10-year yield dips as Fed Powell rules out rate hike

    US markets expressed a sign of relief overnight followed as Fed Chair Jerome Powell’s less hawkish than feared stance at the post-FOMC press conference. Major stock indexes closed mixed while treasury yields dipped with Dollar.

    Most importantly, Powell characterized the current interest rate level as “sufficiently restrictive,” and indicated that it is “unlikely that the next rate move will be a hike.” Instead, Powell delineated the future monetary policy path as a decision between “cutting” and “not cutting” interest rates, depending on economic data.

    This stance comes in the wake of stronger-than-expected inflation data since the beginning of the year, leading Powell to acknowledge that it would “take longer than previously expected” for Fed to be confident that inflation is on a steady decline toward the 2% target. policymakers to become comfortable that inflation will resume the decline towards 2%.”

    “If we did have a path where inflation proves more persistent than expected, and where the labor market remains strong but inflation is moving sideways and we’re not gaining greater confidence, well, that would be a case in which it could be appropriate to hold off on rate cuts,” Powell said. “There are paths to not cutting and there are paths to cutting. It’s really going to depend on the data.”

    More on FOMC:

    10-year yield closed down -0.0910 at 4.595 in reaction to FOMC. Technically, another rise could still be seen as long as 4.568 support holds. But even in this case, TNX should continue to lose upside momentum ahead of 4.997 high. Meanwhile, break of 4.568 will indicate that it’s at least in a near term pullback towards 55 D EMA (now at 4.408).

    Fed stands pat, acknowledge lack of progress in disinflation

      Fed keeps interest rate unchanged at 5.25-5.50% as widely expected.. In the accompanying statement. Fed noted that there has been a ” lack of further progress” recently on lowering inflation towards target.

      Meanwhile, FOMC emphasized 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.”

      Full statement below:

      Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.

      The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.

      In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. 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. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage‑backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities. The Committee is strongly committed to returning inflation to its 2 percent objective.

      In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

      Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller.

      US ISM manufacturing falls to 49.2, prices surges to 60.9

        US ISM Manufacturing PMI fell from 50.3 to 49.2 in April, below expectation of 50.1, and back in contraction. New orders fell from 51.4 to 49.1. Production fell from 54.6 to 51.3. Employment rose from 47.4 to 48.6. Prices surged from 55.8 to 60.9, highest reading since June 2022.

        ISM said: “The past relationship between the Manufacturing PMI® and the overall economy indicates that the April reading (49.2 percent) corresponds to a change of plus-1.9 percent in real gross domestic product (GDP) on an annualized basis.”

        Full US ISM manufacturing release here.

        US ADP employment rises 192k in Apr, vs exp 180k

          US ADP private employment grew 192k in April, above expectation of 180k. By sector, goods-producing jobs rose 47k, service-providing jobs rose 145k. By establishment size, small companies added 38k jobs, medium companies added 62k, large companies added 98k.

          Year-over-year pay gains for job-stayers were little changed in April at 5%. Pay growth for job- changers fell from 10.1% in March to 9.3%.

          “Hiring was broad-based in April,” said Nela Richardson, chief economist, ADP. “Only the information sector – telecommunications, media, and information technology – showed weakness, posting job losses and the smallest pace of pay gains since August 2021.”

          Full US ADP release here.

          UK PMI manufacturing finalized at 49.1, sector faces multiple challenges

            UK PMI Manufacturing was finalized at 49.1 in April, down from March’s 50.3. This decline was also reflected in four key areas: output, new orders, employment, and stocks of purchases. Furthermore, input price inflation hit a 14-month high, exacerbating cost pressures for manufacturers.

            Rob Dobson, Director at S&P Global Market Intelligence, highlighted the renewed downturn, attributing the challenges to weak market confidence, client destocking, and disruptions caused by the ongoing Red Sea crisis. These factors have notably hindered the sector’s ability to secure new work from key international markets including Europe, the US, and Asia.

            The manufacturing downturn is prompting firms to exercise “cost caution,” leading to reduced employment levels, lower stock holdings, and cutbacks in purchasing activity. Dobson expressed concern over the implications for consumer price inflation, noting that the ongoing cost pressures within the manufacturing sector are complicating efforts to return inflation to target levels.

            Full UK PMI manufacturing final release here.

