Weekly Market Recap (22-26 April)

Monday

The PBoC left the LPR rates unchanged as expected:

• 1-year LPR 3.45%.
• 5-year LPR 3.95%.

PBoC

The SNB raised the minimum Reserve Requirement Ratio (RRR) from 2.5% to 4.0% with the change going into effect from 1 July 2024:

"Liabilities arising from cancellable customer deposits (excluding tied pension provision) will in future be included in full in the calculation of the minimum reserve requirement, as is the case with the other relevant liabilities. This revokes the previous exception whereby only 20% of these liabilities counted towards the calculation."

That is a change to the National Bank Ordinance. On the move, the SNB says that "the adjustments will ensure that implementation of monetary policy remains effective and efficient" and that it "will not affect the current monetary policy stance".

SNB

The Canadian March PPI came in line with expectations:

• PPI M/M 0.8% vs.0.8% expected and 1.1 prior (revised from 0.7%).
• PPI Y/Y -0.5% vs.-1.4% prior (revised from -1.7%).
• Raw materials priceindex Y/Y -0.5% vs. -4.7% prior.
• Raw materials priceindex M/M 4.7% vs. 2.1% prior.

Canada PPI YoY

Tuesday

The Australian April PMIs showed Manufacturing almost jumping back into expansion while the Services PMI ticked slightly lower:

• Manufacturing PMI49.9 vs. 47.3 prior.
• Services PMI 54.2vs. 54.4 prior.

Australia Manufacturing PMI

The Japanese April PMIs showed Manufacturing PMI almost jumping back into expansion while the Services PMI increased further into expansion:

• Manufacturing PMI49.9 vs. 48.0 expected and 48.2 prior.
• Services PMI 54.6vs. 54.1 prior.

Japan Manufacturing PMI

BoJ Governor Ueda didn’t add anything new on the monetary policy front as the central bank remains data dependent with particular focus on the inflation trend and wage growth:

• Don't have anypreset idea on timing, pace of future rate hike.
• If trend inflationaccelerates in line with our forecast, we will adjust degree of monetarysupport through interest rate hike.
• If our priceforecast changes, that will also be a reason to change policy.
• Future monetarypolicy guidance will depend on economy, price, market development at thetime.
• Didn't say anythingnew on BoJ policy last week in Washington.
• Trend inflation isstill somewhat below 2%, so need to maintain accommodative monetaryconditions for the time being.
• If geopoliticalrisks, weak domestic demand cause disruptions in markets, BoJ will respondthrough flexible, nimble liquidity provisions.
• Annual wagenegotiations have been, and always will be, among important economicvariables we look at in setting policy.
• We decide on policylooking not just at wage talks, but various other economic variables.
• We decided to changepolicy in March because strong wage talk outcome came on top of fairlysolid readings in other sectors of economy.
• Whether we will setpolicy with same emphasis on wage talk outcome will depend on conditionsat the time.
• It’s hard to saybeforehand how long the BoJ should wait in gathering enough data to changepolicy.
• We would like toleave some scope for adjustment by not pre-committing to a certain policytoo much.
• Our basic stance isthat we will look at moves in trend inflation to achieve our price goal,and take a data-dependent approach in setting policy.

BoJ Ueda

The Eurozone April PMIs showed Manufacturing PMI slipping further into contraction while the Services PMI continues to tick higher:

• Manufacturing PMI45.6 vs. 46.6 expected and 46.1 prior.
• Services PMI 52.9vs. 51.8 expected and 51.5 prior.

Eurozone Manufacturing PMI

The UK April PMIs showed the Manufacturing PMI falling back into contraction while the Services PMI continue to expand:

• Manufacturing PMI48.7 vs. 50.4 expected and 50.3 prior.
• Services PMI 54.9vs. 53.0 expected and 53.1 prior.

UK Manufacturing PMI

BoE’s Haskel (hawk – voter) warned that inflation is unlikely to reach sustainably the target unless there’s a weakening in the labour market:

• High inflation toremain unless labour market weakens.
• UK labour market isextremely tight.
• Labour markettightness has been easing rather slowly.

BoE's Haskel

BoE’s Pill (neutral – voter) didn’t add anything new on the monetary policy front although he did say that a rate cut is “still some way off”:

• Seeing signs of adownward shift in inflation persistency.
• Policy outlook hasnot changed substantially since March.
• There has beenlittle news in recent months on inflation persistence.
• Now seeing signs ofa downward shift in the persistent component of inflation dynamic.
• A cut in the bankrate would not entirely undo the restrictive policy stance.
• Will need tomaintain a degree of restrictiveness in policy stance to squeeze outinflation persistency.
• Absence of news andpassage of time have brought a bank rate cut somewhat closer.
• The timing for arate cut is still some way off.
• No reason for BoE tomove rates in lockstep with either Fed or ECB.

