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Weekly Market Recap (25-29 March)

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Fed’s Bostic (hawk
– voter) late Friday said that he changed his view and now expects just one
rate cuts this year vs. two previously:

  • Economy has proved
    more resilient than anticipated so much so that he’s doubled his expected
    GDP growth estimate to 2%.
  • Sees little or no
    change in the current 3.9% unemployment rate.
  • Says 3.9%
    unemployment was considered an inflationary level not too long ago.
  • Says inflation is
    falling but more slowly than anticipated, with many items recording
    outsized price increases.
  • If we have an
    economy that is growing above potential, and we have an economy where
    unemployment is at levels that were deemed to be unimaginable without
    pricing pressures, and if we have an economy where inflation is moderating…those
    are good things…That gives us space for patience.

Fed’s Bostic

ECB’s Panetta
(dove – voter) just reiterated that there’s a consensus for a rate cut, which
is expected in June:

  • There is growing
    consensus on a possible rate cut.
  • Inflation is quickly
    falling towards the 2% target.

ECB’s Panetta

ECB’s Lane (dove – voter)
just reaffirmed the central bank’s focus on wage growth and that they want it
to return to normal levels to reverse the monetary policy:

  • We’re confident that wage growth is returning to normal.
  • It
    is desirable, inescapable that we do have several years of wage increases above
    normal.
  • But
    what we need to make sure is that it returns to normal.
  • And
    I would say we’re confident that it is on track.
  • If that assessment is confirmed, we can start to look to reverse the
    rate hikes we have made previously.

ECB’s Lane

Fed’s Goolsbee (dove –
non voter) reaffirmed his expectation for three rate cuts this year but he
would like to see more progress on inflation:

  • Expects three rate
    cuts this year.
  • Asked if June is on
    the table, said everything is on the table but depends on data.
  • We are in historic
    restrictive territory.
  • Latest reports do
    not change the overall picture on inflation.
  • Says in a bit of a
    murky picture on inflation.
  • Wants to see more
    progress on inflation.
  • Main puzzle is about
    housing inflation.

Fed’s Goolsbee

Fed’s Cook (dove – voter)
supports careful easing of the monetary policy as inflation moves towards
target to preserve labour market strength:

  • Path of disinflation
    has been bumpy and uneven, as expected.
  • Careful approach to
    easing policy over time can ensure inflation returns sustainably to 2%
    while striving to maintain a strong labour market.
  • Employment and
    inflation goals moving into better balance.
  • Inflation has fallen
    considerably; labour market has remained strong.
  • Wage growth
    differential between job switchers and those staying in jobs has narrowed.
  • Strong productivity
    growth could mean faster pace of wage growth that’s not inflationary.
  • Not sure if neutral
    rate is higher or not.
  • We’ll only know if
    neutral rate is higher after-the-fact.
  • It will be left to
    Congress, fiscal authority, to address impact of AI on workers and wages.
  • End of negative
    rates in Japan will be studied for its impacts, as are other overseas
    policy developments.

Fed’s Cook

BoE’s Mann (hawk – voter)
explained her reasoning for moving away from rate hikes but cautioned against
the aggressive market pricing:

  • It was time to move
    away from a rate hike.
  • Discretionary
    services inflation has started to soften in the past month.
  • The change of voting
    intention is due to consumers disciplining firms pricing, thus changing
    dynamic in labour markets and also the financial market curve.
  • Markets are pricing
    in too many rate cuts.
  • In February, I
    thought markets were easing too much.
  • There is complacency
    about how long the BoE will hold rates.
  • In some ways, the BoE
    does not have to cut because the market already has done so.
  • The market curve in
    the UK is also importantly affected by the decisions of the ECB and Fed.

BoE’s Mann

ECB’s Muller (hawk – non
voter in April) reaffirmed the central bank’s intention to deliver the first
rate cut in June:

  • We are closer to the
    point to start cutting rates.
  • Data may confirm
    inflation trend going into June meeting.

