In an interview with Le Monde, ECB Vice President Luis de Guindos indicated barring any surprises, a June rate cut is a “fait accompli.”
“If things move in the same direction as they have in recent weeks, we will loosen our restrictive monetary policy stance in June,” he said.
However, looking beyond June, the Vice President expressed considerable caution due to heightened levels of uncertainty. “I’m inclined to be very cautious,” said de Guindos.
UK PMI Manufacturing fell from 50.3 to 48.7 in April, below expectation of 50.2. PMI Services rose from 53.1 to 54.9, above expectation of 50.2, and an 11-month high. PMI Composite rose from 52.8 to 54.0, also an 11-month high.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated that UK economy’s rebound from last year’s recession “continued to gain momentum”. He noted that GDP is now growing at an increased quarterly rate of 0.4%, up from 0.3% in the first quarter.
This economic upturn has led to increased hiring, driven further by the rise in the National Living Wage in April. However, these factors have also escalated cost pressures significantly. Although the inflation of selling prices has moderated slightly, the combination of rising costs and solid demand could lead businesses to hike prices in the near future.
“While the improving economic recovery picture is welcome news, the upward pressure on inflation will add to concerns that a sustainable path to below target inflation has not yet been achieved,” he added.
Eurozone’s PMI Manufacturing fell from 46.1 to 45.6 in April, below expectation of 46.5. PMI Services rose from 51.5 to 52.9, above expectation of 51.8, an 11-month high. PMI Composite rose from 50.3 to 51.4, also an 11-month high.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that Eurozone had a “good start” to Q2, with GDP projected to expand by 0.3%, mirroring the growth rate of the first quarter.
De la Rubia outlined three factors contributing to the sustainability of the recovery. Positive momentum in new business over the past two months has spurred more aggressive hiring policies. Service providers have shown confidence in their pricing power. The recovery in Germany and France, Eurozone’s largest economies, have particularly underscored the broader regional trend.
However, the latest figures pose a critical test for ECB on its readiness to cut interest rates in June. The “accelerated increases in input costs”, driven by higher oil prices and wages, necessitates close scrutiny. Moreover, the quicker pace at which service sector companies are raising prices suggests that “services inflation will persist”.
Despite these inflationary pressures, HCOB still expects an ECB rate cut in June, although de la Rubia expects ECB to proceed with more caution rather than adopting the “pragmatic speed” earlier suggested by Governing Council member François Villeroy de Galhau.
Germany’s PMI Manufacturing ticked up from 41.9 to 42.2 in April, below expectation of 42.9. PMI Services jumped from 50.1 to 53.3, well above expectation of 50.5, a 10-month high. PMI Composite rose from 47.7 to 50.5, also a 10-month high.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said: Factoring in the PMI numbers into our GDP Nowcast, we estimate that GDP may expand by 0.2% in the second quarter, following an estimated 0.1% growth in the first quarter.
France PMI Manufacturing fell from 46.2 to 44.9 in April, below expectation of 46.9. But PMI Services rose from 48.3 to 50.5, above expectation of 49.0, an 11-month high. PMI Composite rose from 48.3 to 49.9, also an 11-month high.
Norman Liebke, an economist at Hamburg Commercial Bank, has confidently stated that the French economy is “back on track,” highlighting the significant role of the services sector in driving this recovery.
Meanwhile, inflation levels remain a concern, with elevated prices driven by higher wages along with rising energy and oil prices. Both output price inflation and input prices saw reacceleration, maintaining levels clearly above 50.
Japan’s Finance Minister Shunichi Suzuki signaled the readiness to address the weakening yen, a pressing issue that has raised substantial concern due to its impact on import costs.
Speaking to the parliament, Suzuki conveyed the unease discussed during last week’s trilateral meeting with the US and South Korea. He emphasized the economic strain caused by the depreciating currency, stating there was “strong concern” about how a weak yen inflates the cost of imports, stressing the economy and affecting price levels domestically.
Suzuki’s remarks indicated that preparations are underway to counteract Yen’s decline. “I won’t deny that these developments have laid the groundwork for Japan to take appropriate action,” he noted, “though I won’t say what that action could be”.
Addressing the parliament today, BoJ Governor Kazuo Ueda said while changes in inflation projections could necessitate a shift in monetary policy, the BoJ currently has no “preset idea on the specific timing and pace” of rate hikes.
Governor Ueda also reiterated the necessity of maintaining ultra-loose monetary policy for now. He pointed out that trend inflation — price rises driven by domestic demand and assessed through various indicators — is still “somewhat below 2%.”
Japan’s PMI Manufacturing rises from 48.2 to 49.9 in April, above expectation of 48.0, signalling a near-stabilization of manufacturing business conditions. PMI Services rises from 54.1 to 54.6, highest since May 2023. PMI Composite also rose from 51.7 to 52.6, matching the joint-fastest pace set in nearly a year.
