Monday

Over the weekend, the Chinese March PMIs beat expectations across the board:

• Manufacturing PMI 50.8 vs. 50.1 expected and 49.1 prior.
• Services PMI 53.0 vs. 51.5 expected and 51.4 prior.

ECB’s Stournaras (dove – voter) over the weekend shared his views on monetary policy:

• If inflation develops in line with our March forecast and if this trend continues until the end of the year, I believe that this year we will have reductions in key interest rates from the ECB.
• Personally, I think the reduction of interest rates by four times this year, by 25 basis points each time, is possible.
• This is not yet a unified view. Some colleagues are more cautious and believe that interest rate cuts should be more moderate.
• The differences of opinion within the governing council of the ECB are much smaller than the image in the media.

ECB’s Holzmann (hawk – voter) said that the central bank could cut interest rates before the Fed and overall he sounded pretty dovish compared to his usual uber-hawkish stance:

• Europe could cut interest rates before the U.S.
• From today's perspective, I'd say: interest rate cuts are likely to come. When will depend largely on what wage and price developments look like by June.
• Don’t have an objection to cutting rates in June.
• But want to see more supportive data.
• Cutting rates out-of-sync with the Fed would diminish the impact of policy easing by the bank.
• With Eurozone productivity very weak, a 3.0% deposit rate could prove too tight over the long-term.
• It’s possible that inflation could do better than what the bank is currently projecting.

The Chinese March Caixin Manufacturing PMI beat expectations:

• Caixin Manufacturing PMI 51.1 vs. 51.0 expected and 50.9 prior.
• In expansion for a 5th consecutive month.
• Manufacturers' output and new orders accelerated last month.
• External demand also improved; the new export orders sub index hit its highest level since February 2023.
• Drop in raw material prices reduced production costs.
• Employment sub-index remained negative; it has been since August 2023.

The Canadian Manufacturing PMI improved slightly in March:

• Manufacturing PMI 49.8 vs. 49.7 prior.

The US March ISM Manufacturing PMI beat expectations by a big margin with the prices index rising further:

• ISM Manufacturing PMI 50.3 vs. 48.4 expected and 48.4 prior.
• Prices paid 55.8 vs. 52.5 prior.
• Employment 47.4 vs. 45.1 prior.
• New orders 51.4 vs. 49.2 prior.
• Inventories 48.2 vs. 45.3 prior.
• Production 54.6 vs. 48.4 prior.
• First expansion after 16 months of contraction.

The BoC released the Q1 Business Outlook Survey, which showed an improvement:

• Uptick reported widely across nearly all sectors and regions.
• Future sales improves to +4 from +10.
• Overall indicator to -2.42 from -3.09.
• 27% of firms expect recession in next 12 months from 38% in Q4.
• 40% of firms expect inflation above 3% over next two years, down from 54%.
• 17% of firms think it will take longer than four years to return inflation to 2%, down from 27%.
• Wage growth remains high, but firms expect it to slow.
• 74% of firms think wage growth will be back to normal in 2025.
• 24% of firms reported sales declines over previous 12 months, down from 39% in Q4.
• Separate consumer survey sees 52% expecting recession vs 61% in Q4.
• Expectations for 5-year inflation in consumer survey to 3.12% from 2.62%, two-year down to 3.76% from 3.94%.

Tuesday

The RBA released the Minutes of its March Monetary Policy Meeting:

• No mention in minutes that board considered option to raise rates.
• Board agreed it was difficult to either rule in or out future changes in cash rate.
• Economic outlook uncertain but risks seemed broadly balanced.
• Would take "some time" before board could be confident inflation returning to target.
• Upside risks to inflation had not yet materialised, while consumption was very weak.
• Inflation high but gradually returning toward target, labour market easing.
• Gap between demand and supply in economy "closing relatively quickly".
• Board judged demand would continue to exceed supply for a time.
• Labour market a little tighter than consistent with inflation at target.
• Wage growth may have peaked, but not expected to decline quickly.
• Recovery in productivity needed to balance high unit labour costs.
• Overall financial conditions remained restrictive, particularly for households.

