Monday

The Japanese February Wage data came in line with expectations:

• Average Cash Earnings Y/Y 1.8% vs. 1.8% expected and 2.0% prior.
• Real Wages Y/Y -1.3% vs. -1.4% expected and -0.6% prior.

The Switzerland Unemployment Rate ticked higher in March:

• Swiss unemployment rate unadjusted 2.4% vs. 2.4 expected and 2.4% prior.
• Swiss unemployment rate adjusted 2.3% vs. 2.2% expected and 2.2% prior.

The New York Fed released the March inflation expectations survey:

• One year inflation 3.0% vs. 3.0% prior.
• Three-year inflation expectations 2.9% vs. 2.7% prior.
• Five-year inflation 2.6% vs. 2.9% prior.
• Expected home price increase 3.0% vs. 3.0% prior.
• Year ahead expected wage growth 2.8% vs. 2.8% prior.
• Fear of missing debt payments was highest in four years.
• Household view of personal finances improved modestly in March.
• Median household spending growth 5.0% vs. 5.2%.

Fed’s Goolsbee (dove – non voter) didn’t add anything new on the monetary policy outlook:

• Fed’s lender of last resort system functioning well.
• Economy was on a golden path in 2023.
• Economy remains strong, jobs data confirm that.
• Fed has to determine how long to be restrictive on monetary policy.
• Undeniable that many are upset with economy.
• Sees breakdown between data and consumer mood.
• Economy is getting back into better balance.

Tuesday

Fed’s Kashkari (hawk – non voter) delivered some token remarks about the inflation goal and the crypto market:

• The inflation rate is running around 3% and the Fed has to get back down to 2%.
• Says the bank cannot 'stop short' on the inflation fight.
• Says the labour market is not 'red hot' like it was 12 months ago but it’s still tight.
• Says crypto is just a toy.
• It’s not being used in daily lives.
• Crypto is too volatile to be a store of value.
• Not an inflation hedge.

BoJ Ueda didn’t offer anything new on the monetary policy outlook as the central bank continues to deliver mixed messages to keep the market wondering when the next change will happen:

• Japan's economy showing some weakness but recovering moderately.
• Chance of solid wage growth this year heightening.
• Inflation likely to exceed 2% this fiscal year, slow thereafter.
• Must watch FX, market developments and their impact on economy, prices.
• Trend inflation likely to gradually accelerate towards end of current forecast period under quarterly report.
• BoJ will guide policy appropriately with eye on economy, price developments with short-term rate as policy target.
• BoJ expects accommodative monetary conditions to continue for time being.
• Expects consumption to increase gradually as wage gains push up household income.
• Temporary factors that are weighing on consumption likely to dissipate.
• Important to maintain accommodative monetary conditions as trend inflation yet to hit 2%.
• If economy, price developments proceed as we project now, we need to think about reducing degree of monetary support.
• Whether this will happen will depend on upcoming data.
• Have no preset idea now on how and when we will adjust interest rate levels.
• Even after March policy shift, expect interest rates to stay low, real interest rates to remain at deeply negative territory.
• Expect to reduce our bond buying in future but can't say now when and by how much.
• Won't immediately start unloading BoJ's ETF holdings.
• Won't comment specifically on FX levels, moves.
• Various factors are behind FX moves.
• FX rates should move stably reflecting fundamentals.
• Monetary policy is among fundamental factors that affect FX moves.
• Monetary policy does not explicitly seek to control FX moves.
• Ueda says that their current guidance does not promise to keep overnight call rate target at 0-0.1% until a certain condition is met.

The NFIB Small Business Optimism Index missed expectations falling to the lowest level since 2012:

• NFIB 88.5 vs. 90.2 expected and 89.4 prior.

“Small business optimism has reached the lowest level since 2012 as owners continue to manage numerous economic headwinds,” said NFIB Chief Economist Bill Dunkelberg. “Inflation has once again been reported as the top business problem on Main Street and the labour market has only eased slightly.”

Fed’s Bostic (hawk – voter) said that if the disinflationary progress were to halt, rate cuts could move even further out:

• Expects a slow pace of disinflation in 2024.
• CPI coming in at consensus would be a welcome development.
• He cannot eliminate the possibility that rate cuts move even further out.
• It is always possible Fed’s growth forecast could rise.
• If disinflation pace continues, they could pull cuts in closer.
• Not hearing much from businesses that they are seeing "coming pain" in employment.
• If a labour cliff seems to be approaching, it might influence policy.

Wednesday

The Japanese March PPI missed expectations:

• PPI M/M 0.2% vs. 0.3% expected and 0.2% prior.
• PPI Y/Y 0.8% vs. 0.8% expected and 0.7% prior (revised from 0.6%).

