Daily Market Outlook by Kate Curtis from Trader's Way

Forex Major Currencies Outlook (Apr 1 – Apr 5)

NFP data combined with inflation data from the Eurozone will dominate the markets in the week that will also see ISM PMI data from the US, employment data from Canada and inflation data from Switzerland.

USD

Atlanta Fed President Bostic forecast that Fed will deliver only one cut in 2024 and that it will be made later in the year than market is expecting. He stated that as long as GDP is high with strong economy and healthy labour market he is not in a hurry to get inflation down to 2%. He clarified that he is now less confident that inflation will continue dropping to 2% than he was in December, thus a change in number of rate cuts.

Fed Governor Waller stated that Fed is in no rush to cut rates and may need to hold them longer than expected thus echoing some of the remarks by Bostic. He remarked that more progress on inflation is needed before he can support rate cut, more data showing that inflation is heading down to the 2% target. He added that recent data and the economy as a whole allow Fed to approach rate changes cautiously.

PCE data for the month of February showed headline inflation ticking up to 2.5% y/y from 2.4% y/y in January while core PCE printed 2.8% y/y, a tick down from upwardly revised January reading of 2.9% y/y. Personal spending rose by 0.3% m/m after a 1% m/m increase the previous month while personal income jumped 0.8% m/m after a 0.2% m/m increase in January. Higher income will not help Fed in fight against inflation. Durable goods rebounded in February printing 1.4% m/m increase after a plunge of 6.9% m/m in January. Core orders, non-defense capital goods orders ex aircraft, have a good lead quality for business investment grew by 0.7% m/m vs 0.1% m/m as expected.

The yield on a 10y Treasury started the week at 4.19%, rose to 4.25% and finished the week at around 4.20%. The yield on 2y Treasury started the week at 4.59% and reached the high of 4.63%. Spread between 2y and 10y Treasuries started the week at -39bp then widened to -42bp as curve inverted further. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 96% while rate cut probability is 4%. Probability of a June rate cut is around 64%.

This week we will have ISM PMI data as well as NFP data on Friday. Headline number is expected around 200k while the unemployment rate should remain at 3.9%.

Important news for USD:

Monday:​

  • ISM Manufacturing PMI​

Wednesday:​

  • ISM Services PMI

Friday:​

  • NFP​
  • Unemployment Rate​

EUR

ECB Chief Economist Lane stated that wage data show wage growth returning to normal. He clarified it by saying that it is desirable for wage growth to be above normal in the next several years but it is important that it returns to normal over time.

Preliminary March CPI data from Spain came in line with expectations at 3.2% y/y but a big jump from 2.8% y/y seen in February. Core CPI went in the other direction and declined to 3.3% y/y from 3.5% y/y the previous month. Italy CPI jumped as well to 1.3% y/y from 0.8% y.y in February. French CPI, on the other hand, plunged by more than expected to 2.3% y/y from 3% y/y in February.

This week we will have preliminary March CPI reading.

Important news for EUR:

Wednesday:​

  • CPI​

GBP

BoE policymaker Catherine Mann, one of the biggest hawk in the MPC and voter for a 25bp rate hike, explained her decision for no change in rate at the March meeting as necessary. She said it is time to move away from rate hikes as discretionary services inflation started to soften. She added that markets are pricing too many rate cuts and that market curve in the UK is impacted by decisions made by Fed and ECB. Boe policymaker Haskel, another hawk who also voted for a 25bp rate hike in February and then changed to no change in March, stated that declines in inflation are very welcoming and that persistence and underlying inflation is what BoE pays most attention to. He added that he thinks that rate cuts are a long way off.

AUD

February monthly CPI reading showed inflation unchanged at 3.4% y/y vs 3.5% y/y as expected. Monthly inflation reading does not encapsulate all of the CPI components. It includes around 70 percent of total CPI basket used for quarterly measuring. The next quarterly reading will come on April 24.

Bloomberg survey is projecting two more RRR cuts by PBOC by the end of the year. Additionally, they see rate cuts to both 1 and 5-year LPR. Industrial profits for the January – February period showed increase of 10.2% y/y thus making it the first positive reading since June of 2022. A jump in manufacturing profits was the main contributor followed by utilities. When looking at industries, “computer, communications and other electronic equipment manufacturing” category showed staggering jump in profits of 210.9% y/y!

NZD

New Zealand Treasury has cut their inflation and growth projections. They now see inflation at 3.3% for fiscal year (FY) of 2024 vs 4.1% as previously seen. GDP for FY of 2024 is seen coming in at meager 0.1%, down from 1.5% as previously forecast. They then see GDP rebounding in FY of 2025 to 2.1% from 1.5% as seen in previous forecast. Business confidence in March recorded a big drop as it printed 22.9, down from 34.7 in February.

CAD

Preliminary wholesale trade data for the month of February showed an increase of 0.8% m/m. Strong increases are seen in machinery and equipment sectors as well as in motor vehicles and motor vehicle parts. January GDP rose by 0.6% m/m vs 0.4% m/m as expected. Services industries rose by 0.7% while manufacturing led by transportation equipment rose by 0.9%. CAD has strengthened across the board during the week.

This week we will have employment data.

Important news for CAD:

Friday:​

  • Employment Change​
  • Unemployment Rate​

JPY

Tokyo area CPI for the month of March saw headline number come in unchanged at 2.6% y/y. Ex fresh food ticked down to 2.4% y/y from 2.5% in February while ex fresh food, energy declined to 2.9% y/y from 3.1% y/y the previous month. This is the first sub 3% reading for the category since December of 2022. Inflation still stays above 2% target but it is not rising. Preliminary industrial production for February fell further by 0.1% m/m while a rebound of 1.4% m/m was expected. The reading showed further decline in the yearly number as it printed -3.4% y/y, down from -1.5% y/y in January. These bleak data are overshadowed by the very positive outlook for the March and April readings. Retail sales, on the other hand, posted a very good result, rising 1.5% m/m and 4.6% y/y and showing that consumer is increasing spending.

CHF

SNB total sight deposits for the week ending March 22 came unchanged at CHF469.2bn. Swissy is weakening after SNB cut and the bank is not intervening as markets are doing their job for them.

This week we will have inflation data.

Important news for CHF:

Thursday:​

  • CPI

Forex Major Currencies Outlook (Apr 8 – Apr 12)

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.

Forex Major Currencies Outlook (Apr 15 – Apr 19)

GDP and activity data from China, inflation data from the UK, Japan, Canada and New Zealand, employment data from the UK and Australia as well as consumption data from the US will highlight the week ahead of us.

USD

March inflation report came in hotter than expected. Headline CPI came in at 3.5% y/y vs 3.4% y/y as expected and up from 3.2% y/y in February. It showed an increase of 0.4% m/m vs 0.3% m/m as expected. This makes it a third consecutive month of 0.4% m/m increases. Rising oil prices caused energy to contribute to growth in inflation. Core reading came unchanged at 0.4% m/m and 3.8% y/y while 0.3% m/m and 3.7% y/y were expected. Shelter component rose 0.4% m/m and was the biggest contributor to the core reading. Supercore, services (services ex energy, ex housing), rose 0.65% m/m. This report basically wiped out June rate cut and now September seems the most likely for a rate cut. However, it is questionable whether Fed will want to cut so close to the election in order to avoid looking politically influenced.

FOMC minutes from the March meeting showed us that members are disappointed with the latest inflation readings. Additionally, the Fed is working on creating the way for a slowing down its Quantitative Tightening programme. Most likely they will reduce the amount of Treasuries and leave the MBS rolling off at the same amount. Gold continued its massive uptrend reaching $2400 level on Friday.

The yield on a 10y Treasury started the week at 4.40%, rose to 4.6%, post CPI and after a horrendous 10y auction that saw a 3bp tail, which is the high for the year and finished the week at around 4.51%. The yield on 2y Treasury started the week at 4.76% and reached the high of 4.98%. Spread between 2y and 10y Treasuries started the week at -35bp then widened to -39bp as curve continued to invert further. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 98% while probability of a rate cut is around 2%. Probability of a June rate cut plunged after the strong CPI report and sits at around 26%.

This week we will get consumption data.

Important news for USD:

Monday:​

  • Retail Sales​

EUR

ECB has left key interest rates unchanged as was widely expected. The accompanying statement shows that most measures of underlying inflation are easing while wage growth is gradually moderating. Inflation shows lower food and goods inflation while domestic price pressures keep services inflation elevated. ECB plans to stop reinvesting PEPP proceeds at the end of 2024. Governing Council will remain data dependent and if their “updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.” They are laying the ground for a rate cut which will occur if incoming inflation data permits it. President Lagarde stated that some members were in favor of immediate rate cut but majority voted for no change as they wished to see more data.

GBP

The UK economy rose by 0.1% m/m in February as expected. Improvements were seen in manufacturing and in industrial production while construction output reported a decline. Services rose by 0.1% m/m. This is the second consecutive month of rising GDP indicating that economic activity is starting to rebound and that we will get a positive Q1 GDP print.

This week we will get employment and inflation data.

Important news for GBP:

Tuesday:​

  • Payroll Change​
  • Unemployment Rate​

Wednesday:​

  • CPI​

AUD

March CPI data from China saw a 0.1% y/y increase vs 0.4% y/y as expected and down from 0.7% y/y in February. The report shows that prices for transportation and household appliance were the biggest drag on inflation. Overall, non-food inflation still stays positive while food prices continue to decline (-2.4% y/y). PPI has continued its downward trajectory as it printed -2.8% y/y.

This week we will get employment data from Australia as well as GDP, production and consumption data from China.

Important news for AUD:

Tuesday:​

  • GDP (China)​
  • Industrial Production (China)​
  • Retail Sales (China)​

Thursday:​

  • Employment Change​
  • Unemployment Rate​

NZD

RBNZ has left the cash rate unchanged at 5.5% as was widely expected but sounded more hawkish. Their stance was revealed at the end of the statement where it said “Committee is confident that maintaining the OCR at a restrictive level for a sustained period will return consumer price inflation to within the 1 to 3 percent target range this calendar year.” The committee sees economy developing as anticipated but the growth remains weak. Members agreed that current level of rates is putting restraints on the demand.

This week we will get Q1 inflation data.

Important news for NZD:

Wednesday:​

  • CPI​

CAD

BoC has left the overnight rate at 5% as was widely expected. The statement shows that “economic growth stalled in the second half of last year and the economy moved into excess supply.” New projections see 2024 GDP at 1.5%, 2025 at 2.2% and 2026 at 1.9%. Inflation is seen gradually coming down with shelter inflation staying elevated. Inflation is expected to reach 2% target in 2025. Bank members noticed some signs of moderating wage pressures. The statement shows that thee Council will look for evidence that downward momentum in inflation, seen in recent months, is sustained. The statement concludes with “Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”

During the press conference BoC Governor Macklem clarified that bank members are satisfied with the progress they are seeing on inflation but they need to see it for a longer period of time in order to be confident that the move down is sustained. He clarified that “We need to be assured this is not just a temporary dip.”

This week we will get inflation data.

