different conclusions.
• Tight Fed policy
  will eventually slow the economy further that doesn’t mean painful job
  losses in a ‘less vulnerable’ economy.
• Optimistic keeping
  rates ‘somewhat restrictive’ can return inflation to target.
• Hard to reconcile
  current breadth of inflation with the progress the Fed needs to see for
  rate cuts.
• Disinflation likely
  to continue, but speed of that remains unclear.
• Open to rate cuts
  once it is clear progress on inflation will be sustained and apply more
  broadly in the economy.
• Businesses
  acknowledge less pricing power than before but are still findings
  strategies that may keep inflation too high.

Fed’s Goolsbee (dove – non voter) is one of the most
dovish members but he delivered some hawkish comments which make the next CPI
report a gamechanger for the near term policy outlook:

• I had been expecting housing services inflation
  to come down more quickly than it has.
• If housing inflation does not come down, would be
  very difficult to return inflation to 2%.
• Housing inflation is my most-valuable indicator
  for the immediate future.
• If we stay restrictive for too long, we will
  likely see employment begin to deteriorate.
• Risks to inflation and employment mandates have
  moved into better balance.
• I will be watching inflation developments closely.
• My overall assessment is that these two months of
  inflation data should not knock us off the path back to target.
• It’s worth paying especially close attention to
  the leading indicators from the labor market for signs of deterioration.
• Housing inflation is running at 5.5-6.0%, even
  now.
• Housing inflation is puzzling because if you look
  at market rents, they down but the official numbers haven’t come down.
• I still think housing inflation will come down.
• Says he’s watching inflation, not employment or
  GDP.
• 2023 consumer proved strong and more resilient
  than people thought.
• In March I jotted down two rate cuts this year.
• Things have moved
  sideways on inflation.
• If inflation
  continues to move sideways, it makes me wonder if we should cut rates at
  all this year.

We got some risk off flows late in the day and the
catalyst seemed to be an article in “The Express” saying that the CIA warned
Israel of an Iran attack in the following 48 hours. That comes after Israel
bombed the Iranian consulate in Syria where an Iranian general died. Moreover, the
Israeli press reported that some embassies and consulates have been evacuated
and others are at the highest alert level.

BoJ’s Ueda repeated that the achievement of the
inflation target is now in sight and another rate hike will depend on the data:

• Chance of
  sustainably achieving 2% inflation target is in sight.
• Whether to raise
  rates this year depends on data.
• BoJ will adjust the
  level of interest rates in accordance to distance towards sustainably
  achieving target.
• If FX moves appear
  to have impact on wage-inflation cycle in a way that is hard to ignore, we
  could respond via monetary policy.
• No comment on recent
  FX moves.
• If we become more
  convinced that trend inflation will approach 2%, that will be one reason
  to adjust rates.

Friday

The February Eurozone Retail Sales missed
expectations:

• Retail Sales M/M
  -0.5% vs. -0.4% expected and 0.0% prior (revised from 0.1%).
• Retail Sales Y/Y
  -0.7% vs. -1.3% expected and -0.9% prior (revised from -1.0%).

The Canadian March Labour Market report missed
expectations across the board:

• Employment Change -2.2K vs. 25K expected and
  40.7K prior.
• Unemployment rate 6.1% vs. 5.9% expected and 5.8%
  prior.
• Full-time employment -0.7K vs. 70.6K last month.
• Part-time employment -1.6K vs. -29.9K last month.
• Average hourly wages permanent employees 5.1% vs.
  5.0% last month (revised from 4.9%).
• Participation rate 65.3% vs. 65.3% last month.

The US March NFP beat expectations across the board:

• NFP 303K vs. 200K expected and 270K prior
  (revised from 275K).
• Two-month net revision +22K vs. -167K prior.
• Unemployment rate 3.8% vs. 3.9% expected and 3.9%
  prior.
• Participation
  rate 62.7% vs. 62.5% prior.
• U6 underemployment rate 7.3% vs. 7.3% prior.
• Average hourly earnings M/M 0.3% (unrounded
  0.347%) vs. 0.3% expected and 0.2% prior (revised from 0.1%).
• Average hourly earnings Y/Y 4.1% vs. 4.1%
  expected and 4.3% prior.
• Average weekly hours 34.4 vs. 34.3 expected and
  34.3 prior.
• Change in private payrolls 232K vs. 160K expected.
• Change in manufacturing payrolls 0K vs. 5K
  expected.

The highlights for next week
will be:

• Monday: Japan Wage data, Swiss Unemployment Rate.
• Tuesday: US NFIB Small Business Optimism Index.
• Wednesday: Japan PPI, RBNZ Policy Decision, US CPI, BoC Policy
  Decision, FOMC Minutes.
• Thursday: China CPI, ECB Policy Decision, US PPI, US Jobless
  Claims.
• Friday: New Zealand Manufacturing PMI, New Zealand Retail
  Sales, UK GDP, UK Industrial Production, US University of Michigan Consumer
  Sentiment.

That’s all folks. Have a nice weekend!

This article was written by Giuseppe Dellamotta at www.forexlive.com.