Monday

The PBoC left the LPR rates unchanged as expected:

• 1-year LPR 3.45%.
• 5-year LPR 3.95%.

The SNB raised the minimum Reserve Requirement Ratio (RRR) from 2.5% to 4.0% with the change going into effect from 1 July 2024:

"Liabilities arising from cancellable customer deposits (excluding tied pension provision) will in future be included in full in the calculation of the minimum reserve requirement, as is the case with the other relevant liabilities. This revokes the previous exception whereby only 20% of these liabilities counted towards the calculation."

That is a change to the National Bank Ordinance. On the move, the SNB says that "the adjustments will ensure that implementation of monetary policy remains effective and efficient" and that it "will not affect the current monetary policy stance".

The Canadian March PPI came in line with expectations:

• PPI M/M 0.8% vs. 0.8% expected and 1.1 prior (revised from 0.7%).
• PPI Y/Y -0.5% vs. -1.4% prior (revised from -1.7%).
• Raw materials price index Y/Y -0.5% vs. -4.7% prior.
• Raw materials price index M/M 4.7% vs. 2.1% prior.

Tuesday

The Australian April PMIs showed Manufacturing almost jumping back into expansion while the Services PMI ticked slightly lower:

• Manufacturing PMI 49.9 vs. 47.3 prior.
• Services PMI 54.2 vs. 54.4 prior.

The Japanese April PMIs showed Manufacturing PMI almost jumping back into expansion while the Services PMI increased further into expansion:

• Manufacturing PMI 49.9 vs. 48.0 expected and 48.2 prior.
• Services PMI 54.6 vs. 54.1 prior.

BoJ Governor Ueda didn’t add anything new on the monetary policy front as the central bank remains data dependent with particular focus on the inflation trend and wage growth:

• Don't have any preset idea on timing, pace of future rate hike.
• If trend inflation accelerates in line with our forecast, we will adjust degree of monetary support through interest rate hike.
• If our price forecast changes, that will also be a reason to change policy.
• Future monetary policy guidance will depend on economy, price, market development at the time.
• Didn't say anything new on BoJ policy last week in Washington.
• Trend inflation is still somewhat below 2%, so need to maintain accommodative monetary conditions for the time being.
• If geopolitical risks, weak domestic demand cause disruptions in markets, BoJ will respond through flexible, nimble liquidity provisions.
• Annual wage negotiations have been, and always will be, among important economic variables we look at in setting policy.
• We decide on policy looking not just at wage talks, but various other economic variables.
• We decided to change policy in March because strong wage talk outcome came on top of fairly solid readings in other sectors of economy.
• Whether we will set policy with same emphasis on wage talk outcome will depend on conditions at the time.
• It’s hard to say beforehand how long the BoJ should wait in gathering enough data to change policy.
• We would like to leave some scope for adjustment by not pre-committing to a certain policy too much.
• Our basic stance is that we will look at moves in trend inflation to achieve our price goal, and take a data-dependent approach in setting policy.

The Eurozone April PMIs showed Manufacturing PMI slipping further into contraction while the Services PMI continues to tick higher:

• Manufacturing PMI 45.6 vs. 46.6 expected and 46.1 prior.
• Services PMI 52.9 vs. 51.8 expected and 51.5 prior.

The UK April PMIs showed the Manufacturing PMI falling back into contraction while the Services PMI continue to expand:

• Manufacturing PMI 48.7 vs. 50.4 expected and 50.3 prior.
• Services PMI 54.9 vs. 53.0 expected and 53.1 prior.

BoE’s Haskel (hawk – voter) warned that inflation is unlikely to reach sustainably the target unless there’s a weakening in the labour market:

• High inflation to remain unless labour market weakens.
• UK labour market is extremely tight.
• Labour market tightness has been easing rather slowly.

BoE’s Pill (neutral – voter) didn’t add anything new on the monetary policy front although he did say that a rate cut is “still some way off”:

• Seeing signs of a downward shift in inflation persistency.
• Policy outlook has not changed substantially since March.
• There has been little news in recent months on inflation persistence.
• Now seeing signs of a downward shift in the persistent component of inflation dynamic.
• A cut in the bank rate would not entirely undo the restrictive policy stance.
• Will need to maintain a degree of restrictiveness in policy stance to squeeze out inflation persistency.
• Absence of news and passage of time have brought a bank rate cut somewhat closer.
• The timing for a rate cut is still some way off.
• No reason for BoE to move rates in lockstep with either Fed or ECB.

