Rise and shine everyone.

Several themes playing out in the market over the past few days but the central idea is higher prices. While the Fed is focused on normalizing policy this year, we’re seeing higher prices and the reflation theme play out.

This is weighing on consumer sentiment as well as we saw the Conference Board yesterday report lower expectations for the wellbeing of the economy. The share of consumers expecting an increase in interest rate rose above 50% for the first time since Nov 2023 and buying plans for big-ticket items are slowing.

Oil prices pulled back yesterday on data that showed higher US crude stockpiles jumping to 9.337 million barrels last week, reversing from a 1.519 million barrel decline in the preceding week and marking the biggest weekly increase since February last year.

But, Russia has discussed cutting production to 9 million barrels per day to adhere to OPEC+ quotas and this could put some upward pressure on Brent prices.

Market action in the US and Europe has been muted ahead of the Easter holidays and the month-end. Traders are speculating that the quarterly rebalancing is weighing on prices.

And in Asia, the focus remains on the JPY and CNY.

US Equity Futures are trading higher this morning, led by Small Caps. Treasury Yields are lower across the curve, while the US Dollar remains flat. Gold and Bitcoin are trading higher.

Big Stories

Cocoa Prices could remain higher for longer

Cocoa prices have been front and center in discussions over the past several days as the commodity hit an all-time high crossing $10,000 per tonne. While the speculation thus far has been on shortages due to El Nino weather conditions and lower production levels out of Africa, there could be more to it than that.

Yesterday, BNP downgraded Hershey’s because of higher cocoa prices, citing that these higher prices could actually be structural because of the change in EU regulations surrounding deforestation. The EU’s incoming regulation aimed at stopping products that destroy forests from being sold in shops could mean that cocoa prices remain higher for longer.

Asian Currencies

In Asia, the USDJPY currency pair reached a new yearly high of 151.975, its highest in about 34 years, following dovish-leaning comments from BoJ member Tamura, who is a known hawk. The currency pair reversed after Finance Minister Suzuki used the phrase "decisive steps" to quell price speculation. The phrase was used in Autumn 2022, when Japan last intervened.

Over in China, the USDCNY fixing was steady but, onshore spot prices continued to shift higher. There seems to be a controlled depreciation of the currency in China, which makes sense to a large extent given that the country is contending with deflation (one inflation print doesn’t make a trend). It’s likely also to support exports amid trade sanction threats.

Home Prices on the Rise

The Case-Shiller and the FHFA Home price indices were released yesterday. We are seeing a deceleration in the monthly numbers but not enough to lower prices yearly, just yet. The general trend on a YoY basis has been upward and as we’ve seen in the past there is a 14- 16 month lag between the Home Price indices and Shelter inflation.

The FHFA index, however, came in lower and this is a more equally weighted index so that could likely mean a slowdown in prices. Yesterday we saw the inventory for new home sales increase, which could also help ease prices.

The Case-Shiller Indexes are value-weighted, meaning that price trends for more expensive homes have greater influence on estimated price changes than other homes. FHFA's index weights price trends equally for all properties.

Other Stories

• China's President Xi Jinping met US CEOs to address geopolitical and trade tensions between the two largest economies

• Apple iPhone shipments in China fell about 33% in February from a year earlier, according to official data, extending a slump in demand in its most important overseas market.

• S&P: Revises Outlooks On Five U.S. Regional Banks To Negative on CRE exposure concerns; re-affirmed rating: First Commonwealth Financial Corp., -- M&T Bank Corp., -- Synovus Financial Corp., -- Trustmark Corp., and -- Valley National Bancorp.

• JPMorgan Chase CEO Jamie Dimon held a private meeting with Vice-President Kamala Harris at the White House, amid strained relations between the Biden administration and US business. The meeting comes after Dimon praised Trump for his handling of the US economy and foreign policy two months ago.

• Bank of England’s Catherine Mann said in an interview on Bloomberg TV that the market is pricing in too many rate cuts for the UK.

• Chinese company CATL, the leader in the electric car battery industry, has said that the solid-state battery for electric cars is still years away from commercialization due to several obstacles.

• Alibaba withdraws Cainiao logistics IPO application shelving a $1 billion-plus deal in a surprise move.

Calendars

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