Important news for CAD:

Tuesday:​

  • CPI​

JPY

Wages data for the month of February saw increase of 1.8% y/y as expected. However, when inflation is taken into account, real wages have dropped 1.3% y/y which makes it a 23 consecutive month of falling wages. After the hot US CPI report USDJPY broke 153 level making it the highest level for the pair since 1990.

CHF

SNB total sight deposits for the week ending April 5 came in at CHF460.9bn vs CHF456.8bn the previous week. A move back into the well-established range, nothing out of the ordinary. SNB Vice chairman Shlegel, most likely to succeed Jordan as the new Chairman, stated the role of FX interventions in complementing monetary policy adding that rates would need go higher if there were no forex sales.

Forex Major Currencies Outlook (Apr 22 – Apr 26)

Inflation data from the US and Australia, BoJ meeting, preliminary PMI data from the Eurozone and the UK and Q1 GDP from the US will highlight the week ahead of us.

USD

March retail sales report was scorching hot. Headline number saw increase of 0.7% m/m vs 0.3% m/m as expected and it comes after a positive revision to February reading which now shows increase of 0.9% m/m. The biggest increase was made in the non-store retailers while biggest drop was seen in sale of sporting goods. Ex autos category rose 1.1% m/m vs 0.5% m/m as expected. Control group, used for GDP calculation, smashed expectations and printed 1.1% m/m increase with February reading being revised higher from 0% to 0.3% m/m. Thanks to great March reading and positive revision to February number, consumption will be a positive input for Q1 GDP.

Fed Chairman Powell spoke during the week and stated that recent data showed a lack of progress on inflation. He added that restrictive policy needs more time to work and that current situation is not the standard case of inflation driven by overheated demand. NY Fed President Williams added to Powell’s hawkish remarks stating that he does not see urgency for Fed cuts and that eventually interest rates will need to be lowered. He the proceeded to state that although Fed hikes are not base case Fed is prepared to hike if data warrants it. S&P500 has dropped below 5000 for the first time since mid-February as risk off mood gripped markets after Israel fired strikes on Iran.

The yield on a 10y Treasury started the week at 4.53%, rose to 4.69%, a new high for the year and finished the week at around 4.60%. The yield on 2y Treasury started the week at 4.91% and reached the reached 5%. Spread between 2y and 10y Treasuries started the week at -38bp then tightened to -37bp 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 96% while probability of a rate cut is around 4%. Probability of a June rate cut sits at around 17%.

This week we will have preliminary Q1 GDP and Fed’s preferred inflation metric PCE. Headline number is expected to tick up while core number is expected to continue declining. Recent comments made by Fed members coupled with stronger than expected CPI readings this year give additional importance to this PCE report.

Important news for USD:

Thursday:​

  • GDP​

Friday:​

  • PCE​

EUR

ECB Chief Economist Philip Lane stated that deceleration in wage growth is needed to return inflation back to target. He added that they are seeing moderation in wage growth but they are still elevated. Service inflation is expected to come down but but it will remain elevated during the year. German ZEW Survey for April saw current conditions improve, but at lower rate than expected. Outlook, on the other hand, showed much bigger improvement than it was expected indicating that investors are optimistic when assessing the impact of future rate cuts on the economy.

ECB President Lagarde spoke with CNBC during the week and clarified that barring any major surprises ECB will cut rates soon. She added that disinflationary process is moving according to the estimates but that they are not pre-committing to a path of rate cuts. Lagarde stated that there is still a lot uncertainty surrounding outlook and that is why data-dependent approach is necessary. She emphasized that they are data-dependent and not Fed dependent. ECB Nagel, a hawk, said that price pressures may continue for some time in the Eurozone while ECB Holzmann, also a hawk, stated that geopolitics is the biggest threat to rate cuts adding that increase in oil prices will be considered a “major, major shock”.

This week we will have preliminary April PMI data expected to show further improvements.​

Important news for EUR:

Tuesday:​

  • S&P Global Manufacturing PMI (Eurozone, Germany, France)​
  • S&P Global Services PMI (Eurozone, Germany, France)​
  • S&P Global Composite PMI (Eurozone, Germany, France)​

GBP

The latest employment report showed cracks in the UK labor market. Payrolls change for the month of March saw 67k jobs lost while February reading was revised down and now shows a loss of 18k jobs. February unemployment rate has jumped to 4.2% from 4% the previous month while no change was expected. Wages are still holding high though with average weekly earnings at 5.6% 3m/y and ex bonus at 6% 3m/y. A drop in employment numbers should bring rate cuts closer, but still strong wages will most keep first rate cut in August.

March CPI report showed headline inflation drop to 3.2% y/y from 3.4% y/y in February while core inflation fell to 4.2% y/y from 4.5% the previous month. Both inflation numbers were expected to drop even further 3.1% y/y and 4.1% y/y respectively. Food prices were the main reason for drop in prices while motor fuels saw biggest price increases. Services inflation remains at 6% y/y, It proves to be stickier and in combination with smaller than expected declines in inflation numbers markets are still seeing August as the right timing for the first rate cut.

This week we will have preliminary April PMI data expected to show further improvements.

Important news for GBP:

Tuesday:​

  • S&P Global Manufacturing PMI​
  • S&P Global Services PMI​
  • S&P Global Composite PMI​

AUD

March employment report showed loss of 6.6k jobs which came after a stellar February number of 117.6k jobs added. The unemployment rate ticked up to 3.8% from 3.7% while increase of 3.9% was expected. Participation rate ticked down to 66.6%. Looking into composition of jobs we can get a much brighter picture as full-time jobs increased by 27.9k while all of the decline in jobs came from part-time jobs which recorded a loss of 34.5 jobs.

Q1 GDP data from China showed that economy grew by 5.3% y/y and 1.6% q/q. The report shows investment as the main driver of growth, mainly public investment, while consumption moderated. Economic activity details for the month of March were not encouraging. Industrial production came in at 4.5% y/y vs 5.4% y/y as expected while retail sales printed 3.1% y/y vs 4.8% y/y as expected.

This week we will get Q1 CPI data from Australia. This will be the most important data point influencing further RBA decisions.

Important news for AUD:

Wednesday:​

  • CPI​

NZD

Inflation for the first quarter came in at 0.6% q/q and 4% y/y, both as expected. The yearly figure is the lowest since Q2 of 2021. Digging into the details we see that non-tradeable inflation, inflation that is driven by domestic demand, came in at 5.8% y/y which is very elevated. It has prompted some analysts to move first RBNZ rate cut to 2025 from November of 2024. RBNZ sectoral model of inflation eased to 4.3% y/y from 4.7% y/y.

CAD

March headline CPI came in at 2.9% y/y, up from 2.8% y/y in February due to higher gasoline prices. Rent and mortgage interest costs remain biggest contributors to the CPI increase. All three of the core numbers have declined witch common and median below 3% y/y while trim printed 3.1% y/y. Services inflation surprised negatively as it came in at 4.5% y/y, up from 4.2% y/y the previous month. Governor Macklem stated that he wants to see more good data on inflation so the question remains will he be satisfied with core inflation continuing to decline. Manufacturing sales for the month of February showed a 0.7% m/m increase as expected. Wholesale trade was flat on the month in February.

JPY

Core machine orders, a highly volatile data series, rebounded in February and printed 7.7% m/m after a drop of 1.7% m/m in January. They are used as a proxy for CAPEX six to nine months ahead so this bodes very well for business investment and thus GDP. National inflation for the month of March ticked down to 2.7% y/y from 2.8% y/y in February. Ex fresh food slipped to 2.6% y/y while ex fresh food, energy dropped below 3% for the first time since November of 2022 as it printed 2.9% y/y.

This week we will have BoJ meeting and no change to interest rates is widely expected. The bank will publish its quarterly outlook report where an upward revision to inflation is expected.

Important news for JPY:​

Friday:

  • BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending April 12 came in at CHF477.8bn vs CHF460.9bn the previous week. That is a decent jump but still within a well-established range.

Forex Major Currencies Outlook (Apr 29 – May 3)

FOMC meeting, QRA announcement, inflation data from the Eurozone and Switzerland, NFP, preliminary Q1 GDP for the Eurozone, employment data for New Zealand as well as ISM PMI data from the US and PMI data from China will be the highlights of this very busy week.

USD

Q1 GDP surprised to the downside and printed a 1.6% annualised growth vs 2.4% as expected. The details of the report show that net trade was the biggest drag on growth deducting 0.86pp from the final figure. Additionally, inventories also deducted 0.37pp from the GDP while contribution of government spending was at 0.21pp, a big down from 0.79pp in the Q4. Personal consumption contributed 1.68pp to the final reading, down from Q4 of 2023 but business investment contribute 0.56pp, up from 0.15pp in the previous quarter. On the inflation front, PCE deflator was 3.1% vs 3% as expected while core PCE printed 3.7% vs 3.4% as expected. Fed will not be forced to cut rates sooner than expected after this reading.

March PCE data came in slightly hotter than expected. Headline number printed 2.7% y/y, up from 2.5% y/y in February while 2.6% y/y print was expected. Core reading was unchanged at 2.8% y/y while expectations were for a tick down to 2.7% y/y. Personal spending rose 0.8% m/m while personal income was up 0.5% m/m. Overall, numbers came in along the line of expectations and markets seem to be well positioned. Chances of a rate cut slightly rose but it will not affect next week’s meeting.

The yield on a 10y Treasury started the week at 4.63%, rose to 4.73%, a new high for the year and finished the week at around 4.65%. The yield on 2y Treasury started the week at 4.99% and reached the high of 5.03%. Spread between 2y and 10y Treasuries started the week at -37bp then tightened to -31bp 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 97% while probability of a rate cut is around 3%. Probability of a June rate cut sits at around 12%.

This week we will have ISM PMI data, FOMC meeting, QRA announcement and NFP. No change to the rate is expected and with recent inflation data we may get more hawkish tone from the Chair Powell. Headline NFP number is seen at around 190k while unemployment rate should remain at 3.8%. Wages data will be closely watched for further signs of inflation pressures.

Important news for USD:

Wednesday:​
• ISM Manufacturing PMI​
• QRA Announcement​
• Fed Interest Rate Decision​
Friday:​
• NFP​
• Unemployment Rate​
• ISM Services PMI​

EUR

Preliminary PMI data for the month of April accentuated the divide between two sectors. Manufacturing PMI came in at 45.6 vs 46.6 as expected and down from 46.1 in March. German manufacturing is at very weak 42.2. The report shows the slowest decline in production for the year. Services PMI jumped to 52.9 from 51.5 while improvement to 51.8 was expected. The report shows that new businesses continue to grow as well as that companies have more confidence when setting prices. Composite increased to 51.4 from 50.7 the previous month. Q2 has started on a positive note for the Eurozone and today’s reading suggests positive GDP number.

This week we will get preliminary Q1 GDP reading as well as preliminary April inflation data.