Jingyi Pan, Economist Associate Director at S&P Global Market Intelligence, noted that while the service sector continues to be the main driver of growth, there are positive developments in manufacturing as well, where the decline in output has lessened.
April’s data, however, also unveiled “additional signs of intensifying price pressures” which were largely attributed to higher input costs inflation affecting both the goods and services sectors.
Notable factors contributing to these rising costs include increased expenses for materials, energy, and wages, with the “weaker Yen having played a significant part as well”. Consequently, businesses have been compelled to pass these increased costs onto their clients, resulting in the “fastest increase in average charges in a year.”
Australia’s PMI Manufacturing has nearly reached the neutral mark in April, jumping from 47.3 to 49.9. PMI Services edged higher from 54.2 to 54.4, contributing to PMI’s Composite rise from 53.3 to 53.6, marking a 24-month high and indicating the third consecutive month of expansion.
Warren Hogan, Chief Economic Advisor at Judo Bank, said that Composite PMI has averaged 51.5 over Q1, a substantial improvement from 46.9 average in Q4 2023 and correlates with GDP growth of around 0.6% for the March quarter. Hogan suggested that if this trend persists, GDP growth could accelerate to approximately 0.8% in the following quarter.
The results also suggest a cyclical recovery, rebounding from the consumer-led slowdown experienced in 2023. This recovery appears to be more robust than anticipated by RBA, suggesting that the economy is beginning to “wander off their ‘narrow path'”. This “narrow path” scenario envisages economic activity remaining subdued to ensure inflation eases back to target by late 2025
“The RBA will likely be concerned that a pick-up in activity, before inflation returns to target, could threaten medium to long-term price stability,” Hogan added. “These results are inconsistent with interest rate reductions at any stage in the foreseeable future and raise the risk that the RBA may have to start hiking again at some stage over the back half of 2024.”
Germany’s industrial sector continues to faces another challenging year ahead, with Federation of German Industries (BDI) issuing a warning about the downturn in industrial production and the stagnation of exports for 2024. According to BDI’s latest forecasts, industrial production is anticipated to drop by -1.5% this year. Additionally, exports are expected to remain flat.
BDI President Siegfried Russwurm highlighted the persistent struggles of the German industry, which has not fully recovered from “cost and demand shocks,” driven by spikes in energy prices and inflation pressures.
Russwurm expressed concern over the long-term trend, noting that, despite some signs of a moderate recovery, the “overall production figures” have been following a “worrying downward trend” for several years.
Copper’s up trend resumed last week and accelerated significantly higher. The move was primarily driven by imposition of new trade sanctions by the UK and US, targeting Russian exports of key metals including aluminium, copper, and nickel to major commodity exchanges like LME and CME. This policy move, aimed at penalizing Russia for its actions in Ukraine, has effectively curtailed supplies of these metals, exerting upward pressure on prices.
The underlying fundamentals of Copper have also been robust, shaped by a combination of supply-side challenges and a upturn in the global economy. Notably, rebound in China’s industrial activity has played a crucial role in bolstering market momentum. Additionally, disruptions at significant mining operations have tightened the supply further, adding to Copper’s momentum.
From a speculative standpoint, the enthusiasm in the copper market is also palpable. According to recent LME data, hedge funds have increased their net long positions in Copper to the highest levels since February 2021. This influx of financial investments into copper futures suggests that prices may now be exceeding the actual market fundamentals, indicating a speculative bubble in formation.
Technically, the strong break of 4.3556 resistance confirmed resumption of whole rise from 3.1314 (2022 low). Near term outlook will stay bullish as long as 4.2645 support holds. Next target is 261.8% projection of 3.5021 to 3.9346 from 3.6324 at 4.7647.
This level is close to 100% projection of 3.1314 to 4.3556 from 3.5021 at 4.7263, as well as long term channel resistance. The cluster resistance zone at around 4.7 would be crucial to decide whether Copper is already in a secular bull markets that’s ready to power through 5.000 psychological level.
ECB Governing Council member Francois Villeroy de Galhau, in a discussion with Les Echos, stressed that increase in oil prices due to conflicts in the Middle East would not trigger a “mechanical” policy shift. Instead, the bank would carefully assess whether these increases significantly fuel core inflation and inflation expectations before deciding on any action.
Villeroy made it clear that ECB is prepared to act without undue delay in lowering interest rates. “No — unless there is a surprise, we must not wait too much,” he said.
“From the point we have sufficient confidence in the fact that we will meet the 2% inflation objective by next year, our duty is to minimize the cost in terms of activity and employment,” Villeroy said. “That is the sense of a first cut in June.”
In an interview with SRF, SNB Chairman Thomas Jordan stressed the critical issues of sluggish growth and the need for structural reforms. He underscored the importance of enhancing productivity to bolster economic growth across nations. Additionally, e highlighted the troubling high levels of debt and substantial deficits many countries are grappling with, which he deemed unsustainable in the long run.
