Morning Report

May 13, 2024

“US inflation dominates the calendar this week, as markets wait to see if disinflation returned to the arena in April, or if the stickiness remains and erases further the chances of a cut in the summer. Tomorrow morning is also critical for sterling, where a fall in the wage data could boost the prospects of a cut next month.”

Sam Cornford – Head of Trading


Main Headlines

This Tuesday, US President Joe Biden is widely expected to announce new tariffs on Chinese imports in addition to those set by former President Trump, including on EVs, solar panels, batteries, and medical equipment. The trade barriers could be a fresh source of inflationary pressure in the US, and many will be expecting upside risks for USD/CNH.

According to an industry survey released on Monday, British employers anticipate a 4% increase in wages over the next 12 months, mirroring rates from three months prior. The report, conducted by the Chartered Institute of Personnel and Development, indicates that businesses are showing reluctance to absorb higher labour costs, with expected median pay settlements remaining steady at 4% in the private sector and at 3% in the public sector.


An unexpectedly strong return to growth in Q1 on Friday was not enough to save sterling from a modest weekly decline against both the dollar and the euro. It helped to hold off a minor dollar rally but markets are focused on the rates story, which is unlikely to be materially changed by the growth data – it was the boost to dovish expectations from the Bank of England’s summer rate cut signalling that steered the price action last week. The next cue comes tomorrow morning with a fresh wage growth report. The consensus is for another decent fall, this time from 5.6% to 5.3%, which is the right direction to keep investors enthused about an interest rate cut in either the June or August meetings. The unemployment rate is expected to inch up to 4.3% too, as the labour market picks up some more slack. Some of the impact from the report will be dampened by data quality concerns – the BoE deliberately look at a range of wage data because of the survey issues – but it normally provokes a material reaction. After that, speeches from the likes of Huw Pill and Megan Greene are the next highlights to watch this week, while the US inflation story will likely dominate from tomorrow afternoon onwards.


The euro will take most of its cues from the US inflation data this week as investors scrutinise market pricing for the ECB’s rate path in the second half of the year. With policymakers at the ECB increasingly concerned about the impact of the Fed on the euro and eurozone inflation, it’s the CPI and PPI data across the Atlantic with the biggest potential to move the dial for the pace of rate cuts after the first one likely arrives next month. Today is quiet for Europe, but we do get the ZEW economic sentiment indicator tomorrow, where an eighth consecutive improvement is pencilled in as cyclical tailwinds continue to build for the eurozone.


Inflation figures on Tuesday and Wednesday are set to be the story of this week, with traders on the edge of their seats waiting to see whether US price growth finally begins to cool off, or if the hot economy, strong dollar narrative is here to stay. Despite a relatively sharp drop on the back of some weaker unemployment figures last Thursday, the greenback inched higher last week, aided by an increase in inflation expectations and a steady recovery against the yen. PPI is closely watched  because some components feed directly into the Fed-favoured core PCE, and because it signals the likely price dynamics for the consumer down the road. Unfortunately for the Fed, the consensus for tomorrow is for an uptick to 0.3% month-on-month. CPI follows on Wednesday, where the expectation is for a slightly softer 3.4% print year-on-year on the headline. The figure most are watching is an expected 0.3% month-on-month core CPI number, however, with much emphasis on which side of the mark that the unrounded figure lands. We’ll need a downside surprise for a dollar sell off – 0.3% is still too high for the Fed to be comfortable cutting rates.


Equities came streaking back last week as UK and European indexes cleared all-time highs, fuelled by earnings boosts and rate cut optimism. With only 20% of the S&P 500 left to release earnings for last quarter, the picture is relatively complete, with the results seen already pointing to a near-8% increase in earnings overall. Futures indicate a bright start to the week in Europe and the US, but US inflation looms over markets and will to a large extent determine the direction this week.

Main Economic Events (All Times CET)

5:00am: New Zealand Inflation Expectations
2:30pm: Canadian Building Permits
3:00pm: Fed’s Jefferson speaks
3:00pm: Fed’s Mester speaks
6:45pm: SNB Chairman Jordan speaks


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