            US stocks plunge as market braces for hawkish Fed pivot

              US stocks tumbled sharply overnight, concluding a turbulent April as traders anticipated a hawkish pivot from Fed Chair Jerome Powell in his upcoming post-FOMC meeting press conference today. DOW recorded -5% loss for the month, marking its worst monthly performance since September 2022. Similarly, S&P 500 and NASDAQ fell by -4.2% and -4.4%, respectively, ending their five-month streaks of gains.

              Amidst this backdrop, Fed is widely expected to maintain federal funds rate at its current level of 5.25-5.50%. With no new economic projections or dot plot updates, all eyes are on Powell’s statement and subsequent press conference. Market speculation suggests Powell might confirm that a rate cut in June is unlikely and could adjust expectations to reflect fewer than three rate cuts for the year.

              Powell’s comments will be crucial for investors, as any indication towards maintaining higher rates for longer, or even hinting at the possibility of a rate hike, could signal a more aggressive stance than previously anticipated. Currently, Fed fund futures reflect a 54% probability that rates will remain at the current level after the September meeting.

              Technically, near term bias in DOW is kept on the downside after be rejected by 55 D EMA twice. Further decline is in favor through 37611.56 support. Nevertheless, fall from 39899.05 is currently seen as developing into a corrective pattern to rise from 32327.20 only. Hence, strong support would be seen from 38.2% retracement of 32327.20 to 39899.05 at 37000.42 to bring rebound. However, sustained break of 37000.42 will argue that larger scale correction could be underway.

              Japan’s PMI manufacturing finalized at 49.6, moving towards stabilization

                Japan’s PMI Manufacturing was finalized at 49.6 in April, marking an increase from March’s 48.2 and reaching its highest level in eight months. While the index remains below the pivotal 50.0 mark, which distinguishes expansion from contraction, the latest data suggests that the sector is moving towards stabilization in the near term.

                Paul Smith from S&P Global Market Intelligence noted that the April PMI “continued to paint a fairly subdued picture of the Japanese manufacturing sector,” but also pointed out that “another rise in the headline PMI points to a sector heading towards at least stabilization in the near-term.”

                The report also highlighted concerns about inflation, with a broad-based increase in input prices contributing to heightened cost pressures for manufacturers. Notably, the strength of market demand is allowing firms to pass these increased costs onto consumers, with the extent of charge hikes reaching the steepest level in nearly a year.

                Full Japan PMI Manufacturing final release here.

                RBNZ cautions on persistent inflation risks and financial market volatility

                  RBNZ the decline in global inflation from previously elevated levels. At the same time, financial markets are currently anticipating lower policy rates over the next year.

                  However, “there remains a risk that new or persistent inflation pressures could mean global interest rates remain restrictive for longer, placing continued pressure on households, businesses and the financial system,” RBNZ warned in its semi-annual Financial Stability Report.

                  The report also observed that expectations for monetary policy easing have spurred rallies in equity markets across major economies. Yet, RBNZ cautioned that these gains could be vulnerable to a swift reversal.

                  “An abrupt reversal in sentiment arising from weaker-than-expected earnings or inflation remaining elevated could drag stock prices down, which would generate economic and financial risks from a market-driven tightening in financial conditions,” it warned.

                  Full RBNZ Financial Stability Report May 2024.

                  New Zealand employment falls -0.2% qoq in Q1, unemployment rate jumps to 4.3%

                    New Zealand employment fell -0.2% qoq in Q1, much worse than expectation of 0.3% qoq growth. Unemployment rate rose from 4.0% to 4.3%, above expectation of 4.0%. Underutilization rate rose 0.5% to 11.2%. Employment rate fell -0.6% to 68.4%. Labor force participation rate fell -0.3% to 71.5%.

                    For wages, average ordinary time hourly earnings growth slowed from 6.9% yoy to 5.2% yoy. All sector unadjusted labor cost index slowed slightly from 4.3% yoy to 4.1% yoy.

                    “Although wage cost inflation eased and average hourly earnings growth started to slow this quarter, annual growth remained high for the two surveys,” business employment insights manager Sue Chapman said.

                    Full New Zealand employment release here.

                    US consumer confidence plunges to 97, lowest since Jul 2022

                      US Conference Board Consumer Confidence plunged from 103.1 to 97.0 in April, well below expectation of 104.0. Present Situation Index fell from 146.8 to 142.9. Expectations Index fell from 74.0 to 66.4.

