Sample Category Title

Daily Pivots: (S1) 1.6542; (P) 1.6573; (R1) 1.6607; More...

EUR/AUD's rally from 1.6368 resumed after brief consolidations. Breach of 1.6677 resistance argues that fall from 1.6742 has completed as a three-wave corrective move to 1.6368. Intraday bias is back on the upside for retesting 1.6742. On the downside, below 1.6534 support will turn intraday bias neutral again first.

In the bigger picture, fall from 1.7062 medium term top is seen as a correction to the up trend from 1.4281 (2022 low). In case of another fall, Strong support is expected around 1.5846 and 38.2% retracement of 1.4281 to 1.7062 at 1.6000 to bring rebound. Break of 1.7062 is in favor as a later stage.

Daily Pivots: (S1) 0.9690; (P) 0.9713; (R1) 0.9732; More...

Intraday bias in EUR/CHF is back on the downside as fall from 0.9847 resumed. Sustained break of 38.2% retracement of 0.9252 to 0.9847 at 0.9620 will bring deeper fall to 61.8% retracement at 0.9479. On the upside, though, break of 0.9721 minor resistance will turn bias back to the upside for retesting 0.9847.

In the bigger picture, a medium term bottom should be in place at 0.9252 already, on bullish convergence condition in W MACD. Rise from there now target 38.2% retracement of 1.2004 (2018 high) to 0.9252 (2023 low) at 1.0303, even as a correction to the down trend from 1.2004. This will remain the favored case as long as 55 D EMA (now at 0.9639) holds.

Key insights from the week that was.

In Australia, the March Labour Force Survey provided some much-needed clarity on labour market conditions after an incredibly volatile opening to the year. Following an upwardly revised gain of nearly 118,000 in February, employment fell only modestly in March, down by just 6,600. On a quarter-average basis, employment’s momentum was strong in Q1 at 2.7%yr but consistent with a trend softening from 2023’s 3.0%yr. At the same time, the declines in average hours worked per employee have become less severe, H2 2023’s correction of 2.7% followed by a more modest 0.4% fall in Q1 2024 (both in quarter-average terms). Consequently, the net effect on total hours worked, or total labour usage, was flat in the opening months of this year.

The unemployment rate ticked up slightly from 3.7% in February to 3.8% in March, its three-month average of 3.9% virtually unchanged from Q4 2023. With labour demand’s softness largely presenting in average hours, underemployment continued to rise (albeit slightly) in the opening quarter, from 6.5% in December to 6.6% in March on a quarter-average basis. The stronger-than-expected degree of resilience suggested by these figures are broadly mirrored by other measures of spare capacity, including hours-based underutilisation, youth unemployment, vacancies-to-unemployment and indicators from business surveys.

On balance, this update presents a slightly better read on the underlying state of labour market conditions in Q1 2024. On average, outcomes over the past three months are still consistent with a trend softening in the labour market, just not to the extent observed over the second half of 2023. The extent to which labour demand will continue to cool near-term, however, critically depends on the interplay between headcount and average hours. We continue to expect some softness to present via the latter, but given recent data, prospects of material economy-wide declines in employment seem increasingly unlikely at this stage; that, of course, being one of the key goals of the RBA in its current policy cycle.

In New Zealand, the Q1 CPI  came in between Westpac and the RBNZ’s expectations, rising 0.6% in the quarter and 4.0%yr. The detail suggests imported inflation is easing, but domestic inflation pressures continue to show strength. This poses a considerable challenge for the RBNZ as they seek to bring inflation back to the mid-point of the target range. Next week sees the release of Australia’s Q1 CPI. We expect a 0.8% rise in the quarter, but base effects will see the annual rate fall to 3.5%yr. Our preview is available at Westpac IQ. Chief Economist Luci Ellis this week also discussed the implications of global inflation developments for Australia and the RBA.

Over in the UK meanwhile, the annual CPI nudged down to 3.2%yr in March, mostly due to food prices. BoE Governor Andrew Bailey remains confident that inflation will fall sharply in April because of energy prices, putting the inflation target in sight and allowing the central bank to consider cutting rates. However, services inflation remains persistent, contributing 92% of total inflation over the year.

Strong wages gains continue to pressure services inflation, boosting consumer spending capacity and raising firms’ production costs, which they aim to pass on. Wage growth has eased from a high of 8% in the middle of 2023, but has held above 6% the last three months. Decision Maker Panel’s wage expectations for the year ahead continue to edge lower, but at 4.7% is still strong. Persistence in wage and services inflation will continue to cast doubts over whether the BoE will easily meet their 2% medium-term objective and consequently how far policy can be eased. Still, the first cut is in sight and welcome as the UK economy stagnates.

In Europe, services inflation also remains sticky, but goods disinflation is increasingly taking the pressure off the ECB, headline inflation now 2.4%yr and core 2.9%yr. Labour market momentum has also eased, pointing to an increasingly benign balance of risks for wage and services inflation. This puts the European Central Bank in a comfortable position to begin easing in June, although they are also likely to proceed cautiously.

Across the pond, headline US retail sales rose 0.7%mth in March, and the control group, which feeds into GDP calculations, gained 1.1%mth. This result follows a soft January/ February and may have been inflated somewhat by sales promotions. However, holding real GDP growth materially above trend in Q1, