DXY resumed its climb last night:
AUD was monkeyhammered:
Commodities are the last redoubt of the inflationist now:
As miners were crushed:
Along with EM stocks:
And junk debt:
The US curve was mown down:
And stocks gave way:
Westpac has the wrap:
Event Wrap
US weekly initial jobless claims were close to expectations at 184k (est. 180k), while continuing claims undershot expectations again at 1.417m (est. 1.459m). The Philadelphia Fed business survey fell to 17.6 (est. 21.4, prior 27.4), citing declining new orders and the highest cost pressures since 1979.
Eurozone CPI for March was finalised 0.1% lower to 2.4%m/m and 7.4% y/y (from initial 2.5%m/m and 7.5%y/y), with core at 2.9% (from 3.0y/y).
Eurozone consumer confidence was less weak than anticipated, rising to -16.9 (prior -18.7, est. -20.0). French business confidence also marginally beat estimates at 106 (est. 105, prior 107), also gaining in manufacturing confidence to 108 (est. 104, prior 107) and in own production outlook to 11 (est. 6, prior revised to 11 from 4), although other aspects were mixed.
ECB’s de Guindos was markedly more hawkish, if still cautious, in calling for an end to asset purchasing in early 3Q and the potential start to the hiking cycle in July or within 3Q, while, as always, being data dependent.
BoE’s Mann gave a rather involved and counterbalancing appraisal of the MPC’s challenges. The key aspect was the need to address inflation, which was seen as more concerning and showing signs of spreading to pricing strategies (second round effects), with front-loaded rate hikes. Although tightening could be reassessed if demand falters, the reverse could also be true if the economy continue to fare better and inflation is more persistent.
Fed chair Powell channelled Volker in his opening remarks on an IMF panel, stating that Volker understood price expectations and the importance of central bank independence. He signalled again that a 50 bp hike is on the table for May, and added that it was appropriate to speed up and front load tightening, but he did not discuss the policy path beyond that.
Appearing with Powell, ECB president Lagarde reiterated she is an “owl” and neither a hawk nor a dove. She noted that growth risks are skewed to the downside, and while acknowledging inflation numbers were very high, stressed that almost 50% of the strength in prices is in energy. While the core rate of 2.9% is above the 2% target rate, it is more manageable. She elaborated that the current inflation spike is fuelled by a supply shock which requires a particular kind of response rather than were it via demand pressures. It needs to be addressed in a “sequential, flexible, and gradual way,” which is being done. She still expects asset purchases to end in Q3, but said the timing will be determined by the data.
Event Outlook
Japan: Momentum in the CPI is expected to remain sluggish in March given that inflation ex-food and energy is still in negative territory (market f/c: 1.2%). Meanwhile, the April Jibun manufacturing PMI report should continue to reflect modest growth whilst the services PMI will likely remain weak.
Eur/UK: Russia’s invasion of Ukraine is expected to materially hit European manufacturing and services growth in the April S&P Global PMI report (market f/c: 54.9 and 55.0). The UK’s S&P Global PMIs should weather the geopolitical headwinds slightly better but a hit to activity is still likely (market f/c: 54.0 and 60.0 respectively). Hence, the associated cost of living pressures is anticipated to subdue GfK consumer sentiment (market f/c: -33) and retail sales for the UK(market f/c: -0.3%).
US: The April S&P Global PMI report should continue to point to robust momentum across both manufacturing and services (market f/c: 58.0 for both).
We have reached that point in the cycle when those that are dancing are only doing so because the fading music has not quite stopped.
But stop it is about to.
US interest rate markets are now pricing a 50bps hike in May as certain. Another in June is at 75% and two more at the subsequent meetings are at 50%:
This is not turning off the music. It is smashing the turntable to pieces with a sledgehammer.
Blind Freddy can see what comes next even if equity and commodity markets cannot.
It will not be AUD bullish.