ECB’s Muller

The US February Durable
Goods Orders beat expectations across the board:

  • Durable goods orders
    M/M 1.4% vs. 1.1% expected and -6.9% prior (revised from -6.2%.
  • Non-defense capital
    goods orders ex-air M/M 0.7% vs. 0.1% expected and -0.4% prior (revised
    from 0.0%).
  • Ex transport M/M
    0.5% vs. 0.4% expected.
  • Ex defense M/M 2.2% vs. -7.9% prior.
  • Shipments M/M 1.2%
    vs. -0.8% prior.

US Durable Goods

The US March Consumer
Confidence missed expectations although the labour market data improved:

  • Consumer Confidence
    104.7 vs. 107.0 expected and 104.8 prior (revised from 106.7).
  • Present situation
    index 151.0 vs. 147.6 prior.
  • Expectations index 73.8 vs. 76.3 prior.
  • Jobs hard-to-get
    10.9 vs. 12.7 prior.
  • 16.5% of consumers
    expect their incomes to increase, from 16.3% last month.
  • 12-month inflation 5.3% vs. 5.2%.

US Consumer Confidence

The Australian February
Monthly CPI missed expectations slightly although the Trimmed Mean measure
ticked higher:

  • CPI Y/Y 3.4% vs. 3.5%
    expected and 3.4% prior.
  • CPI M/M 0.5% vs. 0.4% prior.
  • CPI Trimmed Mean Y/Y
    3.9% vs. 3.8% prior.

Australia Monthly CPI YoY

BoJ’s Tamura said that
the current monetary policy is likely to remain in place for the time being:

  • Based on current
    economic, price outlook, BoJ likely to maintain accommodative monetary
    conditions for time being.
  • Will guide monetary
    policy appropriately in accordance with economic, price, financial
    developments.
  • Not there yet to
    allow market forces to fully drive long-term interest rate moves.
  • Despite our tweak to
    monetary policy framework, there are side-effects remaining.
  • Our monetary easing
    had some effect in underpinning economic growth.
  • Japan’s economy is
    showing some signs of weakness but is recovering moderately.
  • Rises in services
    prices pushing up overall inflation.
  • Positive
    wage-inflation cycle is likely to continue.
  • Will not comment on
    specific FX moves.
  • Impact of FX moves
    on the economy can vary.
  • Can’t say with
    certainty how much BoJ will raise rates further.
  • On scrapping yield
    curve control policy, “our understanding was that there was no longer
    a need to aggressively intervene in the bond market as we had done in the
    past”.

BoJ’s Tamura

BoJ Ueda didn’t add
anything new on the monetary policy front:

  • Household
    sentiment improving on expectations of wage hikes.
  • Won’t
    rule out any options if economic, price developments worsen.
  • FX
    moves have big impact on economy, prices.
  • But
    won’t comment on specific FX moves, levels.
  • It
    may take some time but likelihood of achieving price target is high.
  • That
    considering the current short-term rate level, at 0% to 0.10%, is very low.
  • At
    some point in the future, we would like to gradually reduce balance of our JGB
    holdings.

BoJ Governor Ueda

SNB’s Jordan explained
the rationale for their rate cut at the last monetary policy decision:

  • Lower inflation
    pressure allowed us to lower interest rates.
  • The bank looks at
    the exchange rate closely and intervenes in Forex when necessary.
  • SNB has no set goal
    for the Franc rate.
  • The bank has reduced
    the size of the balance sheet which has allowed us to tackle inflation.