Important news for EUR:

Tuesday:​
• GDP​
• CPI​

GBP

Preliminary April PMI data showed the same dichotomy between sectors as in the Eurozone. Manufacturing printed 48.7 vs 50.3 in March and dropped into contraction while services jumped to 54.9 from 53.1 the previous month. This all helped lift composite to 54 from 52.8 in March. The report shows that PMI numbers should translate to 0.4% q/q growth in the second quarter.

BoE Chief Economist Huw Pill stated that signs of downward shift in inflation pressures are start to be more clear. He added that a cut in rate would not entirely undo the restrictive policy stance but the timing for rate cuts is still some way off. Other MPC members, most notably Deputy Governor David Ramsden, a hawk, came out with dovish comments suggesting that timing for rate cuts is drawing near. Markets have been selling GBP since Friday of last week, after the weak retail sales report but then reversed mid week with GBPUSD climbing over the 1.25 level.

AUD

Q1 inflation data came in hotter than expected. Headline CPI rose 1% q/q vs 0.8% q/q as expected. Yearly figure did decline to 3.6% from 4.1% in Q4 of 2023 but expectations were for a decline to 3.4%. Headline core reading also printed 1% q/q increase while yearly number eased to 4% from 4.2% in the previous quarter, but expectations were for a decline to 3.8%. Inflation coming down is a good thing, but slower than expected pace of declines means that RBA will not move to rate cuts and will hold interest rate at current level.

This week we will get PMI data from China.

Important news for AUD:

Tuesday:​
• Manufacturing PMI (China)​
• Services PMI (China)​
• Composite PMI (China)​
• Caixin Manufacturing PMI (China)​

NZD

March trade data showed first surplus since June of 2023. Kiwi has had a mixed week. It was up against weak USD, CHF and JPY but it was the weakest of so-called risk on currencies, losing the most against the AUD which was boosted by higher than expected inflation print.

This week we will get employment data.​

Important news for NZD:
Wednesday:​
• Employment Change​
• Unemployment Rate​

CAD

February retail sales were very weak. Headline number came in at -0.1% m/m vs 0.1% m/m as expected while ex autos category plunged -0.3% m/m vs 0% m/m as expected. Additionally, advanced reading for the March sees retail sales coming in flat. With January and February printing negative numbers and March seen coming flat it is clear that consumption will be a drag to Q1 GDP and CAD is suffering on the back of that.

JPY

Preliminary April PMI data saw further improvements across the sectors. Manufacturing jumped to 49.9, so close to returning into expansion, from 48.2 in March. The report shows slowest declines for outlook and new orders while employment continued to increase. Input prices have increased with the fastest rate of increase in the last nine months. Services rose to 54.6 from 54.1 the previous month due to big jump in new orders while composite improved to 52.6 from 51.7 in March. Input prices continue to rise in the services sector as well keeping the inflation pressures on.

BoJ has left interest rate unchanged at 0-0.10% as was widely expected. The voting was unanimous, 9-0. The part stating that BoJ buys JPY6tn of JGBs per month was removed from the statement indicating that the bank will return to their previously unlimited purchases. The statement shows that there are still extreme uncertainties around the economic and price outlook. Addiutionally, medium and long term inflation expectations heightened moderately while more firms starting to pass on rising wages to sales prices and it is expected that positive cycle of rising wages and inflation will continue. New projections see GDP for FY 2024 down to 0.8% from 1.2% and unchanged for FY 2025 at 1%. Ex fresh food CPI has been revised up for FY 2024 and is seen at 2.8% while ex fresh food, energy is seen unchanged at 1.9%.

BoJ Governor Ueda stated at the press conference that if underlying inflation rises there will be adjustments to monetary policy. For time being easy financial conditions will be maintained. He added that, so far, weak JPY is not having big impact on inflation trend. He clarified that there is non zero chance of prolonged weakness in JPY and added that BOJ’s policy is not aimed at directly controlling the exchange rate. Markets have pushed USDJPY over the 158 level as fears of intervention subside. Tokyo area inflation for the month of April dropped below the 2% target as headline number printed 1.8% y/y increase while ex fresh food category printed 1.6% y/y. They were at 2.6% y/y and 2.4% y/y respectively in March. Inflation is not moving in BoJ’s preferred direction, but it seems that some statistical quirks made it to drop and that this reading should not represent a reversal.

CHF

SNB Chairman Jordan spoke over the weekend and stated that monetary policy should be geared towards maintaining price stability rather than financing debt. SNB has raised minimum reserve ratio for banks to 4% from 2.5%. The decision will go into effect on July 1 and SNB describes the measure as "the adjustments will ensure that implementation of monetary policy remains effective and efficient”. SNB total sight deposits for the week ending April 19 came in at CHF481.3bn vs CHF477.9bn the previous week.

This week we will get inflation data.

Important news for CHF:

Thursday:​
• CPI

Forex Major Currencies Outlook (May 6 – May 10)

BoE and RBA meetings coupled with employment data from Canada and trade data from China will highlight the week ahead of us.

USD

Employment Cost Index (ECI) for Q1 showed growth of 1.2% q/q vs 1% q/q as expected and up from 0.9% q/q in the Q4 of 2023. The number came in at 4.2% y/y, down from 4.8% y/y in Q1 of 2023, but it is still highly elevated. Fed is considering ECI to be one of the best indicators of overall wage pressures and as it is seen going up it will spark debates of much stickier inflation.

Treasury funding announcement for the Q2 saw a $41bn larger borrowing than stated in January of 2024. The reason was lower cash receipts. Treasury expects to borrow, issue Treasuries, in the amount of $243bn with end TGA balance of $750bn. Expectations for Q3 are for a $847bn borrowing with a TGA balance of $850bn at the end of the quarter.

ISM manufacturing PMI for the month of April returned to contraction after briefly moving to expansion in March and printed 49.2 vs 50 as expected. The details show drops in new orders and production while prices paid jumped above the 60 level indicating growing inflation pressures. ISM services PMI also dropped into contraction and printed 49.4 vs 50 as expected and down from 51.4 the previous month. This is the first time since December of 2022 that the reading dipped below the 50 level. New orders dropped but remained in expansion while new export orders dropped into contraction. Employment index fell deeper into contraction while prices paid component rebounded heavily after dropping in March which will bring up concerns about inflation pressures boiling.

Fed has left Fed funds rate unchanged in 5.25 - 5.50% range as was widely expected. The statement showed that economy continued to expand at a solid pace but “there has been a lack of further progress toward the Committee’s 2 percent inflation objective.” Regarding inflation the statement showed that “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.” There will be a reduction in QT “…monthly redemption cap on Treasury securities from $60 billion to $25 billion.” Expectations were for a reduction to $30bn. Fed remains data dependent and Inflation remains the most important data point that Fed will monitor.

At the press conference Powell has stated that Fed is not satisfied with 3% inflation adding that it is unlikely that the next move in rates will be a hike, he repeatedly pushed against the rate hike. When pressed about rate cuts he stated that there would have to be significant weakening of labor market and added that couple of tenths in the unemployment rate probably wouldn’t do it. He thinks that monetary policy is restrictive and he will need “persuasive evidence” to prove to him that it is not tight enough.

March jobs report was the first in a long time that missed expectations. Headline NFP number showed 175k jobs added vs 243k as expected. The unemployment rate ticked up to 3.9% while participation rate remained the same at 65.7%. Underemployment, U6, also ticked higher and printed 7.4%. Wages rose 0.2% m/m compared to 0.3% m/m the previous month and 3.9% y/y vs 4.1% y/y in March. Private education and healthcare services continues to be the biggest contributors adding 95k of the 175k total, but leisure & hospitality and government are much weaker than has usually been the case over the past 18 months. Private jobs added 16k while government jobs added 8k. Powell has noted that significant weakening of labor market is needed for rate cuts and this report could mark the beginning of that weakening.

The yield on a 10y Treasury started the week at 4.67%, rose to 4.69% and finished the week at around 4.50%. The yield on 2y Treasury started the week at 5% and reached the high of 5.05%. Spread between 2y and 10y Treasuries started the week at -33bp then tightened to -31bp as curve proceeded to bear steepen. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at June meeting at 86% while probability of a rate cut is around 14%. Probability of a July rate cut sits at around 42%.

EUR

Preliminary Eurozone CPI for the month of April saw headline number unchanged at 2.4% y/y as expected but core CPI fell by less than expected as it printed 2.7% y/y, down from 2.9% y/y in March while a drop to 2.6% y/y was expected. Monthly reading saw increase of 0.6% which makes it a fourh consecutive year of 0.6% m/m inflation increases in April. German CPI came in unchanged at 2.2% y/y vs 2.3% y/y as expected with French CPI also printing 2.2% y/y. These numbers indicate that bringing inflation all the way to the 2% target will go slower than expected. However, this will not deter ECB from cutting in June. Preliminary Eurozone GDP for the Q1 came in at 0.3% q/q and 0.4% y/y vs 0.1% q/q and 0.2% y/y as expected. All of the four major economies (Germany, France, Italy and Spain) beat expectations and had Q1 GDP surprised to the upside.

GBP

Final manufacturing PMI for the month of April was revised up to 49.1. Services and composite PMI readings were slightly upgraded to 55 and 54.1 respectively, up from 53.1 and 52.8 in March. The report shows improvements in business and consumer spending which led to increases in activity and new orders. Business expectations for the next year are upbeat.

This week we will have BoE meeting and preliminary Q1 GDP data. With inflation staying high but projected to decline much faster than in other countries we could see BoE to start to prepare the terrain for a June cut, although August is what markets are pricing as we will get more data points by then. Sticky services inflation may prove to be the reason why they opt for an August as the first rate cut date.

Important news for GBP:

Thursday:​

  • BoE Interest Rate Decision​

Friday:​

  • GDP​

AUD

Official April PMIs saw manufacturing come in at 50.4 as expected, down from 50.8 in March while services recorded a big drop to 51.2 from 53 the previous month while expectations were for a 52.2 reading. For the manufacturing sector new orders and new export orders remained above 50 while employment index remained in contraction. Production index made a decent jump and there was a surge in prices paid index indicating inflation pressures. For the services sector employment and new business components remained below 50 and business expectations index declined. Composite was thus dragged to 51.7 from 52.7 in March. Caixin manufacturing increased to 51.4 in April from 51.1 in March.

This week we will have RBA meeting as well as trade and inflation data from China. With inflation staying stubbornly high and labor market still holding tight RBA will not make any moves at this meeting.

Important news for AUD:

Tuesday:​

  • RBA Interest Rate Decision​

Thursday:​

  • Trade Balance (China)​

Saturday:​

  • CPI (China)​

NZD

Business confidence continued to deteriorate as April printed 14.9, down from 22.9 in March. The biggest drops were seen in overall activity, all sectors declined as well as in employment category. Residential construction and profit expectations also posted big drops. Pricing intentions component grew but slight positive is that inflation expectations inched lower.

Q1 employment report showed growing weakness in the labor market. Employment change was -0.2% q/q vs 0.3% q/q as expected. The unemployment rate rose to 4.3% from 4% in Q4, higher than 4.2% as expected, while participation rate dropped to 71.5% from 71.9% in the previous quarter. Wages have declined a bit but are still very elevated with Labor cost index at 0.8% q/q and 3.8% y/y. The impact of high interest rates is weighing down on the labor market.

