Moving Target - PCE next up
Market expectations on Fed cuts keep moving – PCE (Personal Consumption Expenditure) for March due on Friday – could provide further confirmation that progress against inflation has stalled
- PCE Deflator yoy* for March expected at 2.6% (2.5% prior) – impacted by increase in energy prices
- PCE will not be as strong as consumer price index, but is unlikely that it will provide any relief
- Policymakers will observe traditional blackout period ahead of meeting next week
- Markets are currently pricing less than 2 cuts in 2024 – will something change come Friday?
Europe - solid PMIs
Healthy PMI* data suggest economic recovery is gathering momentum - This should strengthen the case of hawks at ECB to pause after June’s cut
- Headline composite PMI rose to 51.4 in April (from 50.3 in March and 50.7 expected) – indicating an accelerating GDP at the start of Q2 2024
- National breakdown shows acceleration of growth both in France and Germany after weak H2 2023
- Service sector continues to outperform manufacturing (service inflation remains above 4%)
- The improvement could encourage ECB to move more cautiously after June where a cut seems a done deal barring any new surprises
Magnificent 7, 6, 5, 4, ...
- Busy week ahead – 40% of US market cap to report, including some “Mag 7”, with earnings expected to rise 38% yoy*
- Will earnings take investor’s minds off recent increase in yields? Guidance will be key – consensus estimates for both 2024 and 2025 must be raised in a material way
- Analysts are split: Morgan Stanley says profits will improve as the economy strengthens, while for JP Morgan hot inflation, a stronger dollar and geopolitical tensions are clouding the outlook
The long wait
- The authorities are stepping up their verbal intervention
- Markets are unconvinced: the level of US interest rates would make intervention costly and short lived
- The ¥/$ 150 level has been broken
- Now ¥/$ 155 is in sight
- The Bank of Japan meets this Friday
- Weakness among Asian currencies is a concern for India, Indonesia, Korea
- G7 comments suggest that a concerted effort could be in the cards…
- …with US blessing
Copper - Here for the long run
The secret winner in the commodities sector is copper. The most obvious reason is underinvestment in recent decades, means today that copper supply cannot keep pace with demand. Long-term rising prices are the logical consequence:
- The amount of copper that will be needed for electrification over the next three decades will be extremely high
- In a baseline scenario, copper demand will rise to over 50m tons per year by 2050, while the mining industry currently produces around 22m tons
- 75 per cent of copper demand is for cabling. Electric vehicles and renewable energy systems use large quantities of copper
- The transition to a net-zero economy, the electrification of the global economy, cannot happen without metals like copper
- • In the near future Artificial intelligence, smart grids and renewable energy storage will require even more copper
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