The Switzerland March Manufacturing PMI beat expectations:

• Manufacturing PMI 45.2 vs. 44.9 expected and 44.0 prior.

The US February Job Openings came basically in line with expectations with a negative revision to the prior figure:

• Job Openings 8.756M vs. 8.750M expected and 8.748M prior (revised from 8.863M).
• Quits rate 2.2% vs. 2.2% prior (revised from 2.1%).
• Layoffs and discharges 1.7M vs. 1.6M prior.
• Hires 5.8M vs. 5.7M prior.
• Separations 5.6M vs. 5.4M prior.

Fed’s Mester (hawk – voter) still expects three rate cuts this year despite the recent economic data:

• Doesn't see case to cut at the next Fed meeting.
• Fed policy in a good place to navigate risks.
• Fed can cut rates gradually if economy meets expectations.
• Bigger risk to policy is to cut rates too soon.
• Strong economy gives Fed space to take stock before cutting rates.
• Does not expect smooth path back to 2% inflation.
• Risks to economic outlook have become more balanced.
• New sees longer-run Fed funds at 3.0% vs. 2.5%.
• Now sees GDP just above 2% this year.
• Sees labour market in better balance.
• In her view, the inflation picture hasn't changed much this year. She had assumed slower progress on inflation.
• Says her forecast is similar to the median in the SEP.
• Seeing some slowing in the economy, but it's rebalancing.
• Disinflation can happen despite economic strength.
• Does not think the neutral rate will be as low as it was.
• Expects slower employment growth, slight uptick in the unemployment rate.
• Healthy labour markets should remain in place.
• Average family still struggling with inflation, explains sour consumer mood.
• Fed doing a lot of work to make sure banks ready for discount window.
• Banks commercial real estate risks are manageable.
• Won't prejudge meetings but won't rule out a June cut.
• Three cuts this year is reasonable but is a 'close call'.
• Election won't affect Fed considerations; data will determine path.
• Watching oil prices but rise would need to be sustained to be an issue.
• Probability of recession isn't something that's worrying me.

Fed’s Daly (neutral – voter) sounded resolute on the central bank’s goal of bringing the inflation rate sustainably back to the 2% target and added that three rate cuts this year is a reasonable baseline although it’s not a promise:

• We need to see how long to leave rates where they are.
• Inflation is coming down. It's bumpy and slow.
• No urgency to adjust Fed funds rate.
• We are making progress.
• There is a real risk of cutting rates too soon.
• If we lock inflation at this level, it's a 'toxic tax'.
• We want to fully bring inflation back to 2%.
• Economy is improving, there is a path where interest rates start to adjust this year, just not there yet.
• Three cuts is a reasonable baseline this year.
• Projection of three rate cuts is not a promise.
• When we say 2% is inflation goal, we mean 2%.
• We're resolutely committed to restoring inflation to the 2% level.
• It's not on the table now to change the inflation target.

Wednesday

The Chinese March Caixin Services PMI came in line with expectations:

• Caixin Services PMI 52.7 vs. 52.7 expected and 52.5 prior.

The Eurozone March CPI missed expectations:

• CPI YY: 2.4% vs. 2.6% expected and 2.6% prior.
• Core CPI Y/Y 2.9% vs. 3.0% expected and 3.1% prior.

The US March ADP beat expectations with a jump in wage growth for job switchers:

• ADP 184K vs. 148K expected and 155K prior (revised from 140K).

The median change in annual pay:

• Job stayers 5.1% vs. 5.1% last month.
• Job changers 10.1% vs. 7.6% last month.

Fed’s Bostic (hawk – voter) maintains his forecast of just one rate cut in 2024 coming in Q4:

• Everyone has been expecting the economy to slow at a faster pace but I'm not hearing that. It's picking up.
• If there's any weakening, it's at a very incremental level.
• Over the longer run, the economy needs to slow to get to longer-run inflation target.
• Says he is still thinking about just one rate cut this year.
• We're going to have to watch and wait and see how things evolve.
• If the economy evolves as I expect, I think it will be appropriate to start cutting in Q4.
• Sees inflation coming to target in 2026.
• There are some secondary measures in the inflation numbers that have me concerned that things will move even slower.
• I’m not in a rush to try to disrupt the dynamic in the economy so long as inflation is moving towards target.
• My contacts are not giving me any concerns on employment.

