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In focus today

In the US, today's main data focus will be on the March PCE. Consensus expects both headline and core PCE inflation to remain steady at 0.3% m/m after mixed signals from March CPI and PPI reports. After yesterday's GDP release, we got the quarterly PCE print as well, showing increased price pressures in Q1 (details under what happened yesterday). In the afternoon, University of Michigan's revised April consumer sentiment survey will be released, the preliminary data showed a worrying uptick in inflation expectations.

In the euro area, we look out for data on monetary aggregates and credit growth. We look for signs that the credit data gives further signs of a bottoming out of the credit cycle.

In Norway, we get retail sales from March. After some signs of stabilisation over the autumn of last year, Norwegian retail sales has continued to trend downwards since November. Although real wage growth is about to become positive, this is still counteracted by higher mortgage rates weakening purchasing power. Hence, we expect that retail sales fell by 0.3% in March but emphasise that the March estimates are extremely uncertain due to Easter, which makes seasonal adjustment challenging.

Economic and market news

What happened overnight

In Japan, as widely expected, the Bank of Japan (BoJ) kept monetary policy unchanged at a policy meeting concluding this morning. This meeting follows the March decision to hike the overnight rate out of negative territory in March and exit yield curve control. Unlike at the March meeting, the policy decision this morning was taken unanimously with BoJ revealing new forecasts for the fiscal year 2026. The BoJ expects core inflation of 2.1% by FY 2026, signalling confidence in the longevity of inflation. We see this as a clear message that the BoJ expects to hike the overnight rate target again.

Hours before the decision, Tokyo inflation data slid significantly to 1.6% in April from 2.4% (2.2% expected). The capital data is usually a reliable indicator for the countrywide figures and thus, this must be a concern for the BoJ. The full price effect from the solid spring wage hikes has yet to play out, though. The market has reacted by trading USD/JPY a bit higher to the 156-level this morning, which likely first and foremost reflects the lack of concrete action on the latest JPY depreciation than the rate decision itself.

We expect the BoJ to hike one more time this year, especially if the JPY remains weak. We look for the July meeting by which the final wage tally will also shed more light on the SME segment, which has not seen much wage growth in recent years.

What happened yesterday

In the US, we received the first Q1 GDP print. GDP surprised to the downside at 1.6% y/y SA AR (cons: 2.4%) but more importantly for markets quarterly core PCE prices surprised markets considerably to the top side rising to 3.7% y/y (cons: 3.4%) thereby driving a considerable sell-off in US fixed income.

Real consumption growth eased from Q4, but this was purely driven by lower goods consumption. Services demand actually picked up on a q/q basis. Net exports and public investment also seemed to explain the downside surprise. On the side of private investments, residential investments picked up and non-residential growth also held up. Overall, the details did not seem too weak even if the headline GDP growth number was below expectations. Combined with services price inflation accelerating (in line with signals from CPI), the EUR/USD ended the day higher despite higher treasury yields. The dollar strengthened slightly overnight.

Two of the Big Tech companies, Alphabet and Microsoft, both beat earnings forecasts and sent their respective stocks higher after the US close. Alphabet announced their first ever dividend, which helped their stock rise as well.

In the euro area, ECB's Panetta, a well-known dove, said that the ECB should cut rates in small progressive steps to monitor the inflation situation, and allow them to stop cutting, at no cost if upside shocks to inflation would materialise. He also said that he feared monetary policy being too tight, such that ECB would need ultra-low rates later. ECB's Schnabel said that ECB has a bumpy last mile back to inflation target, as service inflation seems to prove persistent, staying above 4% in 2024 until now. We continue to see the June rate cut as close to a done deal and expect three rate cuts of 25bp in 2024.

In Turkey, the central bank kept its main interest rate at 50% in line with consensus forecast, pausing its aggressive hiking cycle for now. The central bank has been fighting inflation rates above 60% since last June, when interest rate was at 8.5%. It paused in February but surprised markets again with a large 500bp hike in March. Now, the CBRT argued lagged effects of past tightening are still at play, and hence a pause was warranted, but they remain "highly attentive to inflation risks".

Yesterday's market movements

Equities: Global equities were lower yesterday with macro and micro challenging investors and making it yet another rollercoaster day. At the end, most sectors were lower with communication services massively underperforming on weak earnings while energy and materials outperformed, and we saw stagflationary macro data. Some of these rotations could very well revert today based on the afterhours earnings results yesterday and toda'’s macro calendar. In the US yesterday Dow -1.0%, S&P 500 -0.5%, Nasdaq -0.6% and Russell 2000 -0.7%. Asian markets are mixed this morning while both European and US futures are higher.

