In focus today
Today, we look out for several Fed speakers as Williams, Barkin, Barr, Bostic and Waller are all speaking.
In Denmark, we get Q1 preliminary GDP figures, which we expect to be unchanged compared to the very impressive Q4 figures of last year. Further, refinancing auctions of mortgage loans will have the Danish bond market attention
In Hungary, the central bank will announce their rate decision after this week’s policy meeting. We expect a cut of 50bp to 7.25% in line with consensus forecasts. If that holds true, this will be the 8th straight meeting with a cut.
Later this week, on Wednesday we look out for UK inflation and the cash rate decision from the Reserve Bank of New Zealand, who we expect will keep interest rate on 5.50%. On Wednesday as well we will have the FOMC minutes from last meeting. On Thursday we get PMIs from both the euro area, Japan and the US.
Likewise on Thursday we look out for wage data from the euro area and the rate decision from Central Bank of Turkey. On Friday we get inflation data from Japan and US consumer confidence from the University of Michigan survey.
Economic and market news
What happened overnight
In Australia, the minutes from the monetary policy meeting the 6-7 May showed that the Reserve Bank of Australia considered a hike to interest rates. They left the rates unchanged in part to avoid excessively fine-tuning policy. However, they judged that a future hike may be needed if current forecasts on inflation prove too optimistic.
What happened over the weekend
In the US, Fed’s Barr, Jefferson and Mester on Monday all sounded cautious about inflation. Barr said that the inflation prints during first quarter disappointed him and that they did not give him confidence in cutting rates for the moment. Jefferson noted that it is too soon to conclude that inflation is back to a sustainable path towards Fed’s inflation goal. Mester backed off on her earlier statement about three rate cuts in 2024, saying that at the moment it does not seem appropriate to cut rate three times in 2024. She further said that monetary policy was well-positioned at the moment. We expect the Fed to deliver its first rate cut at the September meeting.
In the UK, BoE’s Broadbent said on Monday that a rate cut is possible this summer, if things continue to evolve with BoE’s forecast as he said. We stick to our long-held view and expect the BoE to deliver its first 25 bp rate cut in June.
In Sweden, the Riksbank’s Jansson said on Monday that a hike in June seems unlikely. Our expectations are in line with that path after Riksbank lowered interest rates at the last meeting.
In the euro area, HICP confirmed the flash release at 2.4% y/y and core at 2.7% y/y. The details show that the important domestic inflation, which the ECB focuses a lot on, declined to 4.32% y/y in April from 4.42% in March. However, momentum is still strong and increased in April now running at 5.32% 3m/3m at seasonally adjusted annual rate. Hence, momentum in domestic inflation should continue to worry the ECB.
In the Middle East, the International Criminal Court (ICC) sent out request warrants for Israeli prime minister Netanyahu, his defence chief as well as three Hamas Leaders over alleged war crimes in the ongoing conflict. Both sides have denounced the decision. Further, the death of Iran’s president made oil rise slightly short term, but overall, the news did not affect markets broadly.
In China, the government unveiled a package to prop up the housing market. It is easing mortgage rules by scrapping a nationwide minimum mortgage interest rate and cut the minimum down-payment ratio to 15% for first-time buyers and 25% for second-time buyers (from 20% and 30%, respectively). The central government also stated local governments should buy empty homes and turn them into affordable housing. The Peoples Bank of China (PBOC) also announced a CNY 300bn (USD 42bn) relending scheme for affordable housing to support this. The measures underline the picture that the government is taking more and stronger measures to turn around the housing crisis. Chinese stocks increased after the news.
The PBOC announced on Monday that they kept the loan prime rates unchanged at 3.45% for the one-year rate and 3.95% for the five year rate, which was in line with market expectations.
Market movements
FI: Long-end rates have continued to move higher since our latest update last Friday. 10Y Bund yields are back at 2.53% – up by 7bp since the Thursday close – while the 2s10s is about 2bp higher. Similarly, 10Y UST yields are back at 4.45%. The repricing in FI markets has been quite smooth over the past sessions with no single driver explaining the move. Markets are back pricing about 65bp worth of ECB rate cuts in 2024 (about 5bp less since the Thursday close). Implied US rates volatility – as measured by the MOVE Index – is now trading at the lowest level since the beginning of April. The Bund ASW-spread closed at 30.7bp yesterday – the tightest level seen since mid-March.
FX: Not a very eventful start of the week in FX space. The USD is slightly stronger vs the EUR at 1.0860 while USD/JPY at 156.50 may have last week’s highs 156.70 on its mind. EUR/GBP remains firmly range bound around the 0.8550-0.8600 mark. EUR/SEK made new attempts to break below 11.60 yesterday, now at 11.61. NOK/SEK hovers just below parity, eyes 0.09970 lows of last week. In CEE, PLN, CZK and HUF hold on to their more than one percent gain vs the EUR thus far in May.