CAD

February GDP reading printed an increase of 0.2% m/m vs 0.3% m/m as expected. Manufacturing growth was negative while service industries posted a 0.2% increase. Advanced March reading sees GDP coming in flat.

BoC Governor Macklem stated that there is a limit on how much rates between US and Canada can diverging adding that it is unlikely that rates will go down to the pre-pandemic levels. He added that core inflation is expected to ease gradually and that cut in rates will signal that inflation is moving towards the 2% target.​

This week we will have employment data.

Important news for CAD:

Friday:​

  • Employment Change​
  • Unemployment Rate​

JPY

Early hours of Monday saw USDJPY jump to the 160 level and then finally intervention happened. The pair was pushed down below the 155 level. It has bounced after that but as the London session started it was pushed back below to the 155 level. Ultimately the pair crossed the 158 level. After the FOMC meeting that weakened the USD, BoJ took advantage and again intervened in the market pushing the pair below the 152 level.

Final manufacturing PMI for the month of April was revised down to 49.6 from 49.9 as preliminary reported, but still a good jump from 48.2 in March. The report showed slower decline in output and new orders, they are still below 50. New export orders also declined due to weak foreign demand while input prices increased as weak JPY pushed up prices.

CHF

SNB total sight deposits for the week ending April 26 came in at CHF475.7bn vs CHF481.3bn the previous week. April inflation data saw headline CPI come in at 1.4% y/y vs 1.1% y/y as expected and up from 1% y/y in March. Core CPI also rose as it printed 1.2% y/y vs 1% the previous month. The numbers are still well below the 2% target so SNB will not be phased by these data points. CHF has gained strength after the inflation report.

Forex Major Currencies Outlook (May 13 – May 17)

Inflation and consumption data from the US will take the center stage followed by employment data from Australia, activity data from China and preliminary Q1 GDP from Japan.

USD

Minneapolis Fed President Kashkari stated that he would not rule out a hike though the bar for it is high adding that multiple positive inflation readings would be necessary before a cut. He also acknowledged that a weakening situation in the labour market could also spur cuts. He put two rate cuts at the March SEP and he may lower that to zero or one. Kashkari is one of the biggest hawks on the FOMC committee. Initial jobless claims jumped to 231k from 209k the previous week. The market took this as a big sign of weakness in the labour market and USD lost ground.

The yield on a 10y Treasury started the week at 4.50%, rose to 4.52% and finished the week unchanged at around 4.50%. The yield on 2y Treasury started the week at 4.83% and reached the high of 4.83%. Spread between 2y and 10y Treasuries started the week at -31bp then widened to -37bp as curve inverted further. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at June meeting at 92% while probability of a rate cut is around 18. Probability of a July rate cut sits at around 37%.

This week we will have inflation and consumption reports. Headline inflation number is expected to remain unchanged at 3.5% with core inflation ticking down to 3.5% while retail sales are expected to decline compared to March report.

Important news for USD:

Wednesday:​

  • CPI​
  • Retail Sales​

EUR

Final Eurozone services PMI for the month of April was revised up to 53.3 from 52.9 as preliminary reported on the back of strong readings across all countries with Spain being the notable outperformer (56.2). The print shows heightened optimism as shown by business expectations and that businesses managed to successfully pass their costs onto consumers. Composite has risen to 51.7 from 51.4 as preliminary reported and 50.3 in March indicating that Eurozone economy is moving further into expansion. French composite PMI reading jumped into expansion with 50.5 reading for the first time since May of 2023. A strong start to the second quarter as indicated by the PMIs.

ECB Chief Economist Lane prepared the terrain for June cut by saying that their confidence on getting inflation lower is improving based on the preliminary data. He added that they are remaining data dependent and that will act in accordance with the incoming data. ECB policymaker De Cos stated that June will most likely deliver a cut but there was no commitment to a rate cut path beyond that. The Bundesbank Governor Nagel talked about structural factors that may keep inflation elevate in the coming years.

GBP

BoE has left the rate unchanged at 5.25% as was widely expected but the result of the vote was 7-2 opposed to 8-1 as was expected. Dhingra, as expected, voted for a rate cut, but this time he was joined by Ramsden. The statement shows that inflation will increase slightly in the H2 of 2024 due to the unwinding of base effects but it will return to close to 2% in the near-term. Members noted upside risks to the near-term inflation outlook from geopolitics. Services inflation has come down but it remains elevated. Monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates. “UK GDP is expected to have risen by 0.4% in 2024 Q1 and to grow by 0.2% in Q2”. The statement concludes with “Will consider forthcoming data releases and how these inform the assessment that the risks from inflation persistence are receding.” New projections saw lower inflation with CPI for at 2.6% in one year’s time vs 2.8% in February, 1.9% in two year’s time vs 2.3% in February and 1.6% in three year’s time vs 1.9% in February. Additional member voting for a rate cut and lower inflation projections give the statement dovish tone and GBP weakened.

BoE Governor Bailey stated during the press conference that June rate cut cannot be ruled out and that it is actually possible to cut more than the markets are pricing in. He added that restrictive monetary policy is working and that they are on a path to reducing inflation to 2%. He clarified that they are evidence based, data-dependent, that every new meeting will represent a new decision and that when they cut once monetary policy will remain restrictive. BoE Chief Economist Pill stated that they are more confident they can start to reduce rates but they are not there yet. He reiterated that decision to cut rates will be data-dependent and added that persistent parts of inflation are declining.

Preliminary Q1 GDP reading came in at 0.6% q/q vs 0.4% q/q as expected and up from -0.3% q/q in the Q4 of 2023. Services grew by 0.7% q/q, the production sector grew by 0.8% q/q while the construction sector fell by 0.9% q/q. Real household spending rose 0.2% q/q, real government consumption rose by 0.3% q/q while business investment rose by 0.9% q/q. Exports were down 1% while imports fell by 2.3%.

AUD

RBA has left the cash rate unchanged at 4.35% as was widely expected. Inflation remains a concern as it is moderating at a slower than expected pace. Persistence of services inflation remains a key uncertainty. As stated “The Board expects that it will be some time yet before inflation is sustainably in the target range and will remain vigilant to upside risks."The statement shows concerns around weakness of household consumption and Q1 retail sales data confirms this concern as it printed -0.4% q/q. RBA is still not ruling rate cuts or rate hikes.

RBA Governor Bullock stated at the press conference that rates are at necessary levels to bring inflation down to target. She commented that the bank has to remain vigilant on inflation risks and added that raising interest rates is not the base case but that they are prepared to do it if the need to. She clarified that board did discuss option of raising rates at the meeting but that at this moment it is more appropriate to observe how economy functions before making decisions.

April Caixin services came in at 52.5 as expected, slightly down from 52.7 in March. Composite, on the other hand, ticked up to 52.8 from 52.7 the previous month. The data shows economy expanding at a solid pace. April trade balance data showed widening of surplus to $72.35bn as exports rose by 1.5% y/y while imports rose 8.4% y/y. Auto exports were the biggest exports while high tech product category had biggest impact on imports. Exports growth to ASEAN countries continued to increase while exports to US and EU continued to struggle.

This week we will have employment data from Australia as well as production and consumption data from China.

Important news for AUD:

Thursday:​

  • Employment Change​
  • Unemployment Rate​

Friday:​

  • Industrial Production (China)​
  • Retail Sales (China)​

NZD

GDT index at the first auction of May saw increase of 1.8%. This makes it a third consecutive auction of raising dairy prices and it was led by the increase in Cheddar prices. Kiwi has managed to regain some ground against its neighbour AUD but the pair is still technically bullish.

CAD

April employment report was a stellar one. The economy added 90.4 jobs vs 18k jobs as expected. The unemployment rate stayed at 6.1% while a tick to 6.2% was expected and participation rate ticked higher to 65.4% from 65.3% in March. Wages rose 4.8% y/y, easing from 5% y/y increase the previous month. Full-time employment rose by 40.1k while part-time employment rose by 50.3k. Professional, scientific and technical services added the most jobs (26k). This report will make BoC reconsider their path and markets are pricing out rate cuts near-term which led to strengthening of CAD.

JPY

Cash earnings in the month of March rose by 0.6% y/y vs 1.8% y/y in February. When we take inflation into account, real wages have fallen by 2.5% y/y making it two years of falling real wages. Household spending has risen 1.2% m/m vs -0.3% m/m as expected. BoJ Summary of Opinions showed more members turning hawkish and advocating rate hikes to secure against the risks of inflation overshooting.

This week we will have preliminary Q1 GDP reading.

Important news for JPY:

Thursday:​

  • GDP​

CHF

SNB total sight deposits for the week ending May 3 came in at CHF473.2bn vs CHF475.7bn the previous week. A small drop but within well-established range. Seasonally adjusted unemployment rate stayed at 2.3% in April as was expected.

Forex Major Currencies Outlook (May 20 – May 24)

UK inflation will be the most watched data point in a week that will also bring us RBNZ meeting, preliminary May PMI data from the Eurozone and the UK, inflation from Canada and retail sales from the UK and New Zealand.

USD

Fed Chair Powell described the current policy stance as restrictive by many measures and added that it is unlikely that the next move would be a hike, It is more likely that the Fed would keep rates unchanged. He pointed out that uncertainty remains and that confidence is lower than it was when heading into 2024. Powell added that he sees signs of gradual easing in the jobs market and he also expects inflation to move back down on a monthly basis.

April CPI came in line with expectations. Headline number was 3.4% y/y, tick down from 3.5% y/y in March while core CPI printed 3.6% y/y, down from 3.8% y/y the previous month. Monthly number was 0.4%, when taken to decimals it printed 0.313% vs 0.359% in March. Shelter component printed 0.4% m/m, same as in March while it declined to 5.5% y/y from 5.7% y/y the previous month. Services less rent and shelter, closely watched by the Fed, rose by 0.2% m/m vs 0.65% in March.

Retail sales disappointed in April as they came in flat vs 0.4% m/m increase as expected. Core group, excludes volatile categories and is used for GDP calculation, came in at -0.3% m/m vs 0.1% m/m as expected and down from 1% m/m in March. Consumer is off to a rough start in the second quarter. Ex autos category came in at 0.2% m/m as expected while ex autos & gas declined by 0.1% m/m.

The yield on a 10y Treasury started the week at 4.50%, rose to 4.51% and finished the week at around 4.42%. The yield on 2y Treasury started the week at 4.87% and reached the high of 4.88%. Spread between 2y and 10y Treasuries started the week at -37bp then widened to -41bp as curve proceeded to invert further after the CPI report. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at June meeting at 91% while probability of a rate cut is around 9%. Probability of a July rate cut sits at around 30% while September is at around 68%.

This week we will be getting minutes from the May FOMC meeting.

