PMIs Take Centre Stage

April 23, 2024

PMIs Take Centre Stage

  • The preliminary April PMIs for the US, Eurozone, and UK will offer a timely update on the economic outlook
  • Australia and Japan PMIs improved in April.
  • National Bank of Hungary is expected to slow the pace of easing and trim the base rate by 50bps to 7.75%.

USD is mixed and range-bound near recent highs. Equity markets are higher. 2-year Treasury yields ticked-up 2bps to 4.97% ahead of today’s US$69bn in Treasury auction of 2-year notes. 10-year Treasury yields are lower near 4.61% versus a high of 4.67% yesterday.

The US S&P Global preliminary April PMI is the domestic data highlight (2:45pm London). Manufacturing is expected at 52.0 vs. 51.9 in March, services is expected at 52.0 vs. 51.7 in March, and the composite is expected at 52.0 vs. 52.1 in March. Also on the docket today: the Philadelphia Fed non-manufacturing activity (1:30pm London), Richmond manufacturing index (3:00pm London), and new home sales (3:00pm London). More evidence of solid US economic activity will underpin the cyclical USD uptrend.

EUR/USD is directionless around 1.0650. There was no new policy guidance from ECB Vice President Luis de Guindos latest print interview. Guindos pointed out “we will loosen our restrictive monetary policy stance in June…assuming there are no surprises between now and then”, adding “as for what happens afterwards, I’m inclined to be very cautious”.

EUR will take its cue today from the April French PMI (8:15am London), German PMI (8:30am London) and Eurozone PMI (9:00am London). The Eurozone PMIs are expected to remain consistent with a modest recovery in economic activity. Manufacturing is expected at 46.5 vs. 46.1 in March, services is expected at 51.8 vs. 51.5 in March, and the composite is expected at 50.7 vs. 50.3 in March. Looking at the country breakdown, the German composite is expected at 48.4 vs. 47.7 in March and the French composite is expected at 48.8 vs. 48.3 in March.

GBP/USD continues to trade on the defensive under 1.2400 ahead of the UK PMI report (9:30am London). Manufacturing is expected at 50.4 vs. 50.3 in March, services is expected at 53.0 vs. 53.1 in March, and the composite is expected at 52.6 vs. 52.8 in March. Disappointing services sector growth momentum can further weigh on GBP.

USD/JPY is trading in a tight range near recent highs around 154.75. Bank of Japan (BOJ) Governor Kazuo Ueda stuck to the script noting it was “appropriate to keep easy monetary conditions for now as underlying inflation is still below 2%”. But Ueda also cautioned “if the price trend rises toward 2% in line with our outlook…it will mean raising the short-term interest rate.”

Meanwhile, Japan’s Finance Minister Shunichi Suzuki delivered the usual does of verbal intervention on the yen. Suzuki warned “I think it’s fair to assume that the environment for taking appropriate action on forex is in place, though I won’t say what the action is.”

The risk Japan’s Ministry of Finance/BOJ acts in the short-term to curtail JPY weakness will likely diminish if the BOJ delivers a hawkish hold on Friday. The BOJ is widely expected to keep the policy rate target at 0 to 0.10%. However, the BOJ may raise slightly its 2024 core inflation projections implying greater room to tighten policy. Indeed, Japan’s April Jibun Bank Flash Composite PMI shows private sector growth quickening at the fastest pace in eight months and price pressures intensifying.

AUD/USD and Australian bonds firmed overnight. Australia’s Judo Bank Flash Composite PMI rose to a two-year high at 53.6 in April and the price indicators were up, suggesting the bar is high for a downside surprise to tomorrow’s Q1 and March CPI prints (2:30am London).

Australia headline is expected to remain for a fourth consecutive month at 3.4% y/y in March. For Q1, annual headline inflation is projected to ease to 3.5% from 4.1% in Q4. The policy-relevant trimmed mean CPI is forecast to rise 0.9% q/q or 3.8% y/y vs. 4.2% y/y in Q4. Overall, inflation is still above target but continues to moderate in line with the RBA’s latest forecasts. RBA projects annual headline and trimmed mean inflation to average 3.3% and 3.6% by end-June, respectively. Interest rate futures imply just one rate cut in 2024 vs. two earlier this month.

National Bank of Hungary meets today and is expected to cut rates 50bps to 7.75% (1:00pm London). At the last meeting March 26, the bank cut rates 75bps to 8.25% and Deputy Governor Virag said “in the second quarter, the rate-cut pace will slow”, adding that market expectations for a policy rate of 6.5-7.0% by mid-year were “realistic.” This would imply another 50bps of cuts at the May and June policy meetings, bringing the policy rate to 6.75% by mid-year. However, ongoing forint weakness will make such easing difficult and the market sees the rate then at 7.50%.

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