FI: The sell-off in the global bond markets continued yesterday on the back of slower US growth and higher US inflation raising speculation regarding the"“stagflatio"” scenario. The US GDP data for Q1 was lower than expected as growth in Q1 was only 1.6% q/q, while the core-PCE inflation rose 3.7% y/y. The curve flattened from the short end as 2Y US Treasury yield is back at the 5% level, as the market continue to price out rate cuts from the Federal Reserve. 10Y US Treasuries is heading towards 4.75%.

FX: The USD soared along rising yields initially on the above-expectations Q1 inflation report but gave back most of its gains towards the end of the session. EUR/USD closed the day flat, whereas USD/Scandies edged slightly higher. The BoJ did little to support the yen at their monetary policy meeting and USD/JPY ventured to new highs above 156.

Facebook’s Meta went on a 10% freefall yesterday, even after the company announced better-than-expected earnings. This being said, yesterday’s selloff ended up being less than suggested in the afterhours trading. CEO Mark Zuckerberg said that, in the past, the company also experienced high price volatility during a period of investment when the results were not yet visible. Meta could successfully turn its AI investments into profit – it’s just that it will take a bit longer than expected. All in all, some investors think that Meta is worth buying at the dip. The question is, where’s the dip?

One positive news is that Meta didn’t pull the rest of the tech stocks down with it yesterday. Nvidia gained more than 3% while Tesla jumped another 5% - don’t ask me why.

On the macroeconomic stage, the news were not bright. The first estimate for the US Q1 growth showed that the US economy slowed way more than expected in Q1. A soft print could’ve at least revived the dovish Federal Reserve (Fed) expectations, but the notable jump in core PCE prices to 3.7%, from 2% printed a quarter earlier, didn’t give much room for optimism. Yesterday's data threw a wrench into the soft-landing dream and sparked fears of stagflation, where the economy slows down while inflation persists – which would force the Fed to keep its policy tight. The US 2-year yield continues to test the 5% mark to the upside, as the 10-year paper yields near 4.70%.

Today, all eyes are on the US core PCE print for March, expected to decline to 2.6% from 2.8% printed a month earlier. The fear is to see a higher inflation print, of course, which would further batter the Fed cut expectations. But the ‘good’ news is, it looked like yesterday’s price action already embedded today’s core PCE print. Therefore, bad news are – at least – partially priced in.

Diving a bit deeper into yesterday’s GDP print: The slowdown was mainly caused by a lower inventory accumulation and a wider trade gap. But a gauge of underlying demand still came in above 3% for the third straight quarter. The latter explains why we see inflation persists as the headline GDP slows down. In conclusion, inflation which slowed last year thanks to fading post-pandemic boost is now fueled by still-robust demand. And that’s something the Fed could address … by keeping its policy tight. Swap traders now price in 35bp cut for the entire 2024, down from six rate cuts priced in at the start of the year.

AI buzz continues

Microsoft and Google’s Alphabet both jumped in the afterhours trading after announcing sufficiently strong results that met and surpassed expectations. Microsoft gained more than 4% on better-than-expected sales and profit thanks to robust corporate demand for its cloud and AI offerings, while Google jumped 11% boosted by its own cloud business. Nasdaq futures are up by more than 1% this morning.

The yen selloff continues

The US dollar index is slightly better bid this morning, as the USDJPY shot above the 156 level after the Bank of Japan (BoJ) decided to leave its rates unchanged. The decision was expected, the BoJ even lifted its 2024 inflation forecast from 2.4% to 2.8%, but in vain. The absence of a clear hawkish message and the lack of intervention news strengthened appetite for a further rise to 160.

Elsewhere, the euro and sterling retreat this morning against the US dollar following this week’s rebound. US crude recovers past the $84pb level despite the US GDP disappointment and the further decline in Fed rate cut expectations. The geopolitical risks remain tilted to the upside as Israel is said to be preparing for an all-out war with Iran-backed Hezbollah.

On the corporate front, Exxon and Chevron are expected to announce their Q1 results today. Despite rising crude oil prices, both companies are expected to report a decline in Q1 profits compared to the same period last year due to a global glut in nat gas supplies and narrower refining margins. If all goes well and crude prices continue to climb, the energy giants’ fortunes could reverse in the Q2. Exxon closed yesterday’s session above $121 per share, as Chevron climbed past $165 per barrel. While the reflation trade is expected to boost appetite for energy companies, the unwelcomed return of inflation may put the reflation trade on hold.

Daily Pivots: (S1) 0.6490; (P) 0.6515; (R1) 0.6543; More...

Intraday bias in AUD/USD remains on the upside for the moment. Sustained break of 55 D EMA (now at 0.6527) will argue that fall from 0.6870 has completed, and bring further rally to 0.6643 resistance next. On the downside, though, break of 0.6464 minor support will turn bias back to the downside for retesting 0.6361 instead.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which is still in progress. Overall, sideway trading could continue in range of 0.6169/7156 for some more time. But as long as 0.7156 holds, an eventual downside breakout would be mildly in favor.

