Rise and shine everyone.

The next two days will be jam-packed with data and earnings, and the BoJ’s meeting on Friday (late Thursday in the US).

But first, yesterday’s US PMI data that came in softer than expected.

The Manufacturing reading slipped into contractionary territory and according to the commentary, this slowdown may continue as new business inflows fell and the future output expectations slipped to a 5-month low. This could usher in lower inflation in the second and third quarters.

But, the bigger issue was the cut in payroll numbers. Employment fell at the strongest pace since June 2020 mainly in services and excluding the pandemic decline, was the most pronounced since 2009.

So what does all this mean? It means we could very well see unemployment start to tick up from here on out, as the slowdown in business growth puts downward pressure on inflation. We’ve been saying for a while now that what we’ve seen in the past is that when unemployment starts to rise, it can pick up very rapidly.

Manufacturing input prices did increase, and that could mean inflation subsides, but far more slowly than expected. Nevertheless, the Fed is clear about unemployment being the deciding factor.

The increase in inflation forecasts coupled with a decrease in the unemployment forecast to 4% means that it’s a very low bar for the Fed to cut rates.

This is what the market was celebrating yesterday.

Add to that we got Tesla’s results - which were not great at all - but the pixie dust that was sprinkled throughout the call delivered its magic. Tesla’s stock was up after hours and is leading the way in the pre-market this morning.

Coming into this week, the Mag 7 had given up almost 10% of their gains, which takes off some of the downside pressure. We’ll see what Meta has to deliver today.

Euro Area - How many cuts?

PMI numbers in the Euro Area also came out largely better than expected, although manufacturing PMI slipped lower.

• Business activity overall, however, grew at the “fastest rate for nearly a year in April”.

• Composite PMI for Germany moved back into expansionary territory.

• Although growth has been modest, the outlook is that the worst is now behind us for the EA.

Today’s Ifo Business Conditions also came out higher than expected and continue to improve from last month’s reading.

I don’t think there is a question about whether the ECB cuts in June but, now the question is how many cuts. Yesterday, the ECB’s Centeno (dove, Portugal) discussed the possibility of more than 100 bps of rate cuts this year. This is the first member to do so.

Given how inflation has been behaving across the world, and the prospect of growth returning to the EA, I doubt that we will see over 100 bps of cuts. In fact, I may even consider 75 bps for 2024.

Australia - Hotter Inflation may worry the Central Bank

Australian Inflation came in hotter than expected today. While the number dropped substantially from the previous quarter it’s still higher than what the Central Bank would like to see.

• Q1 Headline Inflation = 3.6% YoY down from 4.1% YoY in Q4 but higher than estimate of 3.4% YoY

• Q1 Trimmed Mean Core Inflation = 4% YoY down from 4.2% YoY and higher than estimate of 3.8%.

The RBI has been projecting 3.3% headline and 3.6% trimmed mean for the first half of 2024 and these numbers certainly suggest that we may see a change in the forecast during the May 7 meeting.

There’s been some chatter this morning that this could lead to a rate hike, particularly because it delays the Central Bank’s forecast of returning to their 2-3% target band and they have repeatedly said that they have a low tolerance for upside surprises.

However, it is still too early to tell given that the first cut was projected for the fourth quarter of this year and we still have several months before a decision may be made.

Rest assured though, the next meeting will be hawkish.

Chart of the Day

Major Earnings Updates

• Cleveland-Cliffs (CLF) misses by $0.04, misses on revs; Announced new $1.5 billion share repurchase program

• Danaher (DHR) beats by $0.20, beats on revs

• Freeport-McMoRan (FCX) beats by $0.05, beats on revs

• Fiserv (FI) beats by $0.09, beats on revs; raises FY24 EPS guidance

• GE Aerospace (GE) beats by $0.17

• General Motors (GM) beats by $0.49, beats on revs; raises FY24 EPS and EBIT guidance; posts follow-up letter to shareholders and slides

• Halliburton (HAL) beats by $0.02, beats on revs

• JetBlue Airways (JBLU) beats by $0.09, reports revs in-line; guides Q2 revs below consensus

• Kimberly-Clark (KMB) beats by $0.38, beats on revs; raises FY24 outlook for revenue and EPS constant currency

• L3Harris aiming to eliminate 5% of the workforce, according to Reuters

• Lockheed Martin (LMT) beats by $0.51, beats on revs; reaffirms FY24 EPS guidance, revs guidance

• Novartis AG (NVS) beats by $0.12, beats on revs; raises FY24 revs above consensus

• Nucor (NUE) misses by $0.21, misses on revs; guides Q2 EPS below consensus

• PepsiCo (PEP) beats by $0.09, reports revs in-line; reaffirms FY24 EPS guidance

• Philip Morris International (PM) beats by $0.09, beats on revs; guides FY24 EPS below consensus

• RTX (RTX) beats by $0.11, beats on revs; reaffirms FY24 EPS guidance, revs guidance

• SAP SE (SAP) reports Q1 results, revenues rose 8.1% year/year; reaffirms 2024 outlook

• Sherwin-Williams (SHW) misses by $0.05, misses on revs; guides FY24 EPS below consensus, revs in-line

• Spotify (SPOT) beats by €0.35, reports revs in-line; guides Q2 revs

• UPS (UPS) beats by $0.13, reports revs in-line; guides FY24 revs in-line

Calendars

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