Fed: There is no rush!
Very direct speech from Federal Reserve Governor Christoph Waller made a few points very clear and generated a new spike in US yields:
- “There is no rush to reduce rates” (used four times during the speech) – recent data warrants delaying o reducing number of cuts for 2024
- Reduction in inflation has been for now disappointing – more and better data is needed. The 2% target is still far from sight
- Three cuts are being priced in the market at the moment from the Fed but, with the presidential elections looming, this in our view appears to be slightly optimistic if some sort of action is not taken soon…
All Eyes on the Job Market
Big week for US job market numbers – JOLTS on Tuesday and ADP on Wednesday have prepared the stage for the highly anticipated Non-farm payrolls on Friday. Will the labor market continue to shine or will conditions have softened up (for the Fed’s joy)?
- JOLTS – Little changed in February, suggesting that labor demand is stabilizing at high level. Job openings were 8.76m (vs. 8.86m prior).
- ADP – Private payrolls increased by 184k in March (vs. 155k revised a month ago).
Coming this Friday:
- Non-farm payrolls – March figure expected at +214k (vs. 275k prior) with unemployment edging towards 3.8% (from 3.9%).
Euro-area Inflation - Step by Step
Euro-area inflation slowed more than expected, gradually moving towards the 2% target. The possibilities for an intervention by the ECB in June are growing.
- CPI for March rose at 2.4% year-on-year, down from 2.6% in February and below market expectations
- In detail, Spanish inflation rose as the government reduced support on energy prices and also Italy saw a slight increase whilst inflation in Germany and France eased for third month in a row
- Market’s focus is shifting from “When will the first cut take place?” to “How many cuts will occur and at what pace?”
China's PMIs Stabilising?
- Official Manufacturing PMI* at 50.8 from 49.1
- 50 separates contraction from expansion
- Highest level since September‘23
- This is reinforced by the Caixin Survey: at 51.1, it’s the highest since February‘23
- Adds to positive picture from export and retail sales
- But here’s the rub: excess industrial capacity could find its way into cheap exports
- Treasury Secretary Yellen to discuss overcapacity with vice premier He Lifeng during her visit to China this week
European gas price?
Gas prices in Europe normalized, for the moment! But in a tight LNG market, the price floor is set by the “all-in costs plus” of US LNG delivered to Europe:
- Europe has limited LNG capacity additions so far.
- Latent Asian LNG demand growth.
- Asian demand growth could surprise to the upside
- Europe is set to remain highly dependent on LNG spot purchases.
- European gas markets remain vulnerable to cold winters and supply.
- Means: Gas prices could temporarily rise, which could drive inflation again.
- EU gas price level when large suppliers come in 2027-28?
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