SNB’s Chairman Jordan

Fed’s Waller (hawk –
voter) delivered on expectations as he was a bit more hawkish given the recent
data, but he balanced it keeping the door open for a rate cut soon if the next
two set of inflation reports were to be good:

  • ‘Still no rush’ to
    cutting rates in current economy.
  • Fed may need to
    maintain current rate target for longer than expected.
  • Needs to see more
    inflation progress before supporting rate cut.
  • Needs at least a
    couple of months of data
    to be sure inflation heading to 2%.
  • Still expects Fed to
    cut rates later this year.
  • Economy’s strength
    gives Fed space to take stock of data.
  • Data suggests fewer
    rate cuts possible this year.
  • Economy is growing
    at a healthy pace.
  • Despite progress on
    inflation, recent data has been disappointing.
  • Data has showed
    mixed messages on jobs front.
  • Fed has made a lot
    of progress lowering inflation.
  • Wage pressures have
    been easing.
  • Unsure productivity
    will keep at current strong pace.
  • Economy has
    supported Fed’s cautious approach.
  • Case for hiking
    rates is very remote.
  • Unclear if neutral
    rate has changed.
  • Dollar is still the
    dominant currency by far.
  • The economy is not
    giving the Fed a case to pursue big rate cuts.
  • Supply chain issues
    have abated in positive inflation development.
  • Baltimore port
    disaster is unlikely to cause big economic disruptions.
  • Still expects
    inflation pressures to wane.
  • Waller notes he
    looks through the loosening in financial conditions indexes because it’s
    mostly the stock market – specifically the Magnificent 7.
  • Also notes tight
    credit spreads could just be the rise in private credit lending. He thinks
    conditions are tight because real rates remain high.
  • Inflation adjusted
    interest rates seem to have gone back up since Christmas; lot of factors
    go into rate spreads.
  • Want to see up to
    five months of good inflation data, so far have only two months; question
    is how much data you need.
  • Fed is reacting to
    the data and not ‘overreacting;’ have two more inflation rates before may
    FOMC meeting.
  • No evidence’
    quantitative tightening has been a reason rates have gone up; balance
    sheet has more effect during stress.
  • Unemployment rate
    doesn’t have to stay at 3.7% to have a soft landing, if unemployment goes
    up no reason to panic.

Fed’s Waller

The BoJ released the
Summary of Opinions of its March Monetary Policy Meeting:

  • One member said YCC, negative rate,
    and other massive stimulus tools have accomplished their roles.
  • One member said BoJ must guide
    monetary policy using short-term rate as main policy means, in accordance to
    economic, price, and financial developments.
  • One member said shifting to ‘normal’
    monetary easing is possible without causing short-term shocks, may have
    positive impact on economy in medium-, long-term perspective.
  • One member said chance of policy
    shift causing big market volatility is small.
  • One member said future policy
    guidance very important so that BoJ can slowly but steadily proceed with policy
    normalization.
  • One member said appropriate to give
    some room for allowance in BoJ’s bond buying operation.
  • One member said appropriate to
    revise policy after confirming that smaller firms are able to sufficiently hike
    wages.
  • One member said ending YCC and
    negative rate simultaneously could cause disruption in long-term rate,
    financial environment.
  • One member said changing policy now
    could delay achievement of BoJ’s price target.
  • One member said important to make
    use of expected outcome from BoJ’s policy review in future policy guidance.
  • One member said Japan’s low natural
    rate of interest, lagged effect of monetary policy may be behind slow recovery
    pace of economy.
  • One member said virtuous cycle
    between wages and prices has become more solid.

    One member said highly likely that mechanism behind price developments will be
    consistent with price target.
  • One member said too early to say
    main factor behind recent rise in services prices is pass-through of rising
    labour costs.
  • MoF representative said BoJ will
    continue to seek achieving 2% inflation target in sustainable, stable manner.
  • MoF representative said while wage,
    capex showing positive signs, consumption lacks momentum and there are overseas
    risks.
  • Cabinet office representative said BoJ
    must continue to support economy through monetary policy.

BoJ

BoE’s Haskel (hawk –
voter) explained his reasoning for the vote change and stressed that what they
really care about is persistence in underlying inflation:

  • Fall in headline
    inflation is very good news.
  • But what we really
    care about is persistence and underlying inflation.
  • Does not think
    headline inflation gives a good guide on persistence.
  • Vote change is
    because there were improvements in critical indicators of inflation.

