The Week Ahead
A busy week for markets amid heightened geopolitics and hotter than expected US inflation saw the yield on the 10-year UST rise 12 bps to 4.52%, the S&P Index fall 1.56%, and the DXY Index gain 1.67%. Meanwhile, oil grappled with the demand outlook given sticky inflation, and the Iran-Israel escalation. Brent closed 0.79% lower, at $90.45pb. Interestingly, the International Energy Agency cut its oil demand projections for this year and next given the lacklustre global economic outlook and increasing demand for electric vehicles. The Paris-based firm’s projections contrasted those from OPEC+ which, on Thursday, released a report forecasting robust demand growth.
In the US, data affirmed a bumpy road to target inflation, as CPI once again came in hotter than expected, while PPI missed expectations, and rose on an annual basis. In March, the headline and core CPI gauges rose 0.4%mom, resulting primarily from a spike in energy prices and shelter costs. From a year ago, the headline indicator advanced 3.5% (from 3.2%), while the core measure steadied at 3.8%. Car insurance drove the “supercore” inflation print higher in March. The core services ex housing measure rose 0.7% last month, to a year-on-year rate of 4.8%, from 4.3% in February, and to its highest level since May 2023. PPI rose 2.1%yoy, from 1.6%yoy previously, the largest move in 11 months, and the ex food and energy printed 2.4%yoy, from 2%yoy. This news propelled gold to new high, the yellow metal closed the week 0.63% higher at $2,344 per ounce. Later, the Uni. of Michigan sentiment, conditions and expectations all fell in March, and missed market expectations. Interestingly, the 1-year inflation forecast crept up to 3.1%, from 2.9%, and the 5-10 year inflation projection edged higher to 3.0%, from 2.8%.
The ECB held at 4%, as was largely expected. Unlike its US counterpart, the ECB indicated a rate cut could come as soon as June, as inflation trends lower. June will be the first month when policymakers have a complete picture on first-quarter wage negotiations, a factor that could potentially affect inflation. Lagarde noted that “a few members” were sufficiently confident on inflation, adding that the ECB is not tied to the Fed, as inflation is playing out differently in both regions.
Elsewhere, Fitch affirmed its rating for China at A+, however, revised its outlook to negative, from stable, citing decelerating growth and the nation’s increasing debt pile, amid the push to stabilise the real estate sector, as the key concerns. In response to the move, China’s government, which has taken active steps in shoring up the economy, argued that Fitch failed to recognise how fiscal policy is actually helping support growth and stabilise debt. Markets were little fazed with the news, the renminbi for example was stable. Later in the week, concerns over consumer demand heighted as data prints showed CPI rising 0.1% in March, while PPI fell 2.8%. Exports and imports also disappointed, falling 7.5% and 1.9% year-on-year last month. This morning the PBoC held the MLG benchmark rate at 2.5%, and injected CNY100bn.
This week we have the IMF and World Bank spring meetings (Mon-Fri), and major US bank earnings. Later today US retail sales, empire manufacturing and business inventories may give more clues on the health of the consumer and economy. On Tuesday, China’s property prices, retail sales, industrial production (IP) and GDP data will be monitored closely following the recent mixed economic data releases. In the US we have housing starts and IP releases. We also have the IMF’s latest world economic outlook. Eurozone and UK CPI prints will be watched closely on Wednesday, and we have the Fed’s Beige Book release and G7 gathering in Capri, Italy. The US Conf. Board leading index, existing homes sales and initial jobless claims are due on Thursday. India’s elections begin; PM Modi will be looking to serve a third term.
We’ll hear from the Fed’s Logan and Daly, ECB’s Lane, and BoE’s Breeden (Monday). Fed’s Jefferson and ECB’s Villeroy and Rehn, and the BoE’s Bailey at the IMF, and Lombardelli who will testify to the Treasury Committee in Parliament on Tuesday. A lot of central bank chatter on Wednesday includes the Fed’s Bowman, ECB’s Cipollone, and BoE’s Bailey all speaking at the Institute of International Finance Global Outlook Forum dinner. We’ll hear from the Fed’s Bowman, Williams and Bostic, ECB’s Centeno, Simkus and Vujcic and BoJ’s Noguchi on Thursday. The Fed’s Goolsbee, and BoE’s Ramsden and Nagel speak on Friday.
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