Weekly Market Outlook (April 08-12)

EVENTS TO COME:

• Monday: Data on wages in Japan, unemployment rate in Switzerland.
• Tuesday: NFIB US Small Business Optimism Index.
• Wednesday: IPP in Japan, RBNZ policy decision, US CPI, BoC policy decision, FOMC minutes.
• THURSDAY: Chinese CPI, ECB policy decision, American PPI, unemployment claims in the United States.
• Friday: New Zealand Manufacturing PMI, New Zealand Retail Sales, UK GDP, UK Industrial Production, Consumer Sentiment from the American University of Michigan.

Monday

Japanese average year-on-year cash profits are expected to increase to 3.0% from 2.0% previously. The JPY could benefit from a strong reading as the BoJ continues to see its inflation target met and has mentioned that another rate hike is data dependent. The timing of such a move remains uncertain, however, with July and October on the table, although the latter is the most likely. Overall, even if we see a beat, the market will likely want to wait for US CPI on Wednesday, as that is what will likely determine the dollar’s trend for the coming days and weeks..

Wednesday

The RBNZ is expected to keep the OCR unchanged at 5.50%. As a reminder, the central bank abandoned its tightening bias in its latest policy decision, stating that interest rates will need to remain at a restrictive level for an extended period of time. There is nothing to expect from this week’s decision as the RBNZ seeks to normalize policy in 2025. while the market expects the first reduction in August.

US year-over-year CPI is expected at 3.4% versus 3.2% previously, while the M/M measure is estimated at 0.3% versus 0.4% previously. The Y/Y core CPI is expected at 3.7% versus 3.8% previously, while the M/M reading is estimated at 0.3% versus 0.4% previously. This is probably one of the most important inflation reports of 2024 as recent data has already shaken the Fed’s confidence and another hot release likely to trigger a shift in the near-term political outlookespecially after a good report on the labor market on Friday.

The Fed’s Waller recently said he wants to see some good reports before considering a rate cut in June. so we just need this week’s report to be hot so the market can price in June’s decline.. This will most likely have a big impact on the markets with a rise in Treasury and US dollar yields and a downward correction in the stock market. On the other hand, a cold report should trigger the opposite reaction, with the stock market hitting new highs and Treasury yields and the U.S. dollar coming under pressure as risk-off sentiment ensues.

The Bank of Canada is expected to keep interest rates unchanged at 5.00%. Their policy decision comes on the heels of a weak labor market report released Friday, in which we saw job losses and the unemployment rate climb to 6.1%, up from 5.8%. StatCan said the rise in the unemployment rate is linked to 60,000 more people looking for work or being temporarily laid off in March, with the agency recently reporting that population growth reached its fastest rate since 1957..

The central bank is also focusing on wage growth and unfortunately for it, the rate has increased again to 5.1% from the previous positively revised rate of 5.0%. On the positive side, the latest inflation report beat expectations across the board, with a notable easing in underlying inflation measures. This puts the central bank in a difficult position, although it should have enough reason to start adopting a more dovish stance. The market expects a first rate cut in June.

THURSDAY

The ECB is expected to keep interest rates unchanged at 4.00%. Central bank likely to lay the groundwork for June rate cut as policymakers have been touting such a move for some time and we even recently welcomed super-hawk Holzmann joining the team. The latest Eurozone inflation report fell short of expectations on both headline and fundamental measures, although M/M figures were both very strong and services inflation remained stuck at 4 % since November 2023. However, the data before the June decision will have the last word because the ECB is also waiting for salary data from the first quarter of 2024 to give it a little more confidence.

The US Y/Y PPI is expected at 2.3% versus 1.6% previously, while the M/M measure is estimated at 0.3% versus 0.6% previously. The Core PPI Y/Y is expected at 2.3% compared to 2.0% previously, while the M/M reading is seen at 0.2% compared to 0.3% previously. The data will arrive after the US CPI report, so it is unlikely to change regardless of the trend set by the CPI release.

U.S. jobless claims continue to be one of the most important releases each week because they are a more timely indicator of the state of the job market. Indeed, disinflation reaching the Fed’s target is more likely with a weakened labor market. A resilient labor market, however, could make achieving this goal more difficult. Initial claims continue to hover around cycle lows, while continuing claims remain firm around the 1,800,000 level. Initial claims are expected at 215,000 compared to 221,000 previously, while there are no consensus at the time of writing for continuing claims, although last week we saw a decrease to 1,791,000 from 1,810,000 previously.