The RBNZ left the OCR unchanged at 5.50% as expected:

• Committee is confident that maintaining the OCR at a restrictive level for a sustained period will return consumer price inflation to within the 1 to 3 percent target range this calendar year.

• The New Zealand economy continues to evolve as anticipated by the monetary policy committee.
• A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation.
• Economic growth in New Zealand remains weak.

From the minutes of the meeting:

• Members agreed they remain confident that monetary policy is restricting demand.
• Restrictive monetary policy is contributing to an easing in capacity pressures to ensure inflation returns to target.
• Further decline in capacity pressure is expected, supporting an ongoing decline in inflation.
• Members agreed they remain confident that monetary policy is restricting demand.
• Measures of business confidence have declined and firms’ own expectations for activity and investment have weakened.
• Near-term business pricing intentions have declined but remain elevated, in part reflecting an uptick in both realised and expected costs.
• Continued strength in net migration, is supporting aggregate consumer spending and rising dwelling costs.
• The committee agreed that interest rates need to remain at a restrictive level for a sustained period.
• Members agreed that the balance of risks was little changed since the February.
• Members agreed that there remains limited tolerance to increase the time to achieve the inflation target while inflation remains outside the target band and while inflation expectations and pricing intentions remain elevated.
• Members agreed that persistence of services inflation remains a risk and goods price inflation remains elevated.
• Ongoing restrictive monetary policy in an environment of weak global growth could lead to a more rapid decline in inflation than expected.

The US March CPI beat expectations across the board for the third consecutive month with the market pricing out the June rate cut and now seeing just 50 bps of cuts in 2024:

• CPI Y/Y 3.5% vs. 3.4% expected and 3.2% prior.
• CPI M/M 0.4% vs. 0.3% expected and 0.4% prior.
• Core CPI Y/Y 3.8% vs. 3.7% expected and 3.8% prior.
• Core CPI M/M 0.4% vs. 0.3% expected and 0.4% prior.
• Core CPI Services ex-Housing Y/Y 4.8%.
• Real weekly earnings 0.3% vs. 0.0% prior.

The BoC left interest rates unchanged at 5.00% as expected:

• While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months. The Council will be looking for evidence that this downward momentum is sustained.
• Governing Council is particularly watching the evolution of core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
• There are some recent signs that wage pressures are moderating.
• The line about the BoC being concerned about inflation risks removed.
• The US economy has again proven stronger than anticipated, buoyed by resilient consumption and robust business and government spending.
• A broad range of indicators suggest that labour market conditions continue to ease.
• CPI inflation slowed to 2.8% in February, with easing in price pressures becoming more broad-based across goods and services.

Moving on to the Governor Macklem’s Press Conference:

• We’re looking for evidence that the recent further easing in underlying inflation will be sustained.
• Growth in the economy looks to be picking up. We expect GDP growth to be solid this year and to strengthen further in 2025.
• We have revised up our outlook for global growth. US economic growth again exceeded expectations, and while growth is expected to slow later this year, economic activity is stronger than previously forecast.
• There are also some signs that wage pressures are beginning to ease.
• We don’t want to leave monetary policy this restrictive longer than we need to.
• Overall, the data since January have increased our confidence that inflation will continue to come down gradually even as economic activity strengthens.
• We're encouraged by what we've seen in the economy.
• Things are moving in the right direction, we need to see that progress continue.
• If things evolve broadly as we expect it will be appropriate to cut rates.
• We have seen progress across our inflation indicators.
• Pricing behaviour from companies is starting to normalize.
• The decline we've seen in inflation momentum "is very recent".
• We are seeing what we hoped and need to see, we just need to see it for longer.
• Main driver of GDP forecast increase has been population growth
• We did discuss when to cut rates, there was a 'clear consensus' to hold.
• There is some diversity of views in the governing council as to when we're going to see what we're looking for.
• We will be particularly focused on core inflation, when we talk about sustained progress that's what we mean.
• Housing will continue to contribute to inflation.

The Federal Reserve released the Minutes of its March Monetary Policy Meeting, although they were very stale given the recent data and the CPI report:

• Consumer price inflation continued to decline, but recent progress was uneven.
• Disinflation process was continuing along a path that was generally expected to be somewhat uneven.
• Participants generally judged that risks to the achievement of the Committee's employment and inflation goals were moving into better balance.
• Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was moving sustainably down to 2%.
• A few participants remarked that they expected core non housing services inflation to decline as the labour market continued to move into better balance and wage growth moderated further.
• Participants discussed the still-elevated rate of housing services inflation and commented on the uncertainty regarding when and by how much lower readings for rent growth on new leases would pass through to this category of inflation.
• Some participants noted that increased immigration, which had likely been boosting the growth of personal consumption spending, may also have been adding to the demand for housing.
• Many participants pointed to indicators such as higher credit card balances, greater use of buy-now-pay-later programs or rising delinquency rates on some types of consumer loans as evidence that the finances of some lower- and moderate-income households might be coming under pressure.
• The economic projection prepared by the staff for the March meeting was stronger than the January forecast. The upward revision in the forecast primarily reflected the staff's incorporation of a higher projected path for population due to a boost from immigration.