                      “Confidence retreated further in April, reaching its lowest level since July 2022 as consumers became less positive about the current labor market situation, and more concerned about future business conditions, job availability, and income,” said Dana M. Peterson, Chief Economist at The Conference Board

                      “Despite April’s dip in the overall index, since mid-2022, optimism about the present situation continues to more than offset concerns about the future.”

                      Full US consumer confidence release here.

                      Canada’s GDP grows 0.2% mom in Feb, vs exp. 0.3% mom

                        Canada’s GDP grew 0.2% mom in February, below expectation of 0.3% mom. Services-producing industries (+0.2%) led the growth for a second month in a row. Goods-producing industries aggregate was essentially unchanged. Overall, 12 of 20 sectors increased in the month.

                        Advance information indicates that real GDP was essentially unchanged in March. That suggests the economy expanded 0.6% in the first quarter of 2024.

                        Full Canada GDP release here.

                        ECB’s de Cos: Rate cut appropriate in June if inflation outlook maintained

                          ECB Governing Council member Pablo Hernandez de Cos highlighted that despite the positive trend in declining inflation rates, outlook is clouded by rising energy costs, persistent high inflation in the services sector, and ongoing geopolitical tensions.

                          He expected that inflation would continue to decrease in the upcoming quarters, albeit at a slower pace than previously observed due to certain upward base effects.

                          “The ECB’s governing council considers that if this inflation outlook is maintained, it would be appropriate to start reducing the current level of monetary policy tightening in June.”

                          Eurozone GDP rises 0.3% qoq in Q1, above exp 0.1% qoq

                            Eurozone GDP grew 0.3% qoq, 0.4% yoy in Q1, better than expectation of 0.1% qoq, 0.2% yoy. EU GDP grew 0.3% qoq, 0.5% yoy.

                            Among the Member States for which data are available, Ireland (+1.1%) recorded the highest increase compared to the previous quarter, followed by Latvia, Lithuania and Hungary (all +0.8%). Sweden (-0.1%) was the only Member State that recorded a decrease. The year on year growth rates were positive for nine countries and negative for four.

                            Full Eurozone GDP release here.

                            Eurozone CPI unchanged at 2.4% in Apr, core CPI down to 2.7%

                              Eurozone CPI was unchanged at 2.4% yoy in April, matched expectations. CPI core (energy, food, alcohol & tobacco) slowed from 2.9% yoy to 2.7% yoy, above expectation of 2.6% yoy.

                              Looking at the main components of euro area inflation, services is expected to have the highest annual rate in April (3.7%, compared with 4.0% in March), followed by food, alcohol & tobacco (2.8%, compared with 2.6% in March), non-energy industrial goods (0.9%, compared with 1.1% in March) and energy (-0.6%, compared with -1.8% in March).

                              Full Eurozone CPI release here.

                              Swiss KOF rises to 101.8, stable economy, no strong boost in sight

                                Swiss KOF Economic Barometer rose from 100.4 to 101.8 in April, slightly above expectation of 101.7. This rise positions the barometer in a range that is slightly above average, suggesting a stable yet unspectacular outlook for Switzerland’s economy.

                                According to the KOF Economic Institute, “The Swiss economic development is robust, but there is currently no strong boost in sight.”

                                Overall economic outlook appears to be improving across several key sectors including financial and insurance services, manufacturing, and private consumption. Conversely, outlook for construction and hospitality industries presents a less optimistic picture.

                                Full Swiss KOF release here.

                                China’s NBS PMI manufacturing falls to 50.4, Caixin rises to 51.4

                                  China’s NBS PMI Manufacturing fell from 50.8 to 50.4 in April, matched expectations. NBS PMI Non-Manufacturing fell from 53.0 to 51.2, below expectation of 52.2. PMI Composite fell from 52.7 to 51.7.

                                  The breakdown of the manufacturing PMI reveals challenges in solidifying demand, as the new orders subindex dropped to 51.1 from 53, and the new export orders fell to 50.6 from 51.3. Conversely, the production subindex showed modest improvement, rising to 52.9 from 52.2.

                                  Senior NBS statistician Zhao Qinghe noted, “Though economic activities continued to expand, more manufacturers are facing higher costs.” He highlighted specific industries such as automobiles and electrical machinery, where domestic and foreign market demands are reportedly strengthening.