Important news for USD:

Wednesday:​

  • FOMC Minutes​

EUR

Second estimate of Q1 GDP came in unchanged at 0.3% q/q and 0.4% y/y while Q4 GDP was revised down to -0.1% q/q thus showing that Eurozone was in a technical recession as growth was negative in both Q3 and Q4. ECB officials are pushing for a June cut but are very cautious of future rate cuts. Final April inflation reading saw no changes with headline number printing 2.4% y/y and core printing 2.7% y/y.

This week we will get preliminary May PMI data which should show small changes up as economic activity continues to improve in the Eurozone.

Important news for EUR:

Thursday:​

  • S&P Manufacturing PMI (Eurozone, Germany, France)​
  • S&P Services PMI (Eurozone, Germany, France)​
  • S&P Composite PMI (Eurozone, Germany, France)​

GBP

April employment report saw payroll change decline by 85k after March reading was revised up to show a decline of 5k. ILO unemployment rate for the month of March ticked up to 4.3% while wages were unchanged at 5.7% 3m/y and 6% 3m/y when bonus is excluded. Labor market is softening which increases chances of a June rate cut.

BoE Chief Economist Pill spoke and reiterated that there is more work to be done on bringing inflation down but that there is good progress on it. He added that focus is on labor market, wages and services inflation and that BoE can cut rates and still stay restrictive. He characterized decision around June rate cut vs August rate cut as a close call.

This week we will get inflation and preliminary May PMI data. Markets are split 50:50 regarding June cut and this week’s CPI report will be of great importance as it can turn odds to the either side.

Important news for GBP:

Wednesday:​

  • CPI​

Thursday:​

  • S&P Manufacturing PMI​
  • S&P Services PMI​
  • S&P Composite PMI​

AUD

April employment report saw the unemployment rate jump to 4.1% from 3.8% in March. There was a slight increase in the participation (66.7% from 66.6%) rate but it was overshadowed by the big increase in the unemployment rate. Economy added 38.5k jobs but when we look at the composition of those jobs we can see that all of it was part-time jobs (44.6k) while full-time lost 6.1k jobs. Wage price index for Q1 saw wages continue to increase, although at a softer pace than expected. The numbers printed 0.8% q/q and 4.1% y/y vs 0.9% q/q and 4.2% y/y as expected and in previous quarter.

Over the weekend China CPI data for the month of April was published and it saw price increases of 0.3% y/y vs 0.1% y/y in March. Core CPI rose 0.7% y/y vs 0.6% y/y the previous month. PPI has remained in the negative as it printed -2.5% y/y, slower decline than -2.8% y/y in March, but markets were expecting stronger reading of -2.3% y/y. PPI has been in negative territory since October of 2022. Credit growth in China fell for the first time since 2017 as more government bonds were repaid than sold in the month indicating weak demand. These two factors, weak CPI and demand for credit, could spur PBOC into further easing. PBoC has left 1-year MLF rate unchanged at 2.5% as expected and injected additional injection of 125bn yuan. PBoC will lower rates on home loans by 25bp in order to spur up falling real estate market.

April activity data from China showed industrial production rise by 6.7% y/y, up from 4.5% y/y in March on the back of big increase in production of high tech products. Retail sales, on the other hand, came in at 2.3% y/y, down from 3.8% y/y the previous month. Auto sales were the biggest drag while sports & recreation category saw biggest increase. This composition indicates that growth will not come from consumption, from inside, but that China will focus more on production and exports to achieve its 5% growth target for 2024.

NZD

RBNZ has published new inflation projections for Q2. They see it coming down to 2.73% from 3.22% in one year’s time and to 2.33% from 2.50% in two year’s time. RBNZ sees two year period as a good representation of time period in which changes in policy have impact on the economy.

This week we will have RBNZ meeting and retail sales data. No changes are expected to the OCR as inflation is still running too hot for RBNZ liking.

Important news for NZD:

Wednesday:​

  • RBNZ Interest Rate Decision​

Thursday:​

  • Retail Sales

CAD

Building permits plunged in March by 11.7% while housing starts dipped 1.6% m/m. Manufacturing sales in March posted a decline of 2.1%.

This week we will have inflation data and further declines are expected.

Important news for CAD:

Tuesday:​

  • CPI​

JPY

Q1 GDP data were abysmal. The economy shrank 0.5% q/q and 2% annualized compared to expected declines of 0.3% q/q and 1.3% annualized. In addition, Q4 reading was revised down so it showed no growth q/q and no growth annualized. Private consumption felt for the fourth straight quarter and printed -0.7% vs -0.4% in the previous quarter. Business investment dropped by 0.8% after it rose by 1.8% in Q4 of 2023. Net trade deducted 0.3pp from the GDP reading as exports fell by more than imports (-5% and -3.4%).

CHF

SNB total sight deposits for the week ending May 10 came in at CHF468.9bn vs CHF473.2bn the previous week. Deposits continue to hover in a well-established range.

Forex Major Currencies Outlook (May 27 – May 31)

PCE and preliminary CPI from Eurozone coupled with GDP from the US and Switzerland as well as official PMI data from China will highlight the shortened week ahead of us as we Monday will be a holiday in the US (Memorial Day).

USD

Fed Governor Waller stated that he wants to see more good data on inflation, several months more good inflation data. He added that monetary policy is restrictive enough and that further rate hikes will most likely not be needed. The economy is evolving along Fed’s expectations and there are no signs of inflation accelerating in the incoming data. Wallet, however, acknowledged that progress towards 2% inflation may be slower and added that probability of a recession seems to have disappeared.

FOMC minutes showed that it will take longer than previously expected for members to gain greater confidence that inflation is sustainably moving down to the 2% target. Many members expressed their concerns if monetary policy is restrictive enough. Almost all members agreed that it is appropriate to start slowing down the pace of QT. These more hawkish assessments along with much stronger than expected PMI numbers brought risk off mode again in the markets. USD strengthened and bond yields rose.

The yield on a 10y Treasury started the week at 4.42%, rose to 4.50% and finished the week at around 4.46%. The yield on 2y Treasury started the week at 4.84% and reached the high of 4.96%. Spread between 2y and 10y Treasuries started the week at -41bp then widened to -47bp as curve proceeded to invert further. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at June meeting at almost a 100%. Probability of a July rate cut sits at around 18% while September is at around 56%.

This week we will have second estimate of Q1 GDP and Fed’s preferred inflation measure PCE which is expected to slide further.

Important news for USD:

Thursday:​

  • GDP​

Friday:​

  • PCE​

EUR

Preliminary May PMI data showed improvement in the manufacturing sector to 46.7 from 45.3 while increase to 45.8 was expected. Both Germany and France saw their numbers improve. Services were unchanged at 53.3 due to a sharp drop in French reading which returned into contraction. Composite was lifted to 52.3 from 51.7 the previous month, but composite PMI for the French economy dropped below the 50 level indicating a drop in activity. The report shows that input and output prices in services sector declined compared to the previous month which will make ECB happy as they get more confident that their decision for a June rate cut is adequate. The negotiated wages index rose 4.7% y/y in in Q1, higher than 4.5% y/y increase in Q4 of 2023. Increase in wages will not deter ECB from June cut but it may slow down the pace of rate cuts and throw July out of the picture.

This week we will have preliminary May inflation data, headline expected to stabilize white core is seen dropping further.​

Important news for EUR:

Friday:​

  • CPI​

GBP

April inflation report showed headline number drop to 2.3% y/y from 3.2% y/y in March. Expectations were for a further drop, down to 2.1% y/y. The biggest contributor to the drop in inflation was lowering of the energy price cap by 12%. The most concerning fact is that services inflation printed 5.9% y/y vs 5.5% y/y as expected indicating that inflation pressures in services sector are much stickier than BoE projected. Core CPI declined to 3.9% y/y from 4.2% y/y the previous month, but markets were expecting a 3.6% y/y reading. This report will significantly lower chances of a June cut, leaving August as the first month to expect a rate cut and on the back of that GBP rallied.

Preliminary PMI data for the month of May showed manufacturing PMI returning to expansion after a drop of last month and printing 51.3. It is a 22-month high for the reading and it showed a jump in output index. Services dropped to 52.9 from 54.7 in April, still a healthy reading but business activity index slumped. Composite was a victim of weak services and it printed 52.8, down from 54.1 the previous month. The report shows “The survey also brings welcome news of a cooling in service sector inflation, which is needed to open the door for the Bank of England to start cutting interest rates."

Retail sales for the month of April were a disaster as they show big declines across all measures with March readings being revised down. Headline number showed a 2.3% m/m decline while ex autos, fuel category declined by 2% m/m. Consumer is struggling. UK Prime Minister Sunak called for snap elections on July 4.

AUD

Minutes from the latest RBA meeting showed that members discussed whether to increase rates but opted for no change as it was appropriate to do so. They could not rule out either rate cuts or rate hikes. Risks surrounding inflation have increased, meaning it may take longer to return inflation down to their target. Minutes had a hawkish tone to them as they mentioned rate hikes several times (if forecasts proved to be overly optimistic the bank could hike rates).

PBoC has left 1-year and 5-year LPR rates unchanged at 3.45% and 3.95% respectively as was widely expected. Last week they have lowered rates on home loans by 25bp in order to spur up falling real estate market and more easing is expected during the year.

This week well have official PMI data from China.

Important news for AUD:

Friday:​

  • Manufacturing PMI (China)​
  • Services PMI (China)​
  • Composite PMI (China)​

NZD

RBNZ had left the Official Cash Rate (OCR) unchanged at 5.5% but their projections and wording were hawkish. New projections see OCR at 5.54% in June 2025 vs 5.33% previously and 5.4% in September of 2025 vs 5.15% previously. They see the need for monetary policy to remain restrictive in order for inflation to return to their 1-3% target which will be achieved by the end of the 2024. Domestic services inflation pressures persist while wages and spending are easing. The committee stated that inflation has fallen slower than expected and they were discussing the possibility of a rate hike at this meeting. At the press conference Governor Orr sounded less hawkish than the tone of the statement which dampened NZD’s rise. During the week Governor Orr clarified that they are prepared to start cutting rates before inflation falls to 2%. Retail sales for the first quarter showed increase of 0.5% q/q vs -0.3% q/q as expected and up from -1.9% q/q in the Q4 of 2023 indicating that consumer is improving.

CAD

Inflation in April resumed its downtrend. Headline number printed 2.7% y/y as expected, down from 2.9% y/y in March. Food prices, services and durable goods led the declines, exactly what BoC wants to see. Gasoline prices rose m/m and if we would exclude them the drop in inflation would be even larger. All three core measures have declined further with median and common printing 2.6% y/y while trim printed 2.9% y/y. BoC will lean heavily towards cutting rates after this report and CAD is weakening. March retail sales only added to CAD woes as they showed headline number falling 0.2% m/m while ex autos plunged 0.6% m/m. One saving grace is that preliminary April reading is seen increasing 0.7% m/m but that reading is subject to revisions as more data is gathered.

JPY

Preliminary May PMI data saw manufacturing return to expansion territory for the first time since May of 2023 and print 50.5, up from 49.6 in April. Services dipped to 53.6 from 54.3 the previous month but with still healthy activity and deep into expansion. Composite improved slightly to 52.4 from 52.3 in March. The yield on 10y JGB has crossed the 1% level for the first time since 2013.