Thursday

The Chinese March CPI missed expectations by a big margin:

• CPI Y/Y 0.1% vs. 0.4% expected and 0.7% prior.
• CPI M/M -1.0% vs. -0.5% expected and 1.0% prior.
• Core CPI Y/Y 0.6% vs. 1.2% prior.
• Core CPI M/M -0.6% vs. 0.5% prior.
• PPI Y/Y -2.8% vs. -2.8% expected and -2.7% prior.

BoE’s Greene (hawk – voter) said that the rate cuts should still be a way off given the high services inflation persistence and high wage growth:

• Inflation persistence a greater threat in the UK than the US.
• Markets now expect the Bank of England will cut rates earlier and by more than the Federal Reserve this year.
• UK services inflation remains much higher than in the US.
• Higher inflation expectations have translated to higher pay growth, by metrics now between 6-7 per cent in UK.
• Rate cuts in the UK should still be a way off as well.

The ECB left interest rates unchanged at 4.00% as expected and opened the door for a June rate cut:

• Most measures of underlying inflation are easing, wage growth is gradually moderating.
• Not pre-committed to a particular rate path.
• Will continue to follow a data-dependent approach and meeting-by-meeting approach.
• Inflation has continued to fall, led by lower food and goods price inflation.
• Domestic price pressure are strong and are keeping services price inflation high.
• Intends to discontinue reinvesting PEPP at end of 2024.
• If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.

Moving on to the President Lagarde’s Press Conference:

• The economy remained weak in the first quarter.
• Production remains subdued, especially in energy-intensive industries.
• Expects to pick up in coming quarters.
• Governments should continue to roll-back support.
• Tightness in labour market is gradually declining.
• Highlights falling food and energy price inflation, along with goods.
• Services price inflation remained high in March at 4%.
• More-recent indicators point to further moderation in wage growth.
• Inflation expected to decline to target next year.
• Risks to economic growth remain tilted to the downside.
• Growth could be higher if inflation comes down more than expected.
• Inflation could turn out higher if wages climb or profit margins remain elevated.
• If we achieve further confidence in outlook, it would be appropriate to lower rates.
• We are not pre-committing to a particular rate path.
• A few members felt sufficiently confident to cut rates.
• In April, we get some data and in June we will have a lot more data and information, we will also have new projections.
• We will be looking at data and whether it confirms our hope that inflation is on the path to our forecasts.
• A very large majority wanted more data.
• We are data dependent, not Fed dependent.
• The size of our balance sheet has reduced quite a bit already.
• Highlights differences in eurozone versus US inflation, including consumption and fiscal response.
• If disinflation continues, rate path will reflect that.
• We are observing a decline in inflation that's comforting us.
• We will be attentive to wages.

The US March PPI came mostly in line with expectations:

• PPI Y/Y 2.1% vs. 2.2% expected and 1.6% prior.
• PPI M/M 0.2% vs. 0.3% expected and 0.6% prior.
• Core PPI Y/Y 2.4% vs. 2.3% expected and 2.1% prior (revised from 2.0%).
• Core PPI M/M 0.2% vs. 0.2% expected and 0.3% prior.

The US Initial Claims beat expectations while Continuing Claims missed:

• Initial Claims 211K vs. 215K expected and 222K prior (revised from 221K).
• Continuing Claims 1817K vs. 1800K expected and 1789K prior (revised from 1791K).

