ECB, RBNZ and BoC meetings combined with inflation from the US and China will dominate the week ahead of us.
USD
ISM manufacturing surprised to the upside in March and returned to expansion for the first time since October of 2022. It printed 50.3 vs 48.4 and up from 48.4 in February. Digging into the details we see that both production and new orders indices jumped into expansion. There was also improvement in the employment index. On the other hand, jump in prices paid is concerning as it signals that inflationary pressures are not subsiding.
ISM services went in another direction from manufacturing and printed 51.4 vs 52.7 as expected and down from 52.6 in February. Business activity improved slightly and sits at a very healthy 57.4 level. New orders declined but are still well in the expansion while new export orders strengthened more and moved further into expansion. Employment showed a marginal improvement and is sitting at 48.5. Prices paid fell heavily to 53.4, lowest in four years, from 58.6 indicating that although price pressures are still rising they are doing that at a slower pace. Backlog of orders was concerning as it showed a big drop from expansion into deep contraction.
FOMC Committee members Daly and Mester, both voting members this year, stated that three rate cuts are reasonable for 2024 but it is a close call. Chairman Powell stated that if economy continues to evolve as expected most members see it appropriate to start cutting rates during the year. Gold has reached new record of $2300 during the week.
Another month and another scorching jobs report. Headline number for March saw 303k jobs added vs 200k as expected. The unemployment rate ticked down to 3.8% while participation rate jumped to 62.7% from 62.5% in February. Wages data saw positive revision to February reading (0.2% m/m vs 0.1% m/m) and on on top of that wages rose 0.3% m/m (0.347% m/m, which is almost 0.4% m/m). Year over year they were unchanged at 4.1%. Majority of jobs came from government with leisure and hospitality coming in second place. Fed will not be able to ignore such a strong report and rate cuts will most likely be pushed even further.
The yield on a 10y Treasury started the week at 4.20%, rose to 4.42% which is the high for the year and finished the week at around 4.39%. The yield on 2y Treasury started the week at 4.63% and reached the high of 4.74%. Spread between 2y and 10y Treasuries started the week at -42bp then tightened to -34bp as curve proceeded to bear steepen. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 99% while rate hike has been priced in after strong NFP with miniscule probability of 1%. Probability of a June rate cut is around 59%.
This week we will get March inflation data and minutes from the March FOMC meeting.
Important news for USD:
Wednesday:
CPI
FOMC Minutes
EUR
Final March manufacturing PMI was revised up to 46.1 from 45.7 as preliminary reported but it was still down from 46.5 in February. Improvements were seen across all countries with Italy even printing above 50. The report shows that new orders and output declined at a lower pace and that business confidence showed highest reading almost a year. Final services reading was revised up to 51.5 from 51.1 as preliminary reported. New business recorded growth after eighth months of declines and as report states on inflation “Service providers are still in a position to pass on at least some of the rise in input costs to customers in the form of higher prices. In March, however, the pace of inflation slowed slightly both in terms of costs and sales prices.” German services inflation returned to expansion. Composite for the Eurozone returned to expansion after May of 2023 with a 50.3 reading.
Preliminary inflation data for the month of March saw headline number decline to 2.4% y/y from 2.6% y/y with core reading declining to 2.9% y/y from 3.1% y/y. German preliminary inflation came in at 2.2% y/y. Inflation readings are showcasing prevalent disinflationary pressures, but monthly jump of 0.8% m/m leaves everyone cautious.
This week we will have ECB meeting. No change in rate is expected, markets are pricing over 80% chance of no change, so this meeting will serve for preparing the terrain for a June cut.
Important news for EUR:
Thursday:
ECB Interest Rate Decision
GBP
Final manufacturing PMI reading for the month of March was revised up to 50.3 from 49.9 as preliminary reported and up from 47.5 in February. This is the first time manufacturing returned into expansion since July of 2022. The details of report show that increases in output, new orders and business optimism. Final services reading was revised down to 53.1 from 534. as preliminary reported as the sector slowed down a bit. New orders are still growing which is encouraging. On the inflation front the report shows that input prices increased sharply while “Prices charged by service providers increased at the slowest pace since September 2023. However, this index has only edged downwards since last summer and it remains well above the long-run trend, therefore adding to signs of sticky inflationary pressures in the domestic economy so far this year.”
AUD
Minutes from the RBA March meeting showed that board did not consider raising rates but they could not rule out possible rate hikes or rate cuts in the future. They see uncertainty around economic outlook but risks seem to be broadly balanced. On the inflation front board members say that it is still high although it is gradually coming down while the labor market is easing. Wages growth had been robust in the Q4 but the data signaled that it may have reached a peak. However, overall wages growth was not expected to decline quickly.
March official PMI data from China showed great improvements. Manufacturing climbed to 50.8 from 49.1 in February thus escaping contraction and returning to expansion for the first time since September. Services PMI moved further up in expansion as it printed 53, up from 51.4 the previous month. Combined they lifted composite to 52.7, highest in ten months. Caixin manufacturing PMI for March climbed to 51.1 from 50.9 as new exports and output continued to increase with improvement in new export orders as well. Caixin services and composite both improved to 52.7 from 52.5 the previous month.
This week we will get inflation and trade data from China.
Important news for AUD:
Thursday:
CPI (China)
Trade Balance (China)
NZD
RBNZ Governor Orr stated that most central banks feel they are back on top of the inflation, although RBNZ is not there yet. He added that bigger than expected drop in Q4 GDP was necessary adjustment which helped the bank to be on track to get inflation within their targeted range. First dairy auction in April saw prices increase by 2.8% which comes as a nice rebound after two March auctions of falling prices.
This week we will have RBNZ meeting. No change in rate is expected but RBNZ should follow the lead of other central banks and take on more dovish stance.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
March employment report was a disappointing one. Headline number came in at -2.2k vs 25k as expected. This has led to jump in the unemployment rate to 6.1% vs 5.9% as expected from 5.8% in February. Participation rate has remained the same at 65.3%. Breakdown of jobs saw full-time jobs decline by 0.7k while part-time jobs declined by 1.6k. Wages were unchanged at 5% y/y.
This week we will have BoC meeting. Markets are expecting no change to the rate but with the drop in inflation in recent months and easing in labor market should prompt BoC to take more dovish stance.
Important news for CAD:
Wednesday:
BoC Interest Rate Decision
JPY
Final manufacturing PMI for the month of March was unchanged from preliminary reading of 48.2 and it showed improvement from 47.2 in February. The report showed that new orders and output declined at a slower pace than in February but new export orders plunged at the highest pace in over a year as external demand remains very weak. Final services and composite readings were revised down to 54.1 and 51.7 but they both improved compared to previous month. Services have been in expansion since August of 2022 and increase in March was led by rising new export orders.
CHF
SNB total sight deposits for the week ending March 29 came in at CHF456.8bn vs CHF469.2bn the previous week. This is the lowest reading for the year, lowest since July of 2015! and it seems that deposits are going to break the tight range in which they have been since September of 2023. March inflation numbers saw another plunge as the headline reading came in at 1% y/y vs 1.3% y/y as expected and down from 1.2% y/y in February. Core inflation also printed 1% y/y, a tick down from 1.1% the previous month. Inflation is quickly dissipating which increases chances of further rate cut in June and Swissy is not liking it.