ECB’s de Cos (dove – voter) commented on the Eurozone inflation report and doubled down on the expectation of a June rate cut:

• Eurozone inflation is positive news.
• Recent decline in general inflation and core inflation show that monetary policy is being transmitted forcefully.
• We are not explicitly giving forecasts on future monetary policy, but recent inflation data is compatible with our mandate of inflation goal.
• Central scenarios point to a first rate cut in June.

The Canadian Services PMI contracted further in March:

• Services PMI 46.4 vs. 46.6 prior.
• Operating expenses continued to rise sharply, underpinned by increased wage costs.
• Competitive pressures restricted the degree to which costs were passed on to clients.
• Following two months of modest growth, employment numbers stalled.

The US March ISM Services PMI missed expectations with a huge drop in the price sub-index to the lowest level since March 2020:

• ISM Services PMI 51.4 vs. 52.7 expected and 52.6 prior.

Key details:

• Employment 48.5 vs. 48.0 prior.
• New orders 54.4 vs. 56.1 prior.
• Prices paid 53.4 vs. 58.6 prior.

Other components:

• Inventories 45.6 vs. 47.1 last month.
• Supplier deliveries 45.4 vs. 48.9 last month.
• Backlog of orders 44.8 vs. 50.3 last month.
• New export orders 52.7 vs. 51.6 last month.
• Imports 52.4 vs. 54.3 last month.
• Inventory sentiment 55.7 vs. 56.7 last month.

Fed Chair Powell (neutral – voter) maintained his neutral stance saying that the recent data didn’t change the overall picture and that they are waiting for more information to see if the inflation rebound was just a bump:

• Recent readings on job gains and inflation higher than expected but do not materially change overall picture.
• If economy evolves as Fed expects, most FOMC participants see it likely appropriate to begin cutting rates this year.
• Too soon to say whether recent inflation readings are more than just a bump.
• Fed has time to let incoming data guide its policy decisions, we're deciding meeting by meeting.
• Outlook is still uncertain, Fed faces risks on both sides of his mandate.
• Labor market rebalancing seen in data on quits, job openings, employer and working survey and continued gradual decline in wage growth.
• Economy still one of solid growth, strong but rebalancing labour market, inflation moving down to 2% on a sometimes bumpy path.
• Inflation was not just a question of demand overheating, but also involved a supply shock.
• Needed to see an unwinding of the pandemic led distortions and the effects of tighter monetary policy.
• We think monetary policy is tight.
• There may be more supply-side gains to be had on inflation.
• Labor market is rebounding.
• Labor market has made substantial progress toward better balance.
• Fed is still committed to getting inflation to 2% over time.
• Because of origins of inflation, there was a path to getting inflation back down without the usual job losses. The reason is supply-side impact.
• I do think monetary policy is working.
• Economy rebalancing in interest sensitivity sectors such as housing.
• The supply-side recovery is creating new demand. It is also stimulating new supply and is why growth is increasing while inflation is moving lower.
• Risk to cutting rates too soon as well as waiting too long.
• If cut too soon, the progress on inflation could stop and reverse.
• The other risk is if we wait too long and cut too slowly in which case we may have a weakening of the labor market.
• The risk of moving too soon would be really quite disruptive.
• Price stability provides for long periods of strong employment.
• Productivity growth in output per hour is hard to predict. The question is can we sustain the productivity growth grown forward.
• AI should increase productivity, but too soon to see productivity from AI at the moment.
• Policy has gotten to a good place, neutral rate question is not a matter for today.

