Rise and shine everyone.

There’s been a lot of data to digest across the world over the last two days.

But first, the Fed.

Fed Chair Powell’s speech from yesterday has been the top news with him finally acknowledging that inflation could be a concern again and that rates may need to remain higher for longer. Given how inflation has been trending for the last three months and the recent strong Retail Sales data, the last thing we’d want is for the Fed to make a policy mistake here and cut rates too soon.

We’re now seeing Fed Fund Futures price in less than two rate cuts with the first one starting in September, and perhaps the only one? There’s still three months of CPI data before the Fed makes a decision in July so it remains to be seen whether they change view. The Fed has a very low bar to cut rates if inflation starts to decelerate even marginally.

Over in the Euro Area, inflation continues to abate with data released today coming in line with forecasts. March Headline Inflation decelerated to 2.4% from 2.6% and Core inflation fell to 2.9% from 3.1%.

US Equity futures are seeing somewhat of a reprieve from selling this morning with Yields and the USD pulling back after yesterday’s spike. Mag 7 stocks all trading higher in the pre-market. Oil continues to remain muted, while Gold is higher.

Semiconductors are weaker this morning after ASML provided downside guidance for Q2.

The UK - Rate Cuts may be sooner than the Fed

Yesterday’s deceleration in Wage Growth data and uptick in the Unemployment Rate increased bets on UK rate cuts but, some of that enthusiasm has been tempered after this morning’s inflation data came in hotter than expected.

Headline inflation for March decelerated to 3.2% down from 3.4% but higher than the consensus of 3.1%. Core inflation came in at 4.2% down from 4.5% but higher than the 4.1% consensus. PPI also came in higher at 0.6% up from 0.4%. Energy prices are feeding into the data and home prices have been increasing which may see inflation remain sticky.

Despite this, there’s now a possibility that the Bank of England cuts rates before the US. The BoE has three meetings in the coming few months - May, Jun, Aug. This could put pressure on the GBP against the USD.

China’s Growth beats Expectations but other data is mixed

China’s YoY GDP growth came in at 5.3% up from 5.2% and stronger than the consensus of 4.8%. QoQ growth was 1.6%. China’s growth target for the year remains at 5% and this is a strong start to the year.

However, consumption data still remains a concern. Home Prices fell -2.2% and Retail Sales slowed to 3.1% from 5.5%. On the manufacturing side, industrial production missed consensus falling to 4.5% down from 7%, and Industrial Capacity Utilization for the quarter fell to 73.6% from 75.9%.

Overall, growth remains solid but, under the surface, we’re still seeing weakness in China’s data. The IMF raised China’s 2024 GDP forecast to 5.2% from 4.6%, in light of the Q1 data. Equities continue to see bullish momentum, as the Government has also started to discuss support measures.

More Metal Sanctions

The Biden administration is advocating for increased tariffs on steel and aluminum imports from China, with a proposal to boost these tariffs from the previous rate of 7.5% set by Trump to 25%. Additionally, the administration is urging Mexico to prevent the indirect importation of Chinese metal products into the U.S. through Mexican channels. Notably, in 2023, China was the seventh largest steel exporter to the U.S., delivering 598,000 net tons, which marked an 8.2% decrease from the previous year.

Quote of the Day

If higher inflation does persist, we can maintain the current level of restriction for as long as needed. At the same time, we have significant space to ease should the labor market unexpectedly weaken. - Fed Chair Powell

Chart of the Day

Year to Date, the US Dollar has outperformed most emerging market currencies. A stronger USD puts further pressure on EM currencies. This could mean we see inflation pick up even further across the world because of currency weakness, in addition to rising commodity prices, and shortages from weather conditions.

In Case You Missed It - We were on Bloomberg this Morning discussing the Fed, Inflation and Middle East Tensions

Earnings Updates

• ASML beats by €0.35, misses on revs; guides Q2 revs below consensus; reaffirms FY24 revs in-line

• J.B. Hunt Transport (JBHT) misses by $0.28, misses on revs

• United Airlines (UAL) beats by $0.43, reports revs in-line; reaffirms FY24 EPS guidance, now anticipates 61 narrowbody aircraft and 5 widebody aircraft to be delivered in 2024

• Bank of America (BAC) beats by $0.07, beats on revs

• BNY Mellon (BK) beats by $0.10, beats on revs

• Johnson & Johnson (JNJ) beats by $0.07, reports revs in-line; guides FY24 EPS in-line, revs in-line; raises quarterly dividend by 4.2%

• Morgan Stanley (MS) beats by $0.35, beats on revs

• PNC (PNC) beats by $0.09, reports revs in-line; guides Q2 revs below consensus; guides FY24 revs in-line

• Toronto-Dominion Bank (TD) comments on expected impact of the Charles Schwab Corporation's (SCHW) Q1 earnings

• TotalEnergies SE (TTE) provides Q1 Trading statement/main indicators

• UnitedHealth (UNH) beats by $0.30, reports revs in-line; guides FY24 EPS in-line

Calendars

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