Rise and shine everyone! Happy Friday!

The market is certainly celebrating the “three rate cuts” projections and the Burns-like move from Fed Chair Powell. And they have every reason to celebrate.

The Fed seems content to live with higher inflation here and focus on rate cuts, nonetheless.

We saw yields decline broadly after the Fed meeting. However, yesterday, we saw a bit of a spike in 2Y yields as the stronger PMI numbers came - namely because the market is now making the connection between the Fed and the economy. After Nick Timiraos posted his article in the WSJ, the market is convinced that the Fed is focusing on the economy more than inflation.

This reflationary situation with relatively solid growth will lead to equities rallying. If that were not enough, yesterday’s Micron report suggests that the AI narrative remains alive and well.

Central Banks Round-Up

While the focus of this week was the BoJ and Fed, there were so many other Central Bank meetings and some brought quite a few surprises.

• The Swiss National Bank cut policy rates unexpectedly by 25bps to 1.5%. They foresee inflation remaining stable and reiterated that they are ready to intervene in the FX market.

• Taiwan unexpectedly raises the benchmark rate by 12.5bps to 2%. They discussed still being in a tightening cycle and have hiked to curb inflation expectations on the back of export growth gaining momentum.

• The Bank of England held rates but there was one voter who advocated a cut. Moreover, Andrew Bailey told the FT that cuts are on the table for every meeting going forward.

• Mexico finally started their easing cycle, cutting rates by 25bps to 11%. Banxico has had a very cautious approach and has held out on rate cuts to make sure their sticky wages and core inflation are under control before moving to easing.

• Turkey unexpectedly raised rates by 5% to 50%, to stabilize the Lira which has been falling against the USD since Q4, 2023. This move comes ahead of the elections.

The bottom line: Developed Markets have reached peak rates and are starting the path of easing. Emerging Markets are seeing a divergence, focusing more on their respective economies rather than following the path of developed markets.

Copper

Copper is taking a breather here after an incredible run. I read some news this morning that it had to do with China's demand. This is a bit odd since weekly Shanghai inventory levels came in lower at 285.1K v 286.4K tons prior.

Last week, we talked about shortages in copper from Zambian miners (2nd largest African producer) because of drought and that situation still persists.

Most importantly, we’re seeing global PMIs improve particularly in manufacturing and this will likely lead to a reflation in commodity prices. We could still see some upside in copper.

Chart of the Day - Upside in Industrial Metals after PMI troughs

Sporty Woes

Both Nike and Lululemon took a hit to their shares on earnings yesterday.

While Nike has managed to resolve their inventory problem to a large extent, they’re projecting lower growth, particularly in the first half of the year. They talk about strategic innovations to change their sneaker lineup which will hit sales. They’re also looking to go back to resellers. During the pandemic, Nike heavily pivoted to their online and direct-to-consumer offering, which perhaps is now dated for them. Disclosure: I am still long Nike.

Lululemon posted a double beat but guided lower, particularly for the first quarter of 2024. They see the US consumer environment as challenging and see better opportunities overseas. They guided to a flat gross margin and a decline of 1.3% -1.4% in operating margin.

News highlights

• China’s Offshore Yuan falls to levels not seen since November amid reports of large China state-owned banks seen selling USD for yuan.

• China SMIC: US Commerce Department Official: Company may have violated US export controls to produce chip for Huawei phone

• Hang Seng fell over 2% and the Shanghai Composite fall close to 1%.

• Zinc rallies as Glencore temporarily halts mine after cyclone

• Reserve Bank of Australia (RBA) Bi-annual Financial Stability Review: Overall financial stability risks remain elevated, but the Australian financial system is proving resilient.

• Nikkei continues to rally crossing 41,000. Japan's headline and core inflation rates rose to a four-month high of 2.8% in February. To add more good day food prices in Japan rose by 4.8% from a year earlier in February 2024, easing from a 5.7% increase in the previous month and marking the softest gain since September 2022.

• The Ifo Business Climate indicator for Germany surged to 87.8 in March 2024, climbing from February's 85.5, and reaching a 9-month high.

• The benchmark KOSPI fell 0.2% to close at 2,749 points on Friday, erasing gains from the early session and retreating from an over 2% gain yesterday, as investors sought profit-taking

• Vietnam's stocks added 0.4% to an 18-month high of 1,282.1 in morning trade on Friday, heading for the second straight weekly gains.

In case you missed it: Check out our article yesterday on Vietnam:

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)