Fed’s Kugler (neutral – voter) sees three rate cuts this year as long as the inflation progress continues:

• My policy rate expectation is consistent with March FOMC meeting policymaker projections.
• If disinflation and labor market conditions proceed as I am currently expecting, then some lowering of the policy rate this year would be appropriate.
• Expect disinflationary trend to continue.
• Policy is currently restrictive, and my baseline expectation is that disinflation will continue without a broad economic slowdown.
• Such an outcome is not assured.
• Inflation progress has sometimes been bumpy.
• Annual core PCE at 2.8% represents 'considerable progress' but is still 'meaningfully above' Fed's 2% target.
• Data on new tenant rent agreements suggest that housing inflation broadly will continue to cool.
• Continued disinflation will indeed require further progress in housing and non-housing services.
• Labor market has moved into better balance.
• Suspect strong population growth 'helps resolve the puzzle' of labor market growth and strong consumption even as inflation eases.
• Important that wage growth be consistent with 2% inflation over time; US is moving back toward that kind of wage growth.
• Anchored inflation expectations are evident in consumer and business surveys.
• Expect consumption growth to slow some this year.
• Consumer spending was soft in January and February, suggesting we are on track for lower consumption growth in Q1 vs. second half of 2023.
• Expect GDP growth this year to be solid but slower than 2023 pace of 3.1%.
• My baseline expectation is that further disinflation can be accomplished without a significant rise in unemployment.
• Appears supply networks are adapting to port of Baltimore disruption.
• New businesses are creating a lot of new jobs.
• Around 150,000 jobs a month have come from new businesses.

Thursday

The Switzerland March CPI missed expectations once again with the market now fully expecting another rate cut in June:

• CPI Y/Y 1.0% vs. 1.3% expected and 1.2% prior.
• CPI M/M 0.0% vs. 0.3% expected and 0.6 prior.
• Core CPI Y/Y 1.0% vs. 1.1% prior.

The US Challenger Layoffs increased to 90,309 in March from the 84,638 in February. In March, technology companies announced 14,224 cuts. Also, the government announced 36,044 job eliminations, the highest monthly total since September 2011, including 10,000 cuts from the Veterans Affairs and 24,000 cuts to the United States Army. In Q1, companies announced plans to cut 257,254 jobs, down from the 270,416 cuts announced in Q1 2023, but up 120% from the 117,163 in Q4 2023. The leading reason for job cuts in Q1 was “Cost-Cutting,” which accounted for 66,302 of the reductions, followed by “Restructuring”. “Many companies appear to be reverting to a ‘do more with less’ approach. While technology continues to lead all industries so far this year, several industries, including energy and industrial manufacturing, are cutting more jobs this year than last,” said Andy Challenger, senior vice president of Challenger, Gray & Christmas, Inc.

The ECB released the Minutes of its March Monetary Policy Meeting:

• There had been further progress on all three elements, which warranted increased confidence that inflation was on track to reach the ECB’s target.
• More data and evidence were needed for the Governing Council to be sufficiently confident of this.
• Inflation was expected to continue its downward trend in the coming months.
• A bumpy profile and a trough were expected after the summer.
• There were signs that wage growth was starting to moderate.
• Members expressed increased confidence that inflation was on track to decline sustainably to the 2% inflation target in a timely manner.
• Important not to be complacent, as the disinflationary process remained fragile.
• The case for considering rate cuts was strengthening.

The US Initial Claims missed expectations while Continuing Claims improved:

• Initial Claims 221K vs. 214K expected and 212K prior (revised from 210K).
• Continuing Claims 1791K vs. 1813K expected and 1810K prior (revised from 1819K).

Fed’s Barkin (hawk – voter) said that the data in 2024 has been less encouraging for them and they will need more information to start cutting rates:

• 2024 data is 'less encouraging' raises issue of whether outlook shifting.
• Still looking for slowdown in reported inflation to sustain and broaden.
• Fed officials are looking at the same data, but it is easy to draw different conclusions.
• Tight Fed policy will eventually slow the economy further that doesn't mean painful job losses in a 'less vulnerable' economy.
• Optimistic keeping rates 'somewhat restrictive' can return inflation to target.
• Hard to reconcile current breadth of inflation with the progress the Fed needs to see for rate cuts.
• Disinflation likely to continue, but speed of that remains unclear.
• Open to rate cuts once it is clear progress on inflation will be sustained and apply more broadly in the economy.
• Businesses acknowledge less pricing power than before but are still findings strategies that may keep inflation too high.

