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US
Summary
- March CPI and PPI are likely to be consistent with a June cut.
- Fed speakers will give their take on yet another bumper NFP.
Market Implications
- I still expect the Fed to start cutting in June.
Fed
This week Chair Powell stated that ‘the recent data do not, materially change the overall picture which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path’. He further indicated that the risks to the mandate were balanced and that there could be ‘more supply side gains to be had’.
The Fed is publishing the minutes of the 20 March meeting. I expect them to discuss the conditions for a cut and to convey that the median FOMC participant sees risks as balanced and expects the supply gains to continue.
Currently, speakers include Kashkari, Goolsbee, Williams, Collins, Bostic, and Daly. They will no doubt give their take on the very large NFPs. The more important speakers this week will be those who tend to stay close to Chair Powell’s thinking, mainly Goolsbee, Collins, and Daly.
Data
NFP surprised yet again on the high side, by a high margin. The Atlanta Fed Q1 GDP nowcast rose to 2.5% from 2.3% a week ago. The Citi economic surprise index rose to 41.2 from 33.5 a week ago. WTIC spot rose to $86.6/barrel from $83.2/barrel a week ago.
Key data by order of importance includes:
March CPI (Tuesday 10 April): Expect 0.3% core MoM and a further slowdown in housing inflation from 44bp in February.
March PPI (Thursday 11 April): With the PPI, we will have an estimate for PCE. We only need MoM core PCE to be 28bp or below for YoY March core PCE to print 2.7% or below, down from 2.8% in February, which would support a June cut.
April UMich consumer confidence (Friday 12 April): I agree with the consensus that sees confidence moving sideways, which would be consistent with continued strong demand for durables.
March NFIB Small business optimism (Tuesday 9 April): I see the survey moving sideways, as does consensus. However, since the pandemic the survey has decoupled from GDP.
March Import price index (Friday 12 April): I agree with the consensus.
Jobless claims (Thursdays): I expect continued low claims.
Events/Political Developments
No Labels, a centrist group that was considering fielding a third-party ticket, announced they would not do so after failing to find a candidate.
A Federal judge declined to toss former president Trump’s classified document case on the grounds that they were his personal property.
Europe
Summary
- The ECB is likely to leave rates on hold, continuing to tee up a June cut. Expect the tone to remain cautiously optimistic until they have the final March inflation print.
- On this note, the French and Spanish final March inflation prints will provide insights into the Easter effects in services inflation.
- Information on Bernanke’s review of the BoE’s forecast procedure is due next week.
Market Implications
- June remains our base case for a first ECB cut, but with the market priced 100% for this, there could be value in fading this pricing on the risk of data surprises.
- We continue to like Gilt 2s10s steepeners vs UST flatteners, and in paying EUR 2Y vs receiving GBP 2Y.
ECB to Stand Pat – June Cut Remains Base Case
The big event of the week is the ECB. They are expected to keep rates on hold at their meeting on Thursday. Our view since December last year has been that they are unlikely to choose to begin cutting until June, which the latest minutes seemed to confirm.
The most recent inflation outturn was relatively weak in headline, and showed a return to MoM trend in core, but it will be hard for them to look through the strong services inflation until they have all the detail. It was the highest March MoM read in at least 10 years, a portion of which is likely to do with the timing of Easter. The ECB have adjusted their SA model since 2016 to adjust for the Easter effect, so it will be telling how Lagarde expresses the ECB’s take on the number.
We think they will want to be cautious taking too much optimism from the core and headline prints, as taking Q1 as a whole (that is when most repricing takes place), core momentum has been very strong. Furthermore, the recent oil price spike will be a concern – they had assumed a fall in price from March.
French and Spanish Inflation Watched for Details
We start to get the final national numbers this week, with French and Spanish final March CPI released on Friday.
The big question will be what drove the rise in March services inflation. One factor could be the Easter effect – that is likely air fares and hospitality prices may have risen more than typical – which we expect to fade in April. I do not expect the impact to completely offset the strength of the outturn, given the March strength, but it could account for a portion of it, which would suggest an April drop back.
For now, June remains our base case for a first ECB cut. But with the market priced 100% for this, there could be value in fading pricing on the risk of data surprises. For now, we continue to like Gilt 2s10s steepeners vs UST flatteners and paying EUR 2Y vs receiving GBP 2Y.
BoE Forecast Review Released
We will get to hear from several BoE speakers, including Breeden and Greene next week. Of late, the dovish case has been building for the BoE – our base case remains a June cut, but a cut at May’s MPR is a risk possible. The most recent DMP survey showed business inflation expectations continue to normalise.
We will also get to hear the results of Ben Bernanke’s review of the BoE’s forecasts. Expectation is for potentially more granular scenario-based analysis (BoE is currently hampered by not adjusting for policy announcements until they’re concrete). The question of dot plots has also arisen. While many (ourselves included) do not think that would add much value, more detail on policy rate outlooks by voter could be useful.
