Sunset Market Commentary

All eyes are on Wednesday’s US CPI inflation print and to a lesser extent its PPI precursor tomorrow. That led to stoic, listless trading at the start of the new week. China announced during early Asian dealings that it will kick off its CNY 1tn stimulus plan on Friday with a CNY 40bn 30-yr auction of special bonds (of which the proceeds are used for predetermined investments).

Morning Report

Australia: Business confidence and conditions were little changed in April. Conditions slipped 2 points to +7 index points. This is below the 10-year average but around the long-term average of the monthly series. Confidence was unchanged in the month, remaining just in positive territory, at +1 index points. Confidence among businesses has fluctuated around neutral levels for a little over 18 months, with occasional bumps higher or lower in certain months.

Will UK Jobs Data Give Any Meaningful Signal?

The Bank of England (BoE) left interest rates steady at a 16-year high of 5.25% last Thursday as widely expected, and although it did not pre-commit its future policy path, it telegraphed that a summer rate cut is on the cards. While the majority of the board members voted to keep rates steady, Deputy Governor Dave Ramsden joined Shati Dhingra to advocate for an immediate quarter-point reduction.

US Consumers Anticipate Sticky Inflation Ahead

In the US, the Survey of Consumer Expectations from the New York Fed echoed the University of Michigan sentiment survey. 1y inflation expectations rose to 3.3% from 3.0%, the highest print since November 2023, while the 5y figure increased to 2.8% from 2.6%. Conversely, the 3y measure decreased to 2.8% from 2.9%. The elevated inflation expectations are largely attributed to anticipated rises in home prices, food, fuel, and medical costs.

Everybody is Fed-Dependent

The idea that the Fed’s next move is a rate cut – even if it comes a bit later than many have hoped at the start of the year – prevents the USD bulls from coming back forcefully in charge. The Fed also announced to slow QT at the March meeting.

UK Labour Market Data Mixed

UK labour market data were mixed this morning. April payrolls fell by 85k (vs +20k expected) but the March figure was upwardly revised from 67k job losses to only 5k. The unemployment rate ticked up from 4.2% to 4.3% in the three months to March. Wages rose slightly more than expected over that period (5.7% 3M/YoY). Sterling trades volatile not knowing to choose the weaker employment or the stickier wage inflation side.

Bank of England Preview

We expect the Bank of England (BoE) to keep the Bank Rate unchanged at 5.25% on 9 May, which is in line with consensus and current market pricing. We expect the vote split to be 7-2, with the majority voting for an unchanged decision and Ramsden joining Dhingra in voting for a cut. Note, this meeting will include both updated projections and a press conference following the release of the statement.

Week Ahead – BoE and RBA Decisions Headline a Calm Week

Britain’s economy seems to have escaped the shallow recession it fell into last year, and has finally entered the recovery phase. Business surveys point to solid growth in the first quarter and even stronger momentum in the second quarter, powered by a rebound in consumer spending as wage growth has remained resilient. 

Canadian Jobs Data to Show Further Labour Market Softening

The Canadian labour market report will be watched closely next Friday for further signs of deterioration in the country’s economic backdrop.

Weekly Economic & Financial Commentary: Yen Falls to 34-Year Low, Prompting Possible BoJ Intervention

On Monday, the Japanese yen slid to a 34-year low against the dollar, prompting what appeared to be intervention by Japan's Ministry of Finance and central bank (BoJ) to support the beleaguered currency.