National CPI for the month of April saw headline number at 2.5% y/y, down from 2.7% y/y in March. Ex fresh food dropped to 2.2% y/y from 2.6% y/y the previous month while ex fresh food, energy component printed 2.4% y/y, down from 2.9% y/y in March. With inflation quickly dropping towards the 2% target the room for BoJ to further increase rates diminishes significantly.

CHF

SNB total sight deposits for the week ending May 17 came in barely unchanged at CHF467.4bn vs CHF468.9bn the previous week. The range for sight deposits seems to get tighter.

This week we will have Q1 GDP reading.

Important news for CHF:

Thursday:​

  • GDP
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Forex Major Currencies Outlook (June 3 – June 7)

ECB and BoC meetings, NFP, ISM PMIs, with inflation from Switzerland, GDP from Australia, employment data from Canada and trade data from China will highlight this news packed week ahead of us.

USD

Conference Board consumer confidence for the month of May rebounded strongly and printed 102 after 97.5 print in April. This sudden and big jump eased worries about weakening in labor market and its impact on consumer and caused yield curve to bear steepen as yields on longer-dated Treasuries rose faster than on the shorter-dated. The reading also pushed back rate cuts further while we think that first rate cut will come in September.

Second reading of Q1 GDP was revised down to 1.3% annualized as expected from 1.6% annualized as reported in advanced reading. Digging into the details there were drops in consumer spending and net exports (stronger USD is bad for exports) while government spending contributed more than preliminary reported.

PCE data for the month of April saw headline and core number both come in unchanged and in line with expectations (2.7% y/y and 2.8% y/y respectively). Monthly numbers saw headline increase by 0.3% while core rose by 0.2% vs 0.3% as expected (0.249% to the third decimal). Personal consumption rose just 0.2% m/m after downwardly revised 0.7% m/m in March while personal income rose by 0.3% m/m vs 0.5% m/m increase the previous month. Data coming in line with expectations gave boost to risk assets. Stock market rallied while USD declined.

The yield on a 10y Treasury started the week at 4.47%, rose to 4.63% and finished the week at around 4.51%. The yield on 2y Treasury started the week at 4.96% and reached the high of almost 5%. Spread between 2y and 10y Treasuries started the week at -48bp then tightened to -38bp after weak treasury auctions and jump in consumer confidence as curve proceeded to steepen. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at June meeting at 99% while probability of a rate cut is around 9%. Probability of a July rate cut sits at around 12% while September is at around 50%.

This week we will have ISM PMI and NFP data. Headline May NFP number is seen around 150k, lower than in April, with the unemployment rate unchanged at 3.9%.

Important news for USD:

Monday:​

  • ISM Manufacturing PMI​

Wednesday:​

  • ISM Services PMI​

Friday:​

  • NFP​
  • Unemployment Rate​

EUR

ECB Chief Economist Lane stated that, in his opinion, they have brought inflation down in a timely manner and it is appropriate to start with rate cuts. He added that policy will need to remain restrictive but that within that restrictive territory there is room for a rate cut. Lane was just adding more fuel to the fire we all know by now and which is called June rate cut. Furthermore, he stated that there is a risk of easing monetary policy too quickly and that disinflation can be expected during the course of next year.

ECB survey saw inflation expectations continue to decline as consumers now see inflation at 2.9% in the year ahead which is the lowest since September of 2021. Additionally, inflation expectations for the three years ahead are seen at 2.4%. Although numbers are above the 2% target they are at least moving in the right direction which is satisfactory from ECB’s standpoint.

Preliminary Eurozone CPI for the month of May came in at 2.6% y/y vs 2.5% y/y as expected and up from 2.4% y/y in April. Core reading printed 2.9% y/y 2.7% y/y as expected and the month before. German CPI came in as expected at 2.4% y/y, up from 2.2% y/y in April while French CPI was unchanged at 2.2% y/y while increase to 2.4% y/y was expected. This tick up in inflation although unsettling will not deter ECB from cutting next week and will contribute to a “hawkish” cut, meaning that it will be questionable how many more rate cuts will there be this year.

This week we will have ECB meeting. Rate cut is fully priced in by the markets. We expect that there will be no clear path regarding further rate cuts laid out. ECB will stay data-dependent.

Important news for EUR:

Thursday:​

  • ECB Interest Rate Decision​

GBP

GBP has had a mixed week as markets were digesting latest data. Inflation coming down, but still printing higher than expected, kept GBP elevated but worries around weak consumer, as shown by latest retail sales report, pushed it down. Ultimately, markets see BoE delivering first rate cut in August, rather than in June and that should keep GBP supported.

AUD

Monthly CPI reading in April surprised to the upside. The print came in at 3.6% y/y vs 3.4% y/y as expected and up from 3.5% y/y in March. The reading showed big 0.76 m/m increase and the huge increase in inflation was evenly distributed among components giving bigger cause for concern that inflation is sticky. RBA cannot be satisfied with this reading. Rate cuts have been delayed and based on that change in pricing AUD strengthened. As a reminder, monthly CPI does not include all of the CPI components, but still it does not paint a bright picture on the inflation front. Private CAPEX for Q1 came in at 1% q/q vs 0.5% q/q as expected and up from 0.8% q/q in the Q4 of 2023 on the back of increases in plant and machinery expenditures.

Official PMI data for the month of May saw misses on expectations. Manufacturing has returned into contraction with a 49.5 reading after a 50.4 in April. Details show declines in new orders and new export orders, both below the 50 level. Production index also declined but remained in expansion. Prices paid components increased indicating that inflation pressures are building. Services printed 51.1, a tick down from 51.2 the previous month, new orders and employment still in contraction, while composite dropped to 51 from 51.7 in April.

This week we will have Q1 GDP from Australia and trade data from China.

Important news for AUD:

Wednesday:​

  • GDP​

Friday:​

  • Trade Balance (China)​

NZD

May business survey saw business outlook decline further to 11.2 from 14.9 in April. The biggest declines were seen in commercial construction, employment intentions and ease of credit. Declines in pricing intentions and inflation expectations are positive signs and although the first number is still elevated at least it is moving in the right direction.

CAD

Preliminary wholesale trade data for the month of April showed a rebound as they grew by 2.8% m/m after dropping 1.1% m/m in March. Q1 GDP showed growth of 1.7% annualized vs 2.2% annualized as expected while GDP of Q4 2023 was revised down to 0.1% from 1% annualized. Details show growth in both household consumption and business investment but it was much lower than expected.

This week we will have BoC meeting and employment data. We expect BoC to cut rates by 25bp as inflation, growth and consumption are coming down while the unemployment rate is going up. Additionally, majority of mortgages in Canada are variable and thus higher interest rates cause mortgage expenses to go up lowering disposable income. If BoC proceeds with a cut it will widen the gap between Canada and US rates which will cause CAD to weaken and that could cause a concern for policymakers who may opt to vote for no change and wait for Fed to cut first.

Important news for CAD:

Wednesday:​

  • BoC Interest Rate Decision​

Friday:​

  • Employment Change​
  • Unemployment Rate​

JPY

PPI services for the month of April came in at 2.8% y/y, up from 2.3% y/y in March. The reading is also called Corporate Services Price Index as it reflects prices corporations pay. BoJ has stated that this is the fastest increase in reading in almost ten years. If these price increases are fully transferred to consumers it may lead to more sustainable inflation pressures. That is what BoJ is looking for in order to normalize monetary policy.

Inflation in the Tokyo are in the month of May reversed its course and started moving up. Headline number came in at 2.2% y/y vs 1.8% y/y in April. Ex fresh food component rose to 1.9% y/y vs 1.6% y/y the previous month while ex fresh food, energy printed as headline number (2.2% y/y vs 1.8% y/y in April). Back above the 2% target for the headline and “core-core” and combination of weak JPY and higher wages could move inflation further above the target in the future. April retail sales rebounded and posted a 1.2% m/m and 2.4% y/y increase. Ministry of Finance announced that they have spent JPY9.8 trillion in the markets to strengthen JPY. If we take average price of USDJPY during that period we get intervention of around $65bn.

CHF

SNB total sight deposits for the week ending May 24 came in at CHF461.2bn vs CHF467.4bn the previous week. Continued decline but only towards the bottom of the well-established range. SNB Chairman Jordan stated that risk of higher inflation is small and added that weak Swissy is the main reason for higher inflation. If the risks increase SNB could sell foreign currency in order to prop up the value of Swissy and fight inflation that way. Q1 GDP surprised to the upside as it showed growth of 0.5% q/q vs 0.3% q/q as expected.

This week we will have inflation data.

Important news for CHF:

Tuesday:​

  • CPI

Forex Major Currencies Outlook (June 10 – June 14)

FOMC and BoJ meetings followed by inflation data from the US and China will be the highlights of the week ahead of us that will also see employment data from the UK and Australia.

USD

ISM manufacturing PMI for the month of May came in at 48.7, down from 49.2 in April while a 49.6 print was expected. New orders plunged deeper into contraction printing only 45.4. Production also recorded a drop and barely managed to stay above the 50 level. Employment index and new export orders returned to expansion with both printing 51.1 while prices paid component fell by more than expected, but it is still at elevated level of 57.

ISM services PMI came in at 53.8 in May vs 50.8 as expected and returned to expansion after a 49.4 reading in April. The rebound was led by production index which jumped to 61.2 from 50.9 the previous month. Even bigger gain was seen in new export orders which rose into expansion with a 61.8 print after a 47.9 reading in April. New orders also improved as did employment, but the latter still remained in contraction. Prices paid component declined but with a print of 58.1 it shows that inflation pressures are still very high.

May NFP reported blasted expectations as it printed 272k vs 185k as expected. The unemployment rate, though, ticked up to 4% while participation rate dropped to 62.5%. Wages rose 0.4% m/m and 4.1% y/y both higher than expected (0.3% m/m and 3.9% y/y). Private education and health was again the biggest contributor with 86k jobs added followed by government with 43k and leisure and hospitality with 42k. Combination of high main number and much higher wages pushes back first rate cuts and USD strengthened on the back of that.

The yield on a 10y Treasury started the week at 4.50%, rose to 4.51% and finished the week at around 4.44%. The yield on 2y Treasury started the week at 4.88% and reached the high of 4.90%. Spread between 2y and 10y Treasuries started the week at -37bp then tightened to -44bp as curve proceeded to steepen. The 2y10y is inverted for over twenty three months. FedWatchTool sees the probability of no change at June meeting at 99% while probability of a rate cut is around 1%. Probability of a July rate cut sits at around 9% while September is at around 54%.

This week we will have May inflation data, expected to remain unchanged and FOMC meeting. Markets are pricing no hike for this meeting so the main attraction will be the new Summary of Economic Projections (SEP). This new SEP will show us whether Fed members still see three cuts for the year or if they have revised their forecast to two cuts this year.

