ECB Meeting Preview
ECB April meeting will set the table for a June intervention– Recent data increased optimism that disinflation is underway. Now the big question is: What will happen after June?
- Cut in April is highly unlikely. Evidence of last mile persistence is still observable
- Why is June the clear candidate?
- General consensus in Governing Council
- More data (April and May) will be available
- No move in June could damage credibility as cut is already fully discounted by market
- Little information will be given on the future path – ECB staying therefore data dependent
US Job Report - Still Going Strong
Payrolls continued to top estimates as US economy once again shows incredibly strong momentum.
- Non-farm payrolls came in at 303k, against expectations of 214k after February’s 275k – Unemployment rate down to 3.8% from 3.9%
- Average hourly earnings declined: +4.1% from +4.3% yoy* – some marginal good news for the Fed
- Bonds stumbled on the news, 10-year Treasury reaching 4.40%– Dallas Fed President Logan did not help saying that “it is too soon to consider cutting rates”
- Swap traders no longer anticipate a Fed move before September
- This week: CPI (Wed, expected 3.4%, core 3.8%) and PPI (Thu, expected 2.2%, core 2.3%)
Oil on the rise
Supply shocks are convulsing the market. Odds of oil above $100 are rising once again - Could this lead to a commodity-driven resurgence in inflation?
- China’s timid recovery has put further pressure
- Ongoing tensions in the Middle East
- Ukraine’s recent strikes to Russian refineries – with US urging to focus on military targets
- OPEC and its allies continuing with their production cuts
US - China relationship
US Treasury Secretary Yellen received warm welcome despite sharp economic messages during her 4-day trip in China. New talks will resume next week in Washington.
Various themes were discussed, among which:
- China’s excessive investment in manufacturing, especially in new green-energy technologies – Chinese overcapacity could swamp other economies
- Yellen insists that China should do more to stimulate domestic demand
- “No support to Russia’s war!” Yellen stressed that companies providing help to Russia in Ukraine will lead to sanctions
Reporting time!
It’s reporting time once again, with markets this time expecting a subdued earning season from Corporate America.
- Strategist predicting the smallest y/y* profit growth since 2019 (3.9%)
- Overly pessimistic expectations could therefore lead to big beats (as this was the case for the Q4 last year)
- Resilient inflation reduces the immediacy of rate cuts– this puts more pressure on earnings to drive future market gains
- Earning season enters full swing this Friday with JPM, Wells Fargo and Citigroup amongst others
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The analyses and forecasts contained in this publication are based on assumptions, estimates and hypothetical models which may prove to be incorrect and therefore lead to substantially different results.