BoE's Pill

The US April PMIs missed expectations across the board:

• Manufacturing PMI49.9 vs. 52.0 expected and 51.9 prior.
• Services PMI 50.9vs. 52.0 expected and 51.7 prior.

Highlights:

• April saw an overallreduction in new orders for the first time in six months.
• Companies respondedby scaling back employment for the first time in almost four years.
• Business confidencefell to the lowest since last November.
• Rates of inflationgenerally eased at the start of the second quarter, with both input costsand output prices rising less quickly at the composite level.
• However,manufacturing input cost inflation hit a one-year high.
• Some serviceproviders suggested that elevated interest rates and high prices hadrestricted demand during the month.

US Manufacturing PMI

Wednesday

The Australian Q1 CPI beat expectations across the board:

• CPI Y/Y 3.6 vs. 3.4%expected and 4.1% prior.
• CPI Q/Q 1.0% vs.0.8% expected and 0.6% prior.
• Trimmed Mean CPI Y/Y4.0% vs. 3.8% expected and 4.2% prior.
• Trimmed Mean CPI Q/Q1.0% vs. 0.8% expected and 0.8% prior.
• Weighted Mean CPIY/Y 4.4% vs. 4.1% expected and 4.4% prior.
• Weighted Mean CPIQ/Q 1.1% vs. 0.9% expected and 0.9% prior.

Australia Trimmed Mean CPI YoY

ECB’s Nagel (hawk – voter) warned that a rate cut in June does not mean that more rate cuts will follow suit:

• June rate cut notnecessarily followed up by a series of rate cuts.
• Services inflationremains high, driven by continued strong wage growth.
• Not fully convincedthat inflation will actually return to target in a timely, sustainedmanner.
• Given theuncertainty, we cannot pre-commit to a particular rate path.

ECB's Nagel

The German April IFO Business Climate Index beat expectations:

• IFO 89.4 vs. 88.8expected and 87.9 prior (revised from 87.8).
• Current conditions88.9 vs. 88.7 expected and 88.1 prior.
• Expectations 89.9 vs.88.7 expected and 87.7 prior (revised from 87.5).

German IFO

The Canadian February Retail Sales missed expectations across the board:

• Retail sales M/M-0.1% vs. 0.1% expected and -0.3 prior.
• Retail sales Y/Y1.2% vs. 0.2% prior (revised from 0.9%).
• Ex autos M/M -0.3%vs. 0.0% expected and 0.4% prior (revised from 0.5%).
• Ex auto and gas M/M 0.0%vs. 0.4% prior
• Sales down in 5 of 9subsectors led by fuel stations.
• Advance March retail sales 0.0%.

Canada Retail Sales YoY

The US March Durable Goods Orders beat expectations:

• Durable goods ordersM/M 2.6% vs. 2.5% expected and 0.7% prior (revised from 1.3%).
• Nondefense capitalgoods orders ex air M/M 0.2% vs. 0.2% expected and 0.4% prior (revisedfrom 0.7%).
• Ex transportation M/M0.2% vs. 0.3% expected and 0.1% prior (revised from 0.3%).
• Ex-defense M/M 2.3% vs.1.5% prior (revised from 2.1%).

US Durable Goods Orders

The BoC released the Minutes of its April Monetary Policy Meeting:

• Agreed that anymonetary policy easing would probably be gradual.
• There were differentviews on how much more assurance was needed to be confident that inflationwas on a sustainable path back to target.
• Some members feltthere was a risk of keeping policy more restrictive than needed.
• Governing Councilwas split over when to cut rates.
• Felt rapidpopulation increase and coming decline in non-permanent residentscomplicated outlook for activity and inflation.
• Was more confidentthat inflation would continue to ease even as growth picked up.
• Still more concernedabout upside risks to inflation but viewed both upside and downside asless acute.

BoC

Thursday

The US Jobless Claims beat expectations:

• Initial Claims 207Kvs. 215K expected and 212K prior.
• Continuing Claims1781K vs. 1814K expected and 1796K prior (revised from 1812K).

US Jobless Claims

The US Advance Q1 GDP missed expectations with a surprisingly hot Core PCE print:

• Advance Q1 GDP 1.6% vs.2.4% expected and 3.4% prior.
• Weakest since Q1 2023.

Details:

• Consumer spending 2.5% vs. 3.3% prior.
• Consumer spending ondurables -2.1% vs. 3.2% prior.
• GDP final sales 2.0%vs. 3.9% prior.
• GDP deflator 3.1% vs.3.0% expected and 1.7% prior).
• Core PCE 3.7% vs.3.4% expected and 2.0% prior).
• Business investment 3.2% vs. 0.7% prior.