Fed’s Goolsbee (dove – non voter) is one of the most dovish members but he delivered some hawkish comments which make the next CPI report a gamechanger for the near term policy outlook:

• I had been expecting housing services inflation to come down more quickly than it has.
• If housing inflation does not come down, would be very difficult to return inflation to 2%.
• Housing inflation is my most-valuable indicator for the immediate future.
• If we stay restrictive for too long, we will likely see employment begin to deteriorate.
• Risks to inflation and employment mandates have moved into better balance.
• I will be watching inflation developments closely.
• My overall assessment is that these two months of inflation data should not knock us off the path back to target.
• It’s worth paying especially close attention to the leading indicators from the labor market for signs of deterioration.
• Housing inflation is running at 5.5-6.0%, even now.
• Housing inflation is puzzling because if you look at market rents, they down but the official numbers haven't come down.
• I still think housing inflation will come down.
• Says he's watching inflation, not employment or GDP.
• 2023 consumer proved strong and more resilient than people thought.
• In March I jotted down two rate cuts this year.
• Things have moved sideways on inflation.
• If inflation continues to move sideways, it makes me wonder if we should cut rates at all this year.

We got some risk off flows late in the day and the catalyst seemed to be an article in “The Express” saying that the CIA warned Israel of an Iran attack in the following 48 hours. That comes after Israel bombed the Iranian consulate in Syria where an Iranian general died. Moreover, the Israeli press reported that some embassies and consulates have been evacuated and others are at the highest alert level.

BoJ’s Ueda repeated that the achievement of the inflation target is now in sight and another rate hike will depend on the data:

• Chance of sustainably achieving 2% inflation target is in sight.
• Whether to raise rates this year depends on data.
• BoJ will adjust the level of interest rates in accordance to distance towards sustainably achieving target.
• If FX moves appear to have impact on wage-inflation cycle in a way that is hard to ignore, we could respond via monetary policy.
• No comment on recent FX moves.
• If we become more convinced that trend inflation will approach 2%, that will be one reason to adjust rates.

Friday

The February Eurozone Retail Sales missed expectations:

• Retail Sales M/M -0.5% vs. -0.4% expected and 0.0% prior (revised from 0.1%).
• Retail Sales Y/Y -0.7% vs. -1.3% expected and -0.9% prior (revised from -1.0%).

The Canadian March Labour Market report missed expectations across the board:

• Employment Change -2.2K vs. 25K expected and 40.7K prior.
• Unemployment rate 6.1% vs. 5.9% expected and 5.8% prior.
• Full-time employment -0.7K vs. 70.6K last month.
• Part-time employment -1.6K vs. -29.9K last month.
• Average hourly wages permanent employees 5.1% vs. 5.0% last month (revised from 4.9%).
• Participation rate 65.3% vs. 65.3% last month.

The US March NFP beat expectations across the board:

• NFP 303K vs. 200K expected and 270K prior (revised from 275K).
• Two-month net revision +22K vs. -167K prior.
• Unemployment rate 3.8% vs. 3.9% expected and 3.9% prior.
• Participation rate 62.7% vs. 62.5% prior.
• U6 underemployment rate 7.3% vs. 7.3% prior.
• Average hourly earnings M/M 0.3% (unrounded 0.347%) vs. 0.3% expected and 0.2% prior (revised from 0.1%).
• Average hourly earnings Y/Y 4.1% vs. 4.1% expected and 4.3% prior.
• Average weekly hours 34.4 vs. 34.3 expected and 34.3 prior.
• Change in private payrolls 232K vs. 160K expected.
• Change in manufacturing payrolls 0K vs. 5K expected.

The highlights for next week will be:

• Monday: Japan Wage data, Swiss Unemployment Rate.
• Tuesday: US NFIB Small Business Optimism Index.
• Wednesday: Japan PPI, RBNZ Policy Decision, US CPI, BoC Policy Decision, FOMC Minutes.
• Thursday: China CPI, ECB Policy Decision, US PPI, US Jobless Claims.
• Friday: New Zealand Manufacturing PMI, New Zealand Retail Sales, UK GDP, UK Industrial Production, US University of Michigan Consumer Sentiment.

That’s all folks. Have a nice weekend!