BoE’s Haskel

The Canadian January GDP
beat expectations:

  • January GDP 0.6% vs.
    0.4% expected and 0.0% prior.
  • Services industries 0.7%.
  • Goods producing 0.2%.
  • Manufacturing 0.9%,
    led by transportation equipment.
  • February advance Canadian GDP 0.4%.

Canada GDP

The US Jobless Claims
beat expectations:

  • Initial Claims 210K
    vs. 215K expected and 212K prior (revised from 210K).
  • Continuing Claims
    1819K vs. 1795K prior (revised from 1807K).

US Jobless Claims

ECB’s Villeroy (neutral –
non voter in April) talked about making an insurance cut as inflation falls to
avoid a hard landing:

  • Core inflation
    decline is rapid, but it still remains too high.
  • 2% inflation target
    now within sight.
  • We need to take out
    insurance against a hard landing by starting to cut rates.
  • Whether in April or
    June, the exact date of first-rate cut is not or existentially important.
  • First rate cut
    should come in spring and come independently of the US Federal Reserve
    timeframe.
  • We will likely start
    with a moderate cut after that we don’t have to cut at each meeting though
    we should keep that option.

ECB’s Villeroy

The Tokyo March CPI came
in line with expectations:

  • CPI Y/Y 2.6% vs.
    2.6% prior.
  • Core CPI Y/Y 2.4%
    vs. 2.4% expected and 2.5% prior.
  • Core-Core CPI Y/Y
    2.9% vs. 3.1% prior (revised from 2.5%).

Tokyo Core-Core CPI YoY

The Japanese Unemployment
Rate rose to 2.6% vs. 2.4% expected and 2.4% prior.

Japan Unemployment Rate

The Japanese February
Industrial Production missed expectations:

  • Industrial
    Production M/M -0.1% vs. 1.4% expected and -6.7% prior.
  • Industrial
    Production Y/Y -3.4% vs. -1.5% prior.

Japan Industrial Production YoY

The Japanese February
Retail Sales beat expectations:

  • Retail Sales Y/Y
    4.6% vs. 3.0% expected and 2.1% prior (revised from 2.3%).

Japan Retail Sales YoY

The US February PCE came
in line with expectations:

  • PCE Y/Y 2.5% vs.
    2.5% expected and 2.4% prior.
  • PCE M/M 0.3% vs.
    0.4% expected and 0.4% prior (revised from 0.3%).
  • Core PCE Y/Y 2.8%
    vs. 2.8% expected and 2.9% prior (revised from 2.8%).
  • Core PCE M/M 0.3% vs.
    0.3% expected and 0.5% prior (revised from 0.4%).

Consumer
spending and consumer income for February
:

  • Personal income 0.3%
    vs. 0.4% expected and 0.3% prior.
  • Personal spending 0.8%
    vs. 0.5% expected
    and 0.2% prior.
  • Real personal
    spending 0.4% vs. -0.2% prior (revised from -0.1%).

US Core PCE YoY

The
highlights for next week will be
:

  • Monday: China Caixin
    Manufacturing PMI, US ISM Manufacturing PMI, BoC Business Outlook Survey.
  • Tuesday: RBA Minutes,
    Switzerland Retail Sales, Switzerland Manufacturing PMI, German Inflation data,
    US Job Openings.
  • Wednesday: China Caixin Services
    PMI, Eurozone CPI and Unemployment Rate, US ADP, Canada Services PMI, US ISM
    Services PMI.
  • Thursday: Switzerland CPI,
    Eurozone PPI, US Challenger Job Cuts, US Jobless Claims.
  • Friday: Eurozone Retail Sales,
    Canada Jobs data, US NFP.

That’s all folks. Have a
nice weekend and Happy Easter!

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