Rest of G10
Summary
- New Zealand: RBNZ (Wednesday) to wait for Q1 CPI data before committing to cuts.
Market Implications
- We remain short USD/JPY.
RBNZ Likely to Wait for CPI Confirmation Before Further Dovish Shift
Not long ago, markets were worried the RBNZ may have to tighten interest rates further. They were loaded up with technicalities and even a board member whistling off a (relatively) hawkish tune. However, we were unconvinced. We noted that inflation was propped up by one-offs, not a more stubborn underlying shift.
Thankfully, the RBNZ have taken a similar stance since the last meeting. Meanwhile, GDP undershot projections and revealed an H2 2023 recession. However, and it is a big ‘however’, the RBNZ need confirmation that that beat in core inflation was driven by one-offs. And, so far, monthly price indicators have thrown caution to the perfect story.
As a result, the RBNZ are unlikely to commit to a cutting cycle at this week’s meeting (Wednesday). Instead, they are likely to wait for Q1 CPI – due 16 April – before securing themselves a place in the group of cutters that most other major central banks are now flirting with.
Emerging Markets
Summary
- MAS to keep slope and band of S$NEER unchanged.
- BSP to hold rates at 6.5%.
- BoT to hold rates at 2.5%.
- Brazil CPI and fiscal target revisions in focus.
Market Implications
- Asian currency volatility might increase if central bank divergence increases.
MAS to Leave Policy Unchanged
The Monetary Authority of Singapore (MAS) meets on 7-12 April. This is the MAS’s second meeting for 2024 now that it meets four times a year. We expect the central bank to retain all policy settings keeping the slope, width and level for the S$NEER policy band. The main factor pointing to a hold is the recent inflation flareup, with February headline inflation rising to 3.4% year-on-year and core inflation jumping to 3.6% YoY.
Although the unexpected spike in February’s inflation is partly due to the Lunar New Year timing, indications suggest that price pressures will stay elevated due to strong domestic demand. The upcoming March inflation report is projected to accelerate further, fuelled by heightened demand in the services sector, particularly attributed to recent concerts by Taylor Swift. Coupled with the implementation of the latest round of goods and services tax and carbon tax in January, core inflation is expected to remain above the MAS’s target of approximately 2% YoY for H1.
MAS’s most recent inflation forecast places both headline and core inflation within 2.5-3.5% YoY for 2024. While these forecasts are likely to be upheld, inflation may inch closer to the upper end of the forecasted range. Given the sustained inflationary pressures and the solid economic performance observed in Q1, the MAS is unlikely to make significant alterations to its current monetary stance.
BoT to Stay on Hold at 2.5%
We expect the Bank of Thailand to keep its benchmark rate unchanged at 2.50% on 10 April, despite government pressure to cut. BoT has indicated that the policy rate is at its neutral level, though it has acknowledged scope to ease if growth weakened. The market is already pricing almost two rate cuts this year, which we see as the upper limit of likelihoods.
BSP to Stay on Hold at 6.5%
BSP meeting is likely to be a non-event. BSP has indicated clearly that they will follow, not lead the Fed in any cuts. The central bank has also indicated that it expects inflation to edge above its 2-4% target band in coming months to due drought-induced tightening of agricultural supply.
Brazil CPI and Revision of Fiscal Targets
In Brazil, the main highlight is the March IPCA on Wednesday. We monitor whether food inflation pressure fades. In addition, we watch core services as the BC closely follows it. Despite the more benign behaviour on YoY basis, core services remains a source of concern for the central bank.
Congress is back from informal recess, and there is chatter about a potential revision to the fiscal targets around 15 April. The administration has postponed new revenue measures until after the October local elections, focusing on recouping losses stemming from benefits to municipalities and companies. The 2025 fiscal target may be reviewed by mid-April, while the 2024 goal may be reassessed following the fiscal report update on 22 May.
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Antonio Del Favero is a macro strategist at Macro Hive, focusing mainly on US economy and markets and G5 FX. Formerly, he worked at Tudor and Maniyar Capital, Rubrics Asset Management, Brevan Howard, Credit Suisse and UBS.
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Henry Occleston is a Strategist, who focuses on European markets. Formerly, he worked in European credit and rates strategy at Mizuho Bank, and market strategy at Lloyds Bank.
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Ben Ford is a Researcher at Macro Hive. Benjamin studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.
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Caroline Grady is Head of Emerging Markets Research at Macro Hive. Formerly, she was a Senior EM Economist at Deutsche Bank and a Leader Writer at the Financial Times.
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Mirza Baig is a Senior Macro Strategist at Macro Hive, specializing in EM research. He has been researching and trading global FX & rates products for over 19 years, boasting affiliations with Morgan Stanley, BNP Paribas, Deutsche Bank, and Point 72.
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