UPCOMING
EVENTS:
- Monday: BoC Business Outlook Survey.
- Tuesday: US NFIB Small Business Optimism Index.
- Wednesday: RBNZ Policy Announcement, FOMC Minutes.
- Thursday: Japan PPI, China CPI, US CPI, US Jobless
Claims. - Friday: New Zealand Manufacturing PMI, UK GDP, US PPI,
US University of Michigan Consumer Sentiment.
Wednesday
The RBNZ is
expected to cut the OCR by 25 bps. As a reminder, the RBNZ cut interest rates
by 50 bps as expected at the last meeting, but (now ex) Governor Orr sounded
less dovish than expected as the central bank wanted to slow the pace of easing
as they approach their estimated neutral rate around 3.00%. The market was
already expecting a rate cut but following the worse than expected tariffs
announcement by Trump, traders are now seeing 93 bps of easing by year-end and even 22% probability of a 50 bps cut at the upcoming meeting.
Wednesday is also
the day when the higher reciprocal tariffs will go into effect at 12:01 am EDT.
The baseline 10% tariffs went into effect on Saturday but it’s the higher ones
that caused the havoc. The market focus won’t be on the economic data, it will
be on potential deals ahead of the deadline. That’s the only positive caveat
that we got from last week’s announcement (although understandably ignored) and
it’s also curious that China said that their additional tariffs will go into
effect on April 10, just a day later.
Thursday
The US CPI Y/Y is
expected at 2.6% vs. 2.8% prior, while the M/M figure is seen at 0.1% vs. 0.2%
prior. The Core CPI Y/Y is expected at 3.0% vs. 3.1% prior, while the M/M
reading is seen at 0.3% vs. 0.2% prior.
Fed Chair Powell
spoke on Friday, and he said that they “don’t need to be in a hurry” to cut
rates, so the central bank will remain on the sidelines for now. He also added that
their “obligation is to keep long-term inflation expectations well anchored”
which suggests that they are in fact constrained now.
The problem is if
they cut now, then inflation has real potential to increase again with a very
high risk of expectations de-anchoring. On the other hand, if they don’t cut
and let the economic pain increase, then a hard landing would be almost certain
and, in that case, they will cut very aggressively. They are basically screwed.
The only way out of this is if we get positive deals before the Trump’s
deadline on April 9.
The US Jobless
Claims continue to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.
Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing
Claims made a new cycle high last week.
This week Initial
Claims are expected at 223K vs. 219K prior, while Continuing Claims are seen at
1880K vs. 1903K prior.
Friday
The US PPI Y/Y is
expected at 3.3% vs. 3.2% prior, while the M/M measure is seen at 0.2% vs. 0.0%
prior. The Core PPI Y/Y is expected at 3.6% vs. 3.4% prior, while the M/M
figure is seen at 0.3% vs. -0.1% prior. Again, the data is unlikely to matter
much for now as it’s all backward-looking stuff, but higher numbers on the CPI
and PPI might weigh more on the markets at the margin.
The University of
Michigan Consumer Sentiment is expected at 54.7 vs. 57.0 prior. Compared to the
Conference Board consumer confidence, which is more biased towards the labour
market, the consumer sentiment survey is more weighted towards consumers’
finances. In fact, analysts believe that it’s a better predictor of consumer
spending than the consumer confidence report, which is also why the
expectations index in the survey is included in the Leading Economic Index
(LEI).
This is generally
more market-moving at turning points in the cycles or when we have big
deviations from the expected numbers. The sentiment has been dropping fast in
the past months due to the Trump’s trade war