Percentage point changes:

• Net trade pp -0.86vs. 0.32 pp prior.
• Inventories -0.37 pp vs. -0.47 pp prior.
• Govt 0.21pp vs. 0.79 pp prior.

US Q1 GDP

ECB’s Panetta (dove – voter) didnt’ say anything new as he just prefers to gradually cut rates to counter weak demand:

• We must weigh therisk of monetary policy becoming too tight.
• Timely, small ratecuts would counter weak demand, and would be paused at no cost.
• Hesitations inadjusting rates would hurt investment productivity.
• Rate cuts couldcreate a credibility issue.

ECB's Panetta

Friday

The Tokyo April CPI missed expectations across the board by a big margin, although it was attributed to a one-off factor as high school tuition was eliminated in Tokyo and took effect in April:

• CPI Y/Y 1.8% vs. 2.6%expected and 2.6% prior.
• Core CPI Y/Y 1.6%vs. 2.2% expected and 2.4% prior.
• Core-Core CPI Y/Y1.4% vs. 2.7% expected and 2.9% prior.

Tokyo Core-Core CPI YoY

The BoJ left interest rates unchanged at 0.00-0.10% as expected:

• Removes referencefrom statement that it currently buys about 6 trillion yen of JGBs permonth.
• Vote was 9-0.
• Prior vote was 7-2.
• Risks to the economyare generally balanced.
• There are extremelyhigh uncertainties on Japan's economic and price outlook.
• Japan's economy hasrecovered moderately although there is some weakness.
• Output gapimproving, likely to gradually expand.
• Medium and long terminflation expectations heightened moderately.
• Financial conditionshave been accommodative.
• More firms startingto pass on rising wages to sales prices.
• Expect positivecycle of rising wages and inflation to continue.
• Vigilance needed forcurrency and market movements and their impact on the economy and prices.
• Consumption likelyto gradually increase.
• Expect accommodativemonetary conditions to continue for the time being.

BoJ

Moving on to the BoJ Governor Ueda’s Press Conference:

• Will adjust degreeof monetary easing if underlying inflation rises.
• Easy financialconditions will be maintained for the time being.
• Monetary policyconduct from now on will depend on state of economy, prices at the time.
• Will not judgepolicy based on one single indicator.
• Economy outlook,risk overshoot may also be a reason for policy change.
• Japanese economy hasrecovered moderately but some weakness is still seen.
• Must pay attentionto financial, FX market moves and their impact on economy, prices.
• Monetary policy notaimed to control exchange rate directly.
• If FX fluctuationsaffect underlying inflation, that could be a consideration for monetarypolicy.
• Weak yen is nothaving a big impact on trend inflation so far.
• But weak yen didhave some impact to an extent on higher inflation forecasts.
• Likelihood ofachieving 2% inflation target is gradually rising.
• Chance of aprolonged weakness in the yen is not zero.
• We can pre-emptivelyjudge if weak yen affects inflation, spring wage talks next year.
• But FX impact oninflation is usually tentative.
• If our forecastsmaterialise, achievement of 2% inflation target is extremely close.
• Underlying inflationhas been gradually rising.
• Inflation is notnecessarily weak if you look at other service prices.
• If prices move inline with our forecasts, it would be reasonable to adjust policy and hikerates further.

BoJ Governor Ueda

The US March PCE came in line with expectations:

• PCE Y/Y 2.7% vs.2.6% expected and 2.5% prior.
• PCE M/M 0.3% vs.0.3% expected and 0.3% prior.
• Core PCE Y/Y 2.8%vs. 2.7% expected and 2.8% prior.
• Core PCE M/M 0.3% vs.0.3% expected and 0.3% prior.

Consumer spending and consumer income for March:

• Personal income 0.5% vs. 0.5% estimate. Prior month 0.3%.
• Personal consumption0.8% vs. 0.6% estimate. Prior month 0.8%.
• Real personalspending 0.5% vs. 0.5% last month (revised from 0.4%).

US Core PCE YoY

The highlights for next week will be:

• Tuesday: Japan IndustrialProduction and Retail Sales, Australia Retail Sales, China PMIs, EurozoneCPI, Canada GDP, US ECI, US Consumer Confidence.
• Wednesday: New Zealand Jobsdata, Canada Manufacturing PMI, US ADP, US ISM Manufacturing PMI, US JobOpenings, FOMC Policy Decision.
• Thursday: Switzerland CPI,Swiss Manufacturing PMI, US Jobless Claims.
• Friday: EurozoneUnemployment Rate, US NFP, Canada Services PMI, US ISM Services PMI.

That’s all folks. Have a nice weekend!