The US April PMIs missed expectations across the board:

• Manufacturing PMI 49.9 vs. 52.0 expected and 51.9 prior.
• Services PMI 50.9 vs. 52.0 expected and 51.7 prior.

Highlights:

• April saw an overall reduction in new orders for the first time in six months.
• Companies responded by scaling back employment for the first time in almost four years.
• Business confidence fell to the lowest since last November.
• Rates of inflation generally eased at the start of the second quarter, with both input costs and output prices rising less quickly at the composite level.
• However, manufacturing input cost inflation hit a one-year high.
• Some service providers suggested that elevated interest rates and high prices had restricted demand during the month.

Wednesday

The Australian Q1 CPI beat expectations across the board:

• CPI Y/Y 3.6 vs. 3.4% expected and 4.1% prior.
• CPI Q/Q 1.0% vs. 0.8% expected and 0.6% prior.
• Trimmed Mean CPI Y/Y 4.0% vs. 3.8% expected and 4.2% prior.
• Trimmed Mean CPI Q/Q 1.0% vs. 0.8% expected and 0.8% prior.
• Weighted Mean CPI Y/Y 4.4% vs. 4.1% expected and 4.4% prior.
• Weighted Mean CPI Q/Q 1.1% vs. 0.9% expected and 0.9% prior.

ECB’s Nagel (hawk – voter) warned that a rate cut in June does not mean that more rate cuts will follow suit:

• June rate cut not necessarily followed up by a series of rate cuts.
• Services inflation remains high, driven by continued strong wage growth.
• Not fully convinced that inflation will actually return to target in a timely, sustained manner.
• Given the uncertainty, we cannot pre-commit to a particular rate path.

The German April IFO Business Climate Index beat expectations:

• IFO 89.4 vs. 88.8 expected and 87.9 prior (revised from 87.8).
• Current conditions 88.9 vs. 88.7 expected and 88.1 prior.
• Expectations 89.9 vs. 88.7 expected and 87.7 prior (revised from 87.5).

The Canadian February Retail Sales missed expectations across the board:

• Retail sales M/M -0.1% vs. 0.1% expected and -0.3 prior.
• Retail sales Y/Y 1.2% vs. 0.2% prior (revised from 0.9%).
• Ex autos M/M -0.3% vs. 0.0% expected and 0.4% prior (revised from 0.5%).
• Ex auto and gas M/M 0.0% vs. 0.4% prior
• Sales down in 5 of 9 subsectors led by fuel stations.
• Advance March retail sales 0.0%.

The US March Durable Goods Orders beat expectations:

• Durable goods orders M/M 2.6% vs. 2.5% expected and 0.7% prior (revised from 1.3%).
• Nondefense capital goods orders ex air M/M 0.2% vs. 0.2% expected and 0.4% prior (revised from 0.7%).
• Ex transportation M/M 0.2% vs. 0.3% expected and 0.1% prior (revised from 0.3%).
• Ex-defense M/M 2.3% vs. 1.5% prior (revised from 2.1%).

The BoC released the Minutes of its April Monetary Policy Meeting:

• Agreed that any monetary policy easing would probably be gradual.
• There were different views on how much more assurance was needed to be confident that inflation was on a sustainable path back to target.
• Some members felt there was a risk of keeping policy more restrictive than needed.
• Governing Council was split over when to cut rates.
• Felt rapid population increase and coming decline in non-permanent residents complicated outlook for activity and inflation.
• Was more confident that inflation would continue to ease even as growth picked up.
• Still more concerned about upside risks to inflation but viewed both upside and downside as less acute.

Thursday

The US Jobless Claims beat expectations:

• Initial Claims 207K vs. 215K expected and 212K prior.
• Continuing Claims 1781K vs. 1814K expected and 1796K prior (revised from 1812K).

The US Advance Q1 GDP missed expectations with a surprisingly hot Core PCE print:

• Advance Q1 GDP 1.6% vs. 2.4% expected and 3.4% prior.
• Weakest since Q1 2023.

Details:

• Consumer spending 2.5% vs. 3.3% prior.
• Consumer spending on durables -2.1% vs. 3.2% prior.
• GDP final sales 2.0% vs. 3.9% prior.
• GDP deflator 3.1% vs. 3.0% expected and 1.7% prior).
• Core PCE 3.7% vs. 3.4% expected and 2.0% prior).
• Business investment 3.2% vs. 0.7% prior.