Daily Pivots: (S1) 1.3629; (P) 1.3680; (R1) 1.3710; More...

Intraday bias in USD/CAD is back on the downside with break of 1.3660 support. Fall from 1.3845 short term top would extend to 55 D EMA (now at 1.3597). On the upside, above 1.3730 minor resistance will turn bias back to the upside for retesting 1.3845 instead.

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern only. In case of another fall, strong support should emerge above 1.2947 resistance turned support to bring rebound. Firm break of 1.3976 will confirm up resumption of whole up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3176 at 1.4149.

.Daily Pivots: (S1) 1.0692; (P) 1.0716; (R1) 1.0754; More...

Intraday bias in EUR/USD is back on the upside with break of 1.0723 support turned resistance. Stronger rebound would be seen to 55 D EMA (now at 1.0784). On the downside, break of 1.0677 minor support will turn intraday bias to the downside for retesting 1.0601 low.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern to rise from 0.9534 (2022 low). Current fall from 1.1138 is seen as the third leg. While deeper decline is would be seen to 1.0447 and possibly below, Strong support should emerge from 61.8% retracement of 0.9534 to 1.1274 at 1.0199 to complete the correction.

Daily Pivots: (S1) 1.2464; (P) 1.2495; (R1) 1.2543; More...

Intraday bias in GBP/USD remains neutral for the moment. Near term outlook stays bearish as long as 1.2538 support turned resistance holds. Break of 1.2421 minor support will argue that rebound from 1.2298 has completed and bring retest of this low. However, decisive break of 1.2538 will bring stronger rally to 55 D EMA (now at 1.2583) and above.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to up trend from 1.0351 (2022 low). Fall from 1.2892 is seen as the third leg. Deeper decline would be seen to 1.2036 support and possibly below. But strong support should emerge from 61.8% retracement of 1.0351 to 1.2452 at 1.1417 to complete the correction.

Daily Pivots: (S1) 0.9104; (P) 0.9137; (R1) 0.9155; More....

Intraday bias in USD/CHF is turned neutral again after it retreated after breaching 0.9151 resistance briefly. On the upside, firm break of 0.9151 will resume the rally from 0.8332 and should target 0.9243 key resistance next. On the downside, break of 0.9085 will turn bias to the downside for deeper pullback.

In the bigger picture, price actions from 0.8332 medium term bottom as tentatively seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Further rise would be seen as long as 0.8728 support holds. But upside should be limited by 0.9243 resistance, at least on first attempt. However, decisive break of 0.9243 will argue that the trend has already reversed and turn medium term outlook bullish.

Daily Pivots: (S1) 155.32; (P) 155.53; (R1) 155.87; More...

USD/JPY's fall continues today and intraday bias remains on the upside. Next target is 100% projection of 140.25 to 150.87 from 146.47 at 157.09. On the downside, below 155.30 minor support will turn intraday bias neutral first. But outlook will stay bullish as long as 153.58 support holds, in case of retreat.

In the bigger picture, current rise from 140.25 is seen as the third leg of the up trend from 127.20 (2023 low). Next target is 100% projection of 127.20 to 151.89 from 140.25 at 164.94. Outlook will remain bullish as long as 150.87 resistance turned support holds, even in case of deep pullback.

Japanese Yen resumes its free fall today, after a brief pause, and reaches new 34-year low against Dollar. Yen's weakness is also broad-based and evident against other major currencies, with EUR/JPY marching towards its 2008 high and GBP/JPY heading to its 2015 peak. It's clear that the absence of strong verbal interventions from Japanese officials has emboldened Yen bears. At the same time, BoJ's announcements failed to introduce any hawkish shifts that might have supported the currency.

BoJ's updates included revised projections that see core-core inflation increasing to 2.1% by fiscal 2026, a development that BoJ views as a positive for inflation outlook. Meanwhile, there were substantial revisions in growth (downgraded) and inflation (upgraded) forecasts for fiscal 2024. Earlier data showed significant drop in Tokyo's inflation rates due to a one-off factor. But these are not the main drivers for Yen's decline.

Meanwhile, Dollar is positioned among the weakest performers after failing to sustain gains from a brief rebound overnight. Market focus is shifting to the upcoming US PCE inflation data. Stocks markets fell notably while treasury yield surged after yesterday's GDP report triggered repricing of Fed rate cut expectations. Odds of Fed keeping interest rates unchanged in September is now up at around. Be these developments have yet to provide a lasting boost to Dollar.

