Weekly Market Outlook (22-26 April)

UPCOMING EVENTS:

• Monday: PBoC
  LPR, Canada PPI.
• Tuesday: Australia/Japan/Eurozone/UK/US
  Flash PMIs.
• Wednesday:
  Australia CPI, Canada Retail Sales, US Durable Goods Orders.
• Thursday: US Q1
  GDP Advance, US Jobless Claims.
• Friday: Tokyo
  CPI, Australia PPI, BoJ Policy Decision, US PCE.

Monday

The PBoC is expected to keep the LPR rates unchanged
at 3.45% for the 1-year and 3.95% for the 5-year. The recent data has been
weaker than expected with “activity”
data
disappointing and the latest CPI figures missing expectations by a big margin as the
deflationary threat remained present. The PBoC Governor Pan stated that they
still have sufficient room for monetary policy, so adjustments to the
policy rates cannot be ruled out.

Tuesday

Tuesday will
be the Flash PMIs day for many major economies, but the market will focus on
the US ones given the recent shift in the
Fed’s stance:

• Eurozone
  Manufacturing PMI 46.5 vs. 46.1 prior.
• Eurozone
  Services PMI 51.8 vs. 51.5 prior.
• UK
  Manufacturing PMI 50.2 vs. 50.3 prior.
• UK
  Services PMI 53.0 vs. 53.1 prior.

There is no
consensus for the US figures at the time of writing although the prior release
showed Manufacturing PMI ticking lower to 51.9 vs. 52.2 prior and Services PMI
falling to 51.7 vs. 52.3 prior.

• US
  Manufacturing PMI 50.2 vs. 50.7 prior.
• US
  Services PMI 52.0 vs. 52.5 prior.

Wednesday

The Australian Q1 CPI Y/Y is expected at
3.4% vs. 4.1% prior, while the Q/Q measure is seen at 0.8% vs. 0.6% prior. We
will also get the Monthly CPI data with the Y/Y figure seen at 3.4% vs. 3.4%
prior. As always, the market will focus mainly on the underlying inflation
readings (Trimmed-Mean and Weighted-Mean) as that’s what the RBA is more
concerned about. The market has priced
out all the rate cuts in 2024 and it’s now
looking at 2025 for the first one.

Thursday

The US Jobless Claims continue to be one
of the most important releases to follow every week as it’s a timelier
indicator on the state of the labour market. This is because disinflation to
the Fed’s target is more likely with a weakening labour market. A resilient
labour market though could make the achievement of the target more difficult.
Initial Claims keep on hovering around cycle lows, while Continuing Claims
remain firm around the 1800K level. This week Initial Claims are expected at
210K vs. 212K prior,
while there is no consensus at the time of writing for Continuing Claims
although the prior release showed a slight increase to 1812K vs. 1810K prior.

Friday

The BoJ is expected to keep interest rates
steady at 0.00-0.10% with absolutely no change to anything else except possibly
some minor tweak to their Real GDP and Core CPI projections. This meeting
follows the one where they finally exited
the negative interest rates policy
raising rates for the first time since 2007. Overall, it will likely be a
dull one, so the Tokyo CPI will carry more weight, although the
expectations aren’t great since inflation is seen falling further.

The Tokyo CPI Y/Y is expected at 2.6% vs.
2.6% prior, while the Core CPI Y/Y is seen at 2.2% vs. 2.4% prior and the
Core-Core CPI Y/Y at 2.7% vs. 2.9% prior. The Tokyo CPI is considered a leading
indicator of National CPI trends because Tokyo is the largest city in Japan and
is a major economic hub. The BoJ recently has been hinting
to a possibility of another rate hike regardless of its inflation forecasts. That
will need sustained wage growth and a rebound in consumption though.

The US PCE Y/Y is expected at 2.6% vs.
2.5% prior, while the M/M measure is seen at 0.3% vs. 0.3% prior. The Core PCE
Y/Y, which is the Fed’s preferred measure of inflation, is expected at 2.7% vs.
2.8% prior, while the M/M figure is seen at 0.27% vs. 0.26% prior. Forecasters
can reliably estimate the PCE once the CPI and PPI are out, so the market
already knows what to expect.

Moreover, Fed Chair Powell already hinted that
their estimates show the Core PCE to be little changed in March and despite
that, Fed’s Williams (neutral) brought rate hikes on the table if inflation
progress were to stall, and Fed’s Goolsbee (dove) shifted to a more neutral
stance.

The market will need a downside surprise
to increase the rate cuts pricing. Given the recent change in the Fed’s stance
though, the market’s reaction function should change from now on, and that is,
more hot data could start to see the market pricing in slight chances of a rate
hike.