Credit: Original article can be found here
The final week of April presents plenty of data for traders to chew on, with inflation data for the US and potentially Australia taking centre stage. The BOJ’s new Governor Ueda also holds his first meeting. Whilst it’s likely to not be a live event, traders would be wise to remember to never drop their guard when it comes to the central bank who likes to surprise. We also have the advance read for Q1 GDP, amongst a plethora of business sentiment reports to chew on.
The week that was:
- The RBA minutes suggested the case for a pause at their last meeting was finely balanced and acknowledged that prior tightening cycles have had a pause prior to the peak (looking back through the data, there has always been a pause ahead of the peak rate)
- China’s data far exceeded expectations with 4.5% YTD growth, strong retail sales and lower unemployment. Yet the lacklustre response may be due to concerns of slower growth going forward and / or a risk rally ahead of the data thanks to PBOC reducing stimulus yesterday
- GBP was broadly higher following another stubbornly strong (and double-digit) inflation rate, rising wages and a tight labour market – all but confirming the BOE are to hike rates by another 25bp in May
- is coming down quickly” after the baulk of Canada’s inflation figures were below expectations yesterday which keeps the BOC on track for another pause
- Overall, comments from Fed members were predictably hawkish ahead of the blackout period which kicked in on the 22nd of April
- SNB members continue to make hawkish comments which increases the odds of another hike from their relatively low level of 1.5%
- New Zealand’s inflation came in much softer than expected (below market and RBNZ’s own forecasts) which weighed on the Kiwi dollar as traders priced in the prospects of a slower rate of tightening or even a pause in policy
- A 272-page report on the RBA, whilst supportive of its overall framework, recommends more clarity for inflation targeting, reduce to 8 meetings per year (down from 11) with press conferences and include their own rendition of the Fed’s dot plot
- Lower oil prices and expectations the BOC will continue to hold rates steady weighed on CAD
- The Philly Fed business index sank to a post-pandemic low (6-month outlook remained negative, CAPEX contracted at a faster pace) and initial claims rose to show softness in the employment market
- Weaker-than-expected tax filings in the US fanned fears that the US government could reach its debt limit by as early as June or even May
- Concerns of tighter liquidity, softer economic data and the prospects of more central bank hiking weighed on Wall Street and the lower-end of the yield curve heading into the weekend
- Joe Biden intends to limit US investments within parts of China’s economy, such as AI and quantum computing
The week ahead (calendar):
Monday 24th April:
- US: Chicago Fed National Activity Index, Dallas Fed Manufacturing Survey, Fed blackout period (began Saturday 22nd)
- Canada: New Housing Price Index,
- EU: German IFO business climate,
- Australia: New insights into the rental market (new release),
Tuesday 25th April:
- US: Building permits (revised), Philadelphia Fed Non-Manufacturing Survey, Conference Board Consumer confidence, New Residential Sales, Richmond Fed Survey of Manufacturing Activity, Dallas Fed Texas Retail Outlook Survey, API’s Weekly Statistical Bulletin (WSB)
- UK: Public sector finances
- Switzerland: Trade balance
- Japan: Services PPI, China store sales y/y
- Australia: Public holiday – Anzac Day
Wednesday 26th April:
- US:, Advance International Trade In Goods, mortgage applications/market index, Advance Durable Goods, wholesale inventories, EIA weekly report, Corporate Bond Market Distress Index (CMDI)
- Canada: Monthly Survey of Manufacturing (Flash), BOC minutes of the meeting
- EU: France consumer confidence, Q1 France GDP advanced
- Switzerland: Wage Index
- Australia: Consumer Price Index (March Quarter)
Thursday 27th April:
- US: Gross Domestic Product 1st Release, Initial Claims, Pending Home Sales Index, Weekly Economic Index
- Canada: Payroll employment, earnings and hours, and job vacancies
- EU: Economic Sentiment Indicator and Business Climate
- UK: UK trade Q4 for goods and services
- China: Industrial profits
- Japan: Indexes of Business Conditions (revised)
- Australia: Import/Export prices index
Friday 28th April:
- US: Personal consumption expenditure inflation, Employment Cost Index q/q, University of Michigan consumer survey (final), Dallas Fed PCE
- Canada: Gross domestic product by industry m/m
- EU: Q1 GDP advanced (eurozone, Germany, France), Germany state inflation, France CPI
- UK: UK government debt and deficit (December 2022)
- Switzerland: Retail trade turnover, ZEW investor sentiment
- Japan: Bank of Japan meeting, Tokyo consumer prices, Employment report, construction orders, industrial output (preliminary), retail sales, Foreign investment, Leading indicator (revised)
- Australia: Producer Price Indexes (March quarter)
The week ahead (key events):
Australian quarterly CPI report:
If there’s a single data set which could quickly prompt bets for an RBA hike in May, it is Wednesday’s quarterly inflation report. The RBA paused in April and have hung their hat on the fact that the (relatively new) monthly CPI y/y figures have slowed over the past two months. Many argue that the quarterly report is more robust and less volatile, so anything short of disinflation could support the Australian dollar and yields shows it continue higher.
The RBA’s latest MPS (Monetary Policy Statement) forecast annual inflation to fall to 6.75% y/y in Q2 and trimmed mean down to 6.25%. A rough calculation suggests we’d need to see inflation fall to ~7.3% y/y and trimmed mean down to ~6.5% to keep the hawks at bay, so to speak. My gut feel is we’re not going to see it soften that much, which leaves AUD pairs vulnerable to upside risks if CPI comes in hotter than the RBA (or anyone for that matter) would like.
US personal consumption expenditure (PCE)
The rate of inflation in the US is most certainly slowing overall, yet it remains elevated no matter which metric you look at. There was some excitement that headline inflation fell to a 2-month low, yet core CPI ticked higher and, at 5.6% y/y, is too soon to be calling for cuts this year unless we do actually get some sort of financial meltdown. Furthermore, consumer 1-year inflation expectations spiked higher according to the Michigan Consumer Survey, so expect traders to be fully focussed on the monthly PCE and core PCE figures next week.
BOJ meeting (Friday APAC / late Thursday US):
It is the first monetary policy meeting for the new BOJ Governor Ueda. In all likelihood, they will keep policy unchanged with their ultra-dovish stance, seeing as we have heard nothing but dovish comments from members ahead of the event. But that doesn’t mean we should not be on guard for some sort of surprise (as they rarely ever announce a decision with adequate forward guidance beforehand). Moreover, an ex-BOJ member reportedly said that he thinks the central bank should surprise markets with a change to their yield curve control policy, which currently targets the 10-year JGB yield to ‘around 0% within a +/- 0.25% range. Has he tipped us off? We’ll have to wait and find out. But if we are to be treated to a wider band or the scrapping of there policy all together, we’d expect some serious volatility across their bond and currency markets, and for the yen to strengthen like we saw in January when they surprised us with an out-of-meeting decision to widen the YCC band.
— Written by Matt Simpson