Jordan emphasized that correcting these fiscal imbalances is imperative for future economic stability. He warned against the misuse of monetary policy as a tool for financing state debts, asserting that such practices could lead to dire consequences.
“It is very important that at the same time monetary policy remains geared towards price stability, rather than monetary policy being needed to finance debt, otherwise it will not end well,” Jordan cautioned.
In the UK, retail sales volumes was unchanged in March, falling short of the modest 0.3% mom growth anticipated by analysts. The performance within the retail sector was varied: automotive fuel and non-food store sales saw increases of 3.2% and 0.5%, respectively, which were offset by declines in food stores and non-store retailers, dropping by 0.7% and 1.5%.
On a quarterly basis, retail sales volumes rising 1.9% in the three months to March, a recovery attributed to the bounce back from particularly low sales volumes experienced during the Christmas shopping season.
Oil prices surges sharply in Asian session and there was a significant influx into safe-haven assets such as Gold, Dollar, Swiss Franc, and Japanese Yen.
This market reaction was triggered by escalating tensions in the Middle East, following a report by ABC News on a retaliatory missile strike by Israel against Iran. Meanwhile, Iran’s Fars news agency also reported that explosions were heard near the Isfahan airport,m even though the causes were unknown.
The missile launches are continuation of hostilities following last Saturday when Iran targeted Israel with over 300 drones and missiles, a majority of which were intercepted by Israel and its allies.
WTI oil’s strong rebound today suggests that corrective pullback from 87.84 has completed at 81.62 already. Further rise would be seen to retest 87.84 resistance first. Decisive break there will resume whole rally from 67.79 and target 61.8% projection of 71.32 to 87.84 from 81.62 at 91.82 next.
Also, note that rise from 67.79 is seen as the third leg of the pattern from 63.67 (2023 low). Hence, break of 95.50 is possible in the medium term, depending on whether WTI could sustain its upside momentum.
In March, Japan observed a subtle cooling in core inflation, though levels persistently exceed BoJ’s target.
Core CPI, which excludes food prices, slowed from 2.8% yoy to 2.6% yoy, slightly under the expectation of 2.7% yoy, marking a continued stretch above BoJ’s 2% target for two full years.
Further detail is seen in the core-core CPI, excluding both food and energy, which decreased from 3.2% yoy to 2.9% yoy. This marks the seventh consecutive month of deceleration and brings this measure below 3% level for the first time since November 2022.
Meanwhile, headline CPI dipped slightly from 2.8% year-on-year to 2.7%, aligning with analysts’ forecasts.
During a press conference today, BoJ Governor Kazuo Ueda highlighted the potential economic repercussions of the persistently weak yen, particularly its effect on trend inflation through increased costs of imported goods.
“There’s a possibility the weak yen could push up trend inflation through rises in imported goods prices,” Ueda noted, indicating that such a scenario “might lead to a change in monetary policy.”
At the same occasion, Finance Minister Shunichi Suzuki pointed out that exchange rates are not solely influenced by interest rate differentials. Various other factors, such as each country’s current account balance, market participants’ sentiment, and speculative trade, drive currency moves,” Suzuki explained.
Atlanta Fed President Raphael Bostic highlighted his readiness to maintain the current rate levels through the end of the year. “I’m comfortable being patient,” he noted at an event overnight. “I’m of the view that things are going to be slow enough this year that we won’t be in a position to reduce our rates towards … the end of the year.”
He pointed out the importance of continued job creation and wage growth that outpaces inflation as key metrics guiding his decision-making process. “If we can keep those things going, and inflation has the signs that it is moving to that target, I’m happy to just stay where we are,” he explained.
However, Bostic also warned of the potential need to adjust rates upward if inflation trends unfavorably, diverging from the Fed’s 2% target. “If inflation starts moving in the opposite direction away from our target, I don’t think we’ll have any other option but to respond to that,” he stated.
“I’d have to be open to increasing rates,” he added.
Minneapolis Fed President Neel Kashkari told Fox News Channel that he wants to be “patient” regarding monetary easing. He added that the first rate cut could “potentially” be inappropriate until 2025.
“I’m in the view of, we need to wait and see, be patient as long as it takes, until we get convinced that inflation is on its way back down to 2%,” he said.
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BoE’s Haskel: Inflation outlook hinges on quick reduction of job vacancies to unemployment ratio
During a seminar today, BoE MPC member Jonathan Haskel emphasized the critical role of the labor market in shaping the UK’s inflation outlook.
Haskel pointed out that the labor market tightness, specifically the ratio of job vacancies to unemployment, is a key factor in assessing inflationary pressures. Although this ratio is gradually decreasing, Haskel expressed concern over the pace, stating it is “rather slowly” and it remains uncertain if it is sufficient to align inflation with the target levels.
“The persistence of inflation depends a lot on how quickly that ratio comes down,” Haskel remarked, underscoring the direct impact of labor market conditions on inflation trends.