Important news for USD:

Wednesday:​

  • CPI​
  • Fed Interest Rate Decision​

EUR

Final manufacturing PMI for the month of May was revised down to 47.3 from 47.4 as preliminary reported on the back of negative revision to French reading and weak Italian print. German reading was unchanged while Spanish was a bright spot printing 54. Still, the reading is highest since March of 2023 and could be a turning point for Eurozone. Final services and composite were revised slightly to the downside and they now read 53.2 and 52.2. Composite represents a twelve month high indicating economic recovery which is supported by stronger demand and better business confidence.

ECB has cut interest rates by 25bp bringing deposit rate to 3.75% as was widely expected. The Governing Council remains adamant to bring inflation down to 2% target in a timely manner. Rates will stay restrictive for as long as it is necessary as bank continues to follow a data-dependent and meeting-by-meeting approach. There will be no pre-commitment to any rate path. New projections see headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. Core inflation is seen at an average of 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026. GDP is expected to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026. Both headline and core inflation were revised up for 2024 and 2025.

During the press conference, Lagarde stated that one member was against the cut (Holzman) and emphasized that ECB is not pre-committng to any rate path and the need for data-dependent approach and still restrictive rates. The decision leaves no room for another cut in July but we could see the next cut at September meeting.

GBP

Final manufacturing May PMI came in at 51.2 vs 51.3 as preliminary reported. The reading is the highest since July of 2022 and represents return to expansion after sudden drop the previous month. The report shows that business optimism jumped to new 27-month high and that “…output charge inflation strengthened for the fifth successive month and to its highest level in a year. That said, a solid easing in the rate of increase in input costs should help prevent price pressures from becoming embedded.” Final services reading was unchanged at 52.9 while composite was revised higher to 53 from 52.8 as preliminary reported. The report shows easing of price pressures in the services sector, just what BoE wants to see, but services inflation still sits at an uncomfortably high level.

This week we will have employment data.

Important news for GBP:

Tuesday:​

  • Payroll Change​
  • Unemployment Rate​

AUD

Minimum wage was lifter by 3.75% after a 5.75% increase the previous year. Higher cost-of-living were cited as the main reason for wage increase. Higher wages generally lead to higher inflation and with inflation being sticky in Australia it leads to conclusion that RBA will stay on hold for a longer period of time.

Q1 GDP printed increase of 0.1% q/q vs 0.2% q/q as expected and in the previous quarter. On a yearly basis, growth has eased to 1.1% from 1.5% in Q4 of 2023. GDP per capita declined for the fourth straight quarter while terms of trade posted a second consecutive quarter of growth. Household consumption rose by 0.4% while government consumption rose by 1%. Net exports were negative and reduced growth as imports rose faster than exports. Investment declined by 0.9%.

Caixin manufacturing PMI in May rose to 51.7 from 51.4 in April. The report shows expansion of both supply and demand as new orders and new export orders continued to increase. Employment is still in contraction and price pressures remained low. Caixin services posted 54, up from 52.5 the previous month which helped push composite to 54.1. Trade data in May saw further widening of surplus to $82.62bn as exports surged 7.6% y/y beating expectations while imports rose by 1.8% y/y missing expectations.

This week we will have employment data from Australia and inflation data from China.

Important news for AUD:

Wednesday:​

  • CPI (China)​

Thursday:​

  • Employment Change​
  • Unemployment Rate​

NZD

Q1 terms of trade came in at 5.1% q/q vs 3.1% q/q as expected, a big rebound after a drop of 7.8% in Q4 of 2023. This is a great sign for the economy when terms of trade improve due to export prices increasing and import prices decreasing. Unfortunately, this was not the case, as both export and import prices fell with latter falling at a stronger pace. Still, this will be a positive input for NZD. First June dairy auction showed prices increase by 1.7% making it the fifth consecutive auction of rising prices.

CAD

BoC has lowered the rate by 25bp and to 4.75% from 5%. The statement sees slower than expected growth and acknowledges falling inflation. Inflation is seen dropping to historical average giving board members more confidence that it is moving toward the 2% target. However, it still remains too high in some components, notably shelter. The economy is still operating in the excess supply. The statement concludes with “With continued evidence that underlying inflation is easing, Governing Council agreed that monetary policy no longer needs to be as restrictive and reduced the policy interest rate by 25 basis points. Recent data has increased our confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain. Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”

At the press conference Governor Macklem stated that if inflation continues to decline it will be “reasonable to expect” more rate cuts, but they remain data-dependent and continue with meeting-to-meeting approach. He added that core inflation will be the main focus of bank members in assessing where inflation is headed. Additionally, he mentioned that the way situation is currently unfolding it points to a soft landing adding that there is a room for economy to grow above potential.

Employment report for the month of May saw headline number at 26.7k vs 22.55k as expected. However, the unemployment rate ticked up to 6.2% while participation rate remained at 65.4%. Additionally, all of the jobs added were part-time (62.4k) as full-time jobs recorded a decline of 35.6k showing weakness in the labor market. Wages, on the other hand, continue to increase and rose by 5.1% y/y.

JPY

Q1 CAPEX data came in at 6.8% y/y vs 12.2% y/y as expected and down from 16.4% y/y in the Q4 of 2023. Companies posted a massive Q1 as their profits increased 15.1% y/y vs 8.3% y/y as was expected and up from 13% y/y in the previous quarter. Total cash earnings in April rose 2.1% y/y after March reading was revised up to 1% y/y. Real wages are still down 0.7% y/y as inflation is pressuring them down. Real wages have been negative for almost two years. Household spending in April rose 0.5% y/y for the first positive reading since February of 2023. BoJ is hoping that incoming higher wages will translate to higher spending and thus spur the economy.

Final manufacturing PMI for the month of May was revised down slightly to 50.4 but still in expansion territory, first in twelve months. The report shows increase in employment and cost pressures which can lead to more sustainable inflation pressures, just what BoJ wants to see. On the other hand, new orders and output were stable while both domestic and external demand remain subdued. Final services and composite readings were both revised up and are well into expansion showing 53.8 and 52.6 respectively.

This week we will have BoJ meeting. This meeting is considered to be a live one, meaning that we could see further steps taken toward normalization of monetary policy.

Important news for JPY:

Friday:​

  • BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending May 31 came in at CHF461.9bn vs CHF461.2bn the previous week. Almost unchanged as SNB lets market dictate Swissy’s direction. May CPI data saw both headline and core number unchanged from previous month at 1.4% y/y and 1.2% y/y respectively.

Forex Major Currencies Outlook (June 17 – June 21)

BoE, RBA and SNB meetings followed by inflation data from the UK, preliminary PMI data from the Eurozone and the UK as well as consumption data from the US, the UK and China will highlight the week ahead of us.

USD

Headline CPI number in May came in at 3.3% y/y vs 3.4% y/y as expected and in April. Core number dropped to 3.4% y/y from 3.6% y/y making it the lowest core inflation reading since April of 2021. Monthly increases for both headline and core were 0.2% compared to 0.3% that was expected. Digging into details of the report we can see that shelter continued to increase by 0.4% m/m but it ticked down to 5.4% y/y from 5.5% y/y the previous month. Services less energy rose 0.2% m/m, the lowest increase in the last seven months, which put yearly reading at 5.3% y/y. Auto insurance, the biggest contributor to inflation this year rising over 20% YTD, saw decline m/m. Super Core, all items less food, shelter and energy, was unchanged m/m.

Fed has decided to leave the Fed Funds Rate unchanged at 5.25-5.50% range as was widely expected. The statement acknowledges that there has been a “modest further progress” to their 2% inflation target.

Summary of Economic Projections (SEP) showed GDP unchanged at 2.1% in 2024 and 2% in 2025 and 2026. Inflation has been revised higher and now it prints 2.6% in 2024 vs 2.4% as seen in March and 2.8% in 2025 vs 2.6% as seen in Match. Core PCE is seen at 2.8% in 2024 vs 2.6% in March and 2.3% in 2025 vs 2.2% in March. The unemployment rate is seen unchanged at 4% in 2024 and then raised to 4.2% in 2025 ,4.1% in 2026 and 4.2% in the long run. It is interesting that there were no changes to the 2024 unemployment rate as last NFP report showed it to already be at 4%. Federal funds rate is seen at 5.1% by the end of 2024, meaning only one cut vs three cuts as projected in March. Four officials project no cut, seven see one cut while remaining eight see two cuts. Rate is seen at 4.1% in 2025, up from 3.9% in March. Longer-term rate, neutral rate, has once again been raised and is now seen at 2.8% (it was 2.6% in March and 2.5% in December).

Chairman Powell started the press conference that inflation has eased substantially but it remains high. He emphasized during the press conference that Fed remain data-dependent. When asked about impact of high interest rates for longer on housing he stated that for housing it will be best that inflation comes down so they can cut rates and assist housing indicating that inflation remains priority.

The yield on a 10y Treasury started the week at 4.44%, rose to 4.47% and finished the week at around 4.20%. The yield on 2y Treasury started the week at 4.90% and reached the high of 4.91%. Spread between 2y and 10y Treasuries started the week at -46bp then widened to -47bp as curve inverted further. The 2y10y is inverted for over twenty three months. FedWatchTool sees the probability of no change at July meeting at 90% while probability of a rate cut is around 10%. Probability of a September rate cut sits at around 69% while November is at around 80%.

This week we will have consumption data expected to show consumers bouncing back after weak April reading.

Important news for USD:

Tuesday:​

  • Retail Sales​

EUR

ECB policymaker Villeroy stated that there is more room to cut rates and still remain in the restrictive territory. He emphasized importance of inflation data, especially services adding that the ECB remains more outlook driven. ECB Chief Economist Lane stated that they are not pre-committing to any path in regards to rates and added that rates are to stay sufficiently restrictive for as long as needed. Final German CPI was unchanged at 2.4% y/y while French was revised higher to 2.3% y/y.

This week we will have preliminary June PMI data expected to show continuation of economic recovery.

Important news for EUR:

Friday:​

  • S&P Global Manufacturing PMI (Eurozone, Germany, France)​
  • S&P Global Services PMI (Eurozone, Germany, France)​
  • S&P Global Composite PMI (Eurozone, Germany, France)​

GBP

Payroll change in the month of May saw a loss of 3.1k jobs. The unemployment rate for the month of April ticked up to 4.4% with the employment change for the last 3 months showing a drop of 139k jobs. Average wages showed increase of 5.9% 3m/y while wages ex-bonus increased by 6% 3m/y. Both numbers were unchanged from March and are highly elevated causing concern for BoE regarding inflation pressures. The unemployment rate, highest since September of 2021, moving up from 3.8% at the start of the year and payroll numbers indicate loosening of the jobs market.

April GDP was flat. Services rose by 0.2% m/m, but industrial, manufacturing and construction output all declined. Q2 started on the weak note, but PMIs are pointing to pick up in the later months which should give us a positive GDP reading.

This week we will have inflation and preliminary June PMI data as well as BoE meeting. With inflation expected to continue declining markets are positioning for an August rate cut and next week’s meeting is seen as setting the stage for August.

