Market movers today
Focus continues to be on the US-China trade war, weakening macro data globally and the potential for central bank easing. US ISM manufacturing dropped further yesterday to 52.1, the lowest level in 2˝ years, adding to evidence that the US economy has joined the global slowdown with few engines left pulling.
Today’s main event is the inflation print out of the euro area. In April, the ‘Easter effect’ pushed core inflation up by 0.5pp to 1.3% y/y but the May print will probably be a more reliable guide to the trend in actual underlying inflation pressures. As the Easter boost to travel-related service prices wanes, we expect both headline and core inflation to drop back in May, to 1.6% and 1.1%, respectively (see also Euro Area Research – Inflation under the microscope: simmering, not boiling ). It leaves the ECB with a rather bleak picture of still too low core inflation and the expected recovery being threatened by trade war escalation and weaker Chinese growth. Market inflation expectations also keep falling and are back at the lows seen in 2016.
US Fed Chair Powell will speak this afternoon as part of the ‘Fed listens’ event. The theme will be monetary policy strategy, tools and communication practices. Although the speech may not entail guidance for new policy signals near term yet, the speech is important as part of the revisit of the monetary policy framework/target discussion. Watch out for interviews on the sidelines of the conference. Note also our new Fed piece calling for a rate cut in Q3: FOMC Comment – Dovish policy signal to pave the way for an upcoming insurance cut , 31 May 2019.
In Scandi, we get Swedish industrial orders and production and we also get Danish FX reserves for May (see more on the next page).
Selected market news
Yesterday, the Fed’s Bullard (dove, voter) became the first FOMC member to open the door for a rate cut . Bullard said a “downward policy rate adjustment may be warranted soon to help re-centre inflation and inflation expectations at target and also provide some insurance in case of a sharper-than-expected slowdown”. Markets are now pricing in 50bp of rate cuts by the Fed in 2019 and a further 50bp easing in 2020.
Financial markets have been fairly calm overnight . Asian stocks are a bit lower while the S&P futures and bond yields are trading sideways. The trend is still lower, though, and US bond yields reached a new low last night before rebounding a bit again in Asia. Nasdaq took another beating yesterday as the US government is moving towards a major antitrust probe that could hit big tech companies such as Amazon, Facebook, Apple and Google.
The Reserve Bank of Australia this morning became the first major central bank to cut rates as the key rate was lowered to 1.25% from 1.5% in line with consensus expectations.
The US top trade negotiators yesterday shot back at China in a joined statement stating disappointment over China’s blame game. It is a response to the Chinese White Paper released over the weekend that blamed the US for the trade war.