Fed’s Williams (neutral – voter) sounded pretty dovish since the comments came after another hot US CPI report. He also commented on the Core Services ex-Housing measure oddly saying that “it’s falling faster than expected”, although the trend actually reversed and it’s now rising fast:

• The outlook is uncertain and the FOMC must be data dependent.
• Inflation is moving towards 2%, expect further bumps.
• Fed has made considerable progress.
• Inflation to stand at 2.25-2.50% this year.
• Expects inflation to settle back to 2% next year.
• Expects US GDP to hit 2% this year.
• Job market remains strong.
• Housing very strong but doesn't see sign of a bubble.
• Commercial real estate an area of concern, will take time to resolve.
• Fed forecasts rate cuts starting this year.
• There is a great deal of uncertainty over economy.
• US economy has benefited from positive supply shock.
• Inflation fell faster than expected last year.
• Progress on inflation has hit some bumps with recent data being disappointing.
• Better to focus on trend for inflation.
• Doesn't know exactly what lies ahead for monetary policy.
• The economy is in a good place right now.
• Monetary policy is well-positioned to achieve Fed goals.
• Does not see a financial stability crisis from commercial real estate.
• Fed working to make sure banks ready for discount window.
• Access to the discount window is important during times of stress.
• Banks should be ready for discount window before trouble arrives (the discount window was once thought as a lender of last resort place for banks to square their balances on a daily basis. The Fed used to shun banks from its use. Now they are saying that they encourage it more).
• Eventually will need to cut rates.
• Fed rate hike not part of baseline view for the outlook.
• Fed policy making progress working out economic imbalances.
• Core services ex-housing inflation falling faster than expected.
• No need to change monetary policy in the very near term.
• Shelter inflation slower to come down than expected.
• Recent inflation setbacks are not a surprise to the Fed.

Fed’s Barkin (hawk – voter) said that the latest inflation report didn’t increase his confidence and therefore they will wait for more data before gaining enough confidence:

• Latest inflation data did not increase my confidence that disinflation is spreading in the economy.
• Latest inflation data looks like it did at the end of 2023 with goods prices falling, shelter moving sideways and services increasing.
• Fed is 'not yet where we want to be' on inflation though 'headed in the right direction' over the longer time frame.

Fed’s Collins (neutral – non voter) basically said that the recent inflation data argues for more patience, but rate cuts this year are still the baseline scenario:

• Recent data argue against imminent need to change rates.
• Still expects rate cuts this year.
• May take more time for economy to moderate as needed.
• Economic strength may auger fewer rate cuts.
• Disinflation likely to continue to be uneven.
• Recent inflation data haven't changed view about outlook.
• Economy strength may mean Fed policy not as restrictive as thought.
• Strong job market reduces urgency of rate cut need.
• Expects inflation to continue to moderate.
• Fed policy well positioned for current economy.
• Economy resilient in face of Fed rate policy; may take longer to get inflation back to 2%.
• Economic uncertainty is elevated.
• Wage growth is consistent with path back to 2% inflation.
• Too early to make sense of recent rising productivity.
• Short-term inflation expectations are now consistent with 2% inflation goal.

Later she added:

• Rate hike not part of baseline but not fully ruled out.
• She says two rate cuts are possible for 2024 and expects inflation pressure to wane later this year.
• She noted we can’t pre-judge when the Fed can start cutting rates.

Friday

The New Zealand March Manufacturing PMI fell further into contraction:

• Manufacturing PMI 47.1 vs. 49.1 prior.
• 47.1 is the lowest since December 2023.
• has now been in contraction for 13 consecutive months, the longest since 2009.

BNZ’s Senior Economist Doug Steel:

• “The PMI’s average for the first quarter of the year is consistent with manufacturing GDP posting another quarter that is below that of a year earlier”.

The UK GDP came in line with expectations:

• GDP M/M 0.1% vs. 0.1% expected and 0.3% prior (revised from 0.2%).
• GDP Y/Y -0.2% vs. -0.4% expected and -0.3% prior (revised from -0.1%).

The US April University of Michigan Consumer Sentiment Survey missed expectations across the board with inflation expectations ticking higher:

• Consumer Sentiment 77.9 vs. 79.0 expected and 79.4 prior.
• Current conditions 79.3 vs. 82.2 expected and 82.5 prior.
• Expectations 77.0 vs. 77.6 expected and 77.4 prior.
• 1-year inflation expectations 3.1% vs. 2.9% prior.
• 5-year inflation expectation 3.0% vs. 2.8% prior.

Risk aversion hit the markets as Israel is said to be preparing for a direct attack from Iran on southern or northern Israel in the next 48 hours. This follows an Israeli attack last week in Syria where an Iranian general died. Iran since then publicly threatened a retaliation.

The highlights for next week will be:

• Monday: New Zealand Services PMI, Eurozone Industrial Production, US Retail Sales, US NAHB Housing Market Index, PBoC MLF.
• Tuesday: China Industrial Production and Retail Sales, UK Labour Market report, Eurozone ZEW, Canada CPI, US Housing Starts and Building Permits, US Industrial Production.
• Wednesday: New Zealand CPI, UK CPI.
• Thursday: Australia Labour Market report, US Jobless Claims.
• Friday: Japan CPI, UK Retail Sales.

That’s all folks. Have a nice weekend!