Technically, NASDAQ was rejected by 55 D EMA on first attempt, but there was no follow through selloff after initial dive overnight. While risk stays on the downside for now, the question is whether 38.2% retracement of 12543.85 to 16538.86 at 15015.67 (or simply 15k mark) could provide enough support. Firm break of 55 D EMA would set the range for a sideway consolidation pattern.

In Asia, at the time of writing, Nikkei is up 1.11%. Hong Kong HSI is up 1.94%. China Shanghai SSE is up 0.88%. Singapore Strait Times is down -0.05%. Overnight, DOW fell -0.98%. S&P 500 fell -0.46%. NASDAQ fell -0.64%. 10-year yield rose 0.054 to 4.706.

BoJ stands pat, lower growth and higher inflation this year

BoJ left overnight call rate unchanged at 0-0.10% as widely expected, by unanimous vote. The BOJ says it will continue its Japanese government bond (JGB) purchases "in accordance with the decisions made at the March 2024 monetary policy meeting."

Real GDP growth forecasts for fiscal 2024 was lowered sharply to 0.8%. But growth is expected to pick up moderately to 1.0% subsequently. CPI core forecasts was fiscal 2024 was raised to 2.8% and then slowed to 1.9% onwards. CPI core- core forecasts were left unchanged for both fiscal 2024 and 2025 at 1.9%. Fiscal 2026 CPI core-core is projected to pick up to 2.1%, which is a positive sign.

Real GDP growth forecasts:

• Fiscal 2024 at 0.8% (downgraded from 1.2%).
• Fiscal 2025 at 1.0% (unchanged).
• Fiscal 2026 at 1.0% (new).

CPI core forecasts:

• Fiscal 2024 at 2.8% (upgraded from 2.4%).
• Fiscal 2025 at 1.9% (upgraded from 1.8%).
• Fiscal 2026 at 1.9% (new).

CPI core-core forecasts:

• Fiscal 2024 at 1.9% (unchanged).
• Fiscal 2025 at 1.9% (unchanged).
• Fiscal 2026 at 2.1% (new).

Japan's Tokyo CPI falls sharply to 1.6% yoy in Apr, vs exp 2.2% yoy

Japan's Tokyo CPI showed significant slowdown in April. CPI core (excluding food) dropped from 2.4% yoy to 1.6%, substantially below the expected 2.2% yoy.

CPI core-core, which excludes both food and energy, also slowed from 2.9% yoy to 1.8% yoy, marking the slowest pace since September 2022.

Services inflation, a significant component of the CPI, decreased from 2.7% yoy to 1.6% yoy. This notable drop is largely attributed to policy interventions by the Tokyo metropolitan government to make some educational tuition free.

Overall headline CPI, which includes all items, also fell from 2.6% yoy to 1.8% yoy.

Looking ahead

Eurozone M3 money supply will be released in European session. Main focus will be on US personal income and spending, and PCE inflation later in the day.

USD/JPY Daily Outlook

Daily Pivots: (S1) 155.32; (P) 155.53; (R1) 155.87; More...

USD/JPY's fall continues today and intraday bias remains on the upside. Next target is 100% projection of 140.25 to 150.87 from 146.47 at 157.09. On the downside, below 155.30 minor support will turn intraday bias neutral first. But outlook will stay bullish as long as 153.58 support holds, in case of retreat.

In the bigger picture, current rise from 140.25 is seen as the third leg of the up trend from 127.20 (2023 low). Next target is 100% projection of 127.20 to 151.89 from 140.25 at 164.94. Outlook will remain bullish as long as 150.87 resistance turned support holds, even in case of deep pullback.

Economic Indicators Update

BoJ left overnight call rate unchanged at 0-0.10% as widely expected, by unanimous vote. The BOJ says it will continue its Japanese government bond (JGB) purchases "in accordance with the decisions made at the March 2024 monetary policy meeting."

Real GDP growth forecasts for fiscal 2024 was lowered sharply to 0.8%. But growth is expected to pick up moderately to 1.0% subsequently. CPI core forecasts was fiscal 2024 was raised to 2.8% and then slowed to 1.9% onwards. CPI core- core forecasts were left unchanged for both fiscal 2024 and 2025 at 1.9%. Fiscal 2026 CPI core-core is projected to pick up to 2.1%, which is a positive sign.

Real GDP growth forecasts:

• Fiscal 2024 at 0.8% (downgraded from 1.2%).
• Fiscal 2025 at 1.0% (unchanged).
• Fiscal 2026 at 1.0% (new).

CPI core forecasts:

• Fiscal 2024 at 2.8% (upgraded from 2.4%).
• Fiscal 2025 at 1.9% (upgraded from 1.8%).
• Fiscal 2026 at 1.9% (new).

CPI core-core forecasts:

• Fiscal 2024 at 1.9% (unchanged).
• Fiscal 2025 at 1.9% (unchanged).
• Fiscal 2026 at 2.1% (new).