                                  In contrast, Caixin PMI, which focuses more on smaller, private manufacturing firms, presented a more optimistic view. Caixin Manufacturing PMI rose to 51.4 from 51.1, surpassing expectations of 51.0.

                                  According to Wang Zhe, senior economist at Caixin Insight Group, “the manufacturing sector continued to improve, with accelerated expansion in supply and demand, sweetened by exceptional performance in overseas demand.”

                                  Full China Caixin PMI manufacturing release here.

                                  Australia’s retail sales falls -0.4% mom in Mar amid cost of living pressures

                                    Australia’s retail sales fell -0.4% mom in March, well below expectation of 0.2% mom.

                                    Ben Dorber, ABS head of retail statistics, highlighted the impact of cost of living pressures on consumer behavior.

                                    He further noted the stagnation in the sector, stating, “Underlying retail turnover has been flat for the past six months and was up only 0.8 percent compared to March 2023.”

                                    This represents one of the weakest growth rates on record for this period, excluding the unique economic circumstances induced by the pandemic and the introduction of GST.

                                    Full Australia retail sales release here.

                                    New Zealand ANZ business confidence plunges to 14.9 amid rising costs and weak demand

                                      ANZ Business Confidence dropped notably from 22.9 to 14.9 in April. Own Activity Outlook similarly decreased from 22.5 to 14.3.

                                      The survey highlighted escalating cost pressures as a primary concern for businesses. Cost expectations rose from 74.6 to 76.7, marking the highest level since last September. Conversely, wage expectations decreased from 80.5 to 75.5. Profit expectations also worsened, deepening from -3.8 to -9.8.

                                      Pricing intentions, which indicate how businesses plan to adjust their selling prices, increased slightly from 45.1 to 46.9. Inflation expectations showed a marginal decrease from 3.80% to 3.76%.

                                      ANZ analysts pointed to several factors contributing to this environment of cost-push inflation amidst weak demand. Rising oil prices due to escalating tensions in the Middle East, coupled with recent decline in New Zealand Dollar have increased the cost of imports significantly. Additionally, the recent increase in the minimum wage, effective from April 1, although smaller than previous years, has added another layer of cost for businesses.

                                      Full NZ ANZ business confidence release here.

                                      Japan’s industrial production rises 3.8% mom in Mar, more growth ahead

                                        Japan’s industrial sector showed a robust rebound in March, with production rising by 3.8% mom, surpassing expectations of a 3.4% increase. This significant uptick represents a strong recovery from the previous month’s -0.6% yoy decline.

                                        Production of machinery, including semiconductor manufacturing equipment, jumped by 11.6% mom, while output in electronic parts and devices saw 9.2% mom increase.

                                        According to manufacturers surveyed by Japan’s Ministry of Industry, the up trend in industrial output is expected to continue, with projections of a 4.1% rise in April and a further 4.4% expansion in May.

                                        Contrastingly, the retail sector did not fare as well. Retail sales in March increased by only 1.2% yoy, falling short of 2.2% yoy growth anticipated and marking a deceleration from February’s robust 4.7% yoy increase. On a month-on-month basis, retail sales contracted -1.2%, reversing the 1.7% gain observed in February.

                                        Eurozone economic sentiment falls to 95.6, EU down to 96.2

                                          Eurozone Economic Sentiment Indicator fell from 96.2 to 95.6 in April, below expectation of 96.9. Employment Expectations Indicator fell from 102.5 to 101.8. Economic Uncertainty Indicator fell from 19.3 to 18.8.

                                          Eurozone industry confidence fell from -8.9 to -10.5. Services confidence fell from 6.4 to 6.0. Consumer confidence improved slightly from -14.9 to -14.7. Retail trade confidence fell from -6.0 to -6.8. Construction confidence fell from -5.6 to -6.0.

                                          EU Economic Sentiment Indicator fell from 96.5 to 96.2. Employment Expectations Indicator fell from 102.2 to 101.7. Economic Uncertainty Indicator fell from 18.8 to 18.1.

                                          For the largest EU economies, the ESI deteriorated significantly in France (-4.8) and more moderately in Italy (-1.3), while it improved markedly in Spain (+2.3), Germany (+1.5) and Poland (+1.5). The ESI remained broadly stable in the Netherlands (+0.3).

                                          Full Eurozone ESI release here.