Important news for GBP:

Wednesday

  • CPI​

Thursday:​

  • BoE Interest Rate Decision​

Friday:​

  • S&P Global Manufacturing PMI​
  • S&P Global Services PMI​
  • S&P Global Composite PMI​

AUD

May employment report showed a lot of positives. Firstly, the employment change came in at 39.7k vs 30k as expected. Secondly, the unemployment rate ticked down to 4% while participation rate ticked up to 66.8%. Thirdly, the structure of jobs showed all of the jobs (41.7k) were full-time while part-time employment showed a decline of 2k. Jobs market remains tight, full-time jobs are better paid and with inflation running high there will be no need for RBA to cut at their next week’s meeting.

China May CPI data saw it unchanged at 0.3% y/y but monthly reading declined by 0.1%. PPI came in at -1.4% y/y, improving from -2.5% y/y the previous month. Inflation data leaves room for more stimulus.

This week we will have RBA meeting as well as production and consumption data from China. With high inflation and strong labor market analysts are almost unanimous in expecting no change from the RBA.

Important news for AUD:

Monday:​

  • Industrial Production (China)​
  • Retail Sales (China)​

Tuesday:​

  • RBA Interest Rate Decision​

NZD

Electronic card retail sales data for the month of May showed drops of 1.1% m/m and 1.6% y/y. Monthly data has been dropping since February while yearly data showed a small improvement as April reading saw a decline of 3.8% y/y. Electronic card retail sales account for around 70% of total retail sales.​

CAD

Building permits for the month of April, a very volatile data series, jumped 20.5% after falling 12.3% in March. BoC Governor Macklem stated that there is a limit to how far rates can diverge from the Fed rates but that they are not close to that limit.​

JPY

Final Q1 GDP reading saw economy contract by 0.5% q/q and 1.8% annualized. Private consumption declined by 0.7% while business investment fell by 0.4%. Net exports were a negative input to GDP as exports fell by more than imports (-5.1% and -3.3% respectively). Ultimately, government consumption grew by 0.2%. PPI for the month of May came in stronger than expected and higher than in April. If PPI prices translate into CPI it will cause more sustainable price pressures which is what BoJ is looking for.

BoJ left interest rate unchanged at 0% as was widely expected but decided not to reduce JGB purchases. Markets were looking for a reduction due to recent subtle communication from BoJ members but ultimately they decided with a 8-1 vote that it is appropriate to keep it at current levels. Governor Ueda stated at the press conference that reduction in bond purchases will start immediately after the July meeting adding that the size of the cut will be substantial. JPY has fallen after the statement was released, then regained some ground after Ueda’s comments.

CHF

SNB total sight deposits for the week ending June 7 came in at CHF459.8bn vs CHF461.9bn the previous week. Downward trend that started from mid-April continues but deposits are still within well-established range.

This week we will have SNB meeting. They are expected to leave rates unchanged.

Important news for CHF:

Tuesday:​

  • SNB Interest Rate Decision
2 Likes

Thursday for Snb interest rate decision
And wasnt there a rate cut expected by some, although it surprised the markets and it amazing the different news sources saying as expected and more saying surprise
Very confusing?
Could someone clear this up or am I missing something?

Forex Major Currencies Outlook (June 24 – June 28)

PCE and inflation from Canada will be the highlights of a week that represents end of Q2 followed by final Q1 GDP readings for the US and the UK.

USD

May retail sales report saw headline number rise by 0.1% m/m vs 0.3% m/m as expected with April reading being revised down. Control group came in at 0.4% m/m as expected but previous month’s reading was revised down. Sporting goods, clothing, motor vehicles and online have recorded biggest increases while gasoline stations showed the biggest decline followed by furniture and home furniture stores. Misses on the numbers plus negative revisions make this report on the weaker side and should contribute to the USD weakness.

The yield on a 10y Treasury started the week at 4.23%, rose to 4.29% and finished the week at around 4.26%. The yield on 2y Treasury started the week at 4.71% and reached the high of 4.76%. Spread between 2y and 10y Treasuries started the week at -49bp then tightened to -45bp as curve proceeded to steepen. The 2y10y is inverted for over twenty three months. FedWatchTool sees the probability of no change at July meeting at 90% while probability of a rate cut is around 10%. Probability of a September rate cut sits at around 66% while November is at around 79%.

This week we will get Fed’s preferred inflation report, PCE. Expectations are for it to come flat on the month and 0.1% m/m for core which will spur chances of a rate cut.

Important news for USD:

Friday:​

  • PCE​

EUR

ECB Chief Economist Lane stated that bank should discern “noise” from “signal” in the incoming data and make decisions based on that as there are still questions regarding inflation momentum. He added that every meeting is a live one and that only big moves in EUR will have impact on monetary policy decisions. According to him, full effect of rates on inflation did not yet occur. Final CPI readings for the month of May confirmed numbers seen in the preliminary reading, namely 2.6% y/y for the headline and 2.9% y/y for the core.

Preliminary June PMI numbers missed expectations and flashed red across the board. Manufacturing printed 45.6 vs 47.3 in May as weakness was seen in both German and French readings. The output index has fallen to a six-month low with new orders and employment both declining. Services PMI came in at 52.6, down from 53.2 the previous month making it two consecutive months of declines. Services sector is stumbling but as stated in the report it is keeping the Eurozone afloat. Concerns about incoming French elections are weighing heavily on the economy as services continued to fall deeper into contraction. Composite PMI managed to stay in expansion with a 50.8 print, down from 52.2 in May. Overall, PMI numbers indicate a positive Q2 GDP reading, but raise concerns regarding performance in the third quarter.

GBP

May inflation report saw headline number fall to targeted 2% as expected from 2.3% y/y in April. Food, household goods and clothing prices are continuing to fall. Core CPI dropped to 3.5% y/y as expected from 3.9% y/y the previous month. Services inflation declined to 5.7% y/y from 5.9% y/y in April and it remains very elevated. It is 0.4% higher than BoE projected in their May Monetary Policy Report.

BoE has decided to leave the bank rate unchanged at 5.25% as was expected. The vote was 7-2 with Dhingra and Ramsden voting for a 25bp rate cut as was also expected. High services inflation is singled out as the issue and it was stated that members are uncertain that inflation will stay low before rates are cut. Monetary policy will need to remain restrictive in order to bring down inflation. Digging into the minutes there was a mention of high services inflation print not altering significantly disinflationary path indicating that the bank is laying ground for the cut, increasing chances of that cut coming in August.

Preliminary June PMI readings saw interesting print, manufacturing came in higher than services (51.4 vs 51.2). Manufacturing continued to improve and reached highest level since July of 2022 while services declined for the second month in a row and reached lowest point since December of 2023. Composite PMI declined to 51.7 from 53 in May. After a string of weak retail sales readings May report showed a rebound as both headline and ex autos,fuel beat expectations and rose 2.9% m/m. More impressive is that actual retail sales volumes rose across all of the main sectors.

AUD

RBA has left cash rate unchanged at 4.35% as widely expected. The statement states that inflation dropped significantly from the highs in 2022, but it remains elevated. The path to bring inflation to bank’s target is unlikely to be smooth. Inflation is coming down slowly than expected, bringing inflation down remains bank’s top priority. Economic outlook remains uncertain and there are also uncertainties regarding lags in the effect of monetary policy. Governor Bullock warned that a lot of things need to go their way to bring inflation back to range. She added that there was talk about hiking rates at the meeting but members ultimately decided to keep rate unchanged. Ultimately, she said that rate cuts were not discussed but that does not mean chances of rate hike were increasing. The statement and speech focus solely on inflation and bank cannot cut rates with these inflation numbers, meaning higher for longer is on.

May activity data from China was mixed. Industrial production plunged by more than expected (5.6% y/y vs 6% y/y as expected and down from 6.7% y/y in April) while retail sales rose by more than expected (3.7% y/y vs 3% y/y as expected and up from 2.3% y/y the previous month). The unemployment rate was unchanged at 5% y/y while Fixed Asset Investments dropped to 4% y/y from 4.2% y/y in April. Real estate investment fell -10.1% YTD vs -9.8% YTD the previous month as property sector is still in shambles. PBoC has left 1-year MLF rate at 2.5% as widely expected.

NZD

RBNZ Chief Economist Conway stated that inflation may prove more sticky in the short term but it could fall more quickly in the medium term. There are still challenges to bring inflation down to the target and restrictive policy is still needed. Ultimately, he expects headline inflation to drop to their target by the year end. Q1 GDP data showed growth after two consecutive quarters of negative growth and printed 0.2% q/q and 0.3% y/y after -0.1% q/q and -0.2% y/y in the previous quarter.

CAD

BoC minutes from the latest June meeting showed that members of the Governing Council debated whether to wait until July to make their move and start cutting rates. Members have agreed that inflation has slowed down enough for them to cut but were wary of inflation stalling. Members have also agreed that their moves will be taken meeting-by-meeting, meaning that every meeting is a live one and that dependence on data remains the main focus.

This week we will have inflation data. Core inflation is the main focus of BoC so this report will have big impact on their decision making process.

Important news for CAD:

Tuesday:​

  • CPI​

JPY

Nationwide headline inflation for the month of May came in at 2.8% y/y vs 2.9% y/y as expected and up from 2.5% y/y in April. Ex fresh food printed 2.5% y/y, up from 2.2% y/y the previous month while ex fresh food, energy (so-called core-core) came in at 2.1% y/y down from 2.4% y/y in April. The “core-core” is on decline since September of 2023 and although headline number is safely above the 2% target we could easily have it drop below 2% next month which is not something BoJ wants to see when discussing rate hikes.

Preliminary PMI data showed decline in economic activity in June. Manufacturing PMI came in at 50.1, down from 50.4 in May due to weaknesses in new orders. Services PMI, on the other hand, plunged into contraction with a 49.8 reading after printing 53.8 the previous month due to easing in new orders, new export orders, employment and backlog of orders. This combination dropped composite PMI to 50 from 52.6 in May.

CHF

SNB has cut key policy rate at their June meeting by 25 so the new rate is now at 1.25%. That is the second cut of the year as the rate was at 1.75% at the start of the year. SNB states that they will adjust monetary policy if necessary to control inflation. New inflation projections, however, are revised lower and see it at 1.3% for 2024, down from 1.4% previously, 1.1% for 2025, down from 1.2% previously and 1% for 2026, down from 1.1% previously.

Outgoing SNB Chairman Jordan stated that Swissy’s strength is due to geopolitical tensions and added that underlying inflation pressures have eased. Additionally, he reiterated that they are prepared to intervene in the markets if necessary and that intervention can be in both directions as he emphasized the importance of exchange rate and its influence on inflation. SNB total sight deposits for the week ending June 14 came in at CHF453.5bn vs CHF459.8bn the previous week.

Thank you for your reply and participation in this topic.

Markets were positioned for strong CHF as they thought SNB will play it safe and leave the rates unchanged in order to prevent inflation from returning. CHF was also strong due to geopolitical issues, namely elections in France that will be held on June 30 which lead investors to move money from EUR to CHF, thus weakening EUR and strengthening CHF. Ultimately, SNB projections did not see inflation as a great threat and decided to cut again in order to spur economic activity, exports mainly, that is why CHF weakened.