Percentage point changes:

• Net trade pp -0.86 vs. 0.32 pp prior.
• Inventories -0.37 pp vs. -0.47 pp prior.
• Govt 0.21pp vs. 0.79 pp prior.

ECB’s Panetta (dove – voter) didnt’ say anything new as he just prefers to gradually cut rates to counter weak demand:

• We must weigh the risk of monetary policy becoming too tight.
• Timely, small rate cuts would counter weak demand, and would be paused at no cost.
• Hesitations in adjusting rates would hurt investment productivity.
• Rate cuts could create a credibility issue.

Friday

The Tokyo April CPI missed expectations across the board by a big margin, although it was attributed to a one-off factor as high school tuition was eliminated in Tokyo and took effect in April:

• CPI Y/Y 1.8% vs. 2.6% expected and 2.6% prior.
• Core CPI Y/Y 1.6% vs. 2.2% expected and 2.4% prior.
• Core-Core CPI Y/Y 1.4% vs. 2.7% expected and 2.9% prior.

The BoJ left interest rates unchanged at 0.00-0.10% as expected:

• Removes reference from statement that it currently buys about 6 trillion yen of JGBs per month.
• Vote was 9-0.
• Prior vote was 7-2.
• Risks to the economy are generally balanced.
• There are extremely high uncertainties on Japan's economic and price outlook.
• Japan's economy has recovered moderately although there is some weakness.
• Output gap improving, likely to gradually expand.
• Medium and long term inflation expectations heightened moderately.
• Financial conditions have been accommodative.
• More firms starting to pass on rising wages to sales prices.
• Expect positive cycle of rising wages and inflation to continue.
• Vigilance needed for currency and market movements and their impact on the economy and prices.
• Consumption likely to gradually increase.
• Expect accommodative monetary conditions to continue for the time being.

Moving on to the BoJ Governor Ueda’s Press Conference:

• Will adjust degree of monetary easing if underlying inflation rises.
• Easy financial conditions will be maintained for the time being.
• Monetary policy conduct from now on will depend on state of economy, prices at the time.
• Will not judge policy based on one single indicator.
• Economy outlook, risk overshoot may also be a reason for policy change.
• Japanese economy has recovered moderately but some weakness is still seen.
• Must pay attention to financial, FX market moves and their impact on economy, prices.
• Monetary policy not aimed to control exchange rate directly.
• If FX fluctuations affect underlying inflation, that could be a consideration for monetary policy.
• Weak yen is not having a big impact on trend inflation so far.
• But weak yen did have some impact to an extent on higher inflation forecasts.
• Likelihood of achieving 2% inflation target is gradually rising.
• Chance of a prolonged weakness in the yen is not zero.
• We can pre-emptively judge if weak yen affects inflation, spring wage talks next year.
• But FX impact on inflation is usually tentative.
• If our forecasts materialise, achievement of 2% inflation target is extremely close.
• Underlying inflation has been gradually rising.
• Inflation is not necessarily weak if you look at other service prices.
• If prices move in line with our forecasts, it would be reasonable to adjust policy and hike rates further.

The US March PCE came in line with expectations:

• PCE Y/Y 2.7% vs. 2.6% expected and 2.5% prior.
• PCE M/M 0.3% vs. 0.3% expected and 0.3% prior.
• Core PCE Y/Y 2.8% vs. 2.7% expected and 2.8% prior.
• Core PCE M/M 0.3% vs. 0.3% expected and 0.3% prior.

Consumer spending and consumer income for March:

• Personal income 0.5% vs. 0.5% estimate. Prior month 0.3%.
• Personal consumption 0.8% vs. 0.6% estimate. Prior month 0.8%.
• Real personal spending 0.5% vs. 0.5% last month (revised from 0.4%).

The highlights for next week will be:

• Tuesday: Japan Industrial Production and Retail Sales, Australia Retail Sales, China PMIs, Eurozone CPI, Canada GDP, US ECI, US Consumer Confidence.
• Wednesday: New Zealand Jobs data, Canada Manufacturing PMI, US ADP, US ISM Manufacturing PMI, US Job Openings, FOMC Policy Decision.
• Thursday: Switzerland CPI, Swiss Manufacturing PMI, US Jobless Claims.
• Friday: Eurozone Unemployment Rate, US NFP, Canada Services PMI, US ISM Services PMI.

That’s all folks. Have a nice weekend!