Markets
“There’s still no rush”, Fed governor Waller’s sequel to February’s “What’s the rush”, resonated through Asian and early European dealings. The Fed’s minority leader wants to see at least a couple of months of additional evidence that inflation is sustainably descending to the 2% inflation target. The very low (CPI) comparison bases in March & May (0.1% M/M) and June & July (0.2% M/M) 2023 rather suggest a return of CPI inflation to 4% Y/Y instead of 2%. The minority block is building (9 out of 19) and will in our view get sufficient momentum to push a first 25 bps rate to September at the earliest. Apart from the hawkish wing, we don’t think that Fed Chair Powell will push through such pivotal decision earlier given the knife-edge split. US Treasuries underperform German Bunds with US yields currently 2.9 bps (2-yr) higher to flat (30-yr). The US 2-yr yield (yesterday) bounced off the downside of this year’s upward trend channel. Intraday gains had been somewhat larger, but we’ve seen some return action as the final US session of the quarter and ahead of the long Easter weekend got going. Both US eco data and rising oil prices (Brent crude $87/b) provided input for additional selling pressure but that thus didn’t materialize. Weekly jobless claims again stabilized (210k from 212k) at historically low levels while the final revision of US Q4 GDP printed at 3.4% Q/Qa from 3.2% thanks to a bump in personal consumption (3.3% Q/Qa from 3%). German Bund yields add 0.6 bps (30-yr) to 2 bps (2-yr) even as Bank of Italy governor Panetta joined his fellow countryman ECB (GC) Cippollone with some dovish comments. Portuguese and Belgian March inflation data didn’t change the market needle with German, French and Italian numbers up for release tomorrow and next week Tuesday and the overall EMU number next week Wednesday. The other thing to look forward to are Minutes of the March ECB policy meeting (Thursday).
The dollar initially profited with EUR/USD dipping below support around 1.08 to set an intraday low at 1.0775 (lowest since mid-February). As US Treasuries recovered, so did the FX pair which currently changes hands around 1.0810. Looking to the US side of the calendar, we have ADP employment, payrolls and ISM’s on tap next week. Fed Chair Powell seems to put his eggs in the basket of a weakening US labour market to warrant a faster rate cut (than suggested by the Waller camp). There are no signs of that to happen soon, suggesting that decent numbers could extend a more hawkish market repositioning.
News & Views
Belgian inflation rose by 0.5% M/M and 3.18% Y/Y (from 0.71% M/M and 3.2 % Y/Y in February). In a monthly perspective, the most significant price increases were registered for fruit (8.8%), natural gas (10.3%), the maintenance and repair of vehicles (1.5%), chocolate and confectionery (4.3%), clothes (1.1%), travels abroad (1.9%) and holiday villages (5.5%). Alcoholic beverages (-3.1%) and vegetables (-1.9%) had a decreasing effect on the index. In Y/Y terms, services inflation slightly increased to 5.04% from 4.92%. Inflation for rents decreased to 5.62% from 5.72%. Food inflation (including alcoholic beverages) now stands at 3.21% compared to 4.65% last month. Core inflation (excl. energy products and unprocessed food), decreased for the 10th month in a row and now stands at 3.85% Y/Y, compared to 4.25% last month and 4.70% in February.
The Swiss KOF economic barometer fell slightly in March, from 102 to 101.5. After recording repeated increases since mid-2023, the barometer now stabilizes above its long-term average. The outlook for the Swiss economy remains positive. The decline was primarily due to the construction sector. Indicators for the finance and insurance sector are sending slightly positive signals. In the goods producing sector (manufacturing and construction), indicators for the assessment of employment prospects and for order backlogs decline. At the same there was a strong positive signal from bundles covering intermediate goods. Within manufacturing, the textile industry, the metal industry and the wood, glass, stone and earth sector are mainly responsible for its positive development. By contrast, indicators for the vehicle and mechanical engineering are sending a slightly negative signal. After feeling selling pressure post last week’ SNB rate cut, the Swiss Franc today show signs of stabilization. EUR/CHF eased from the 0.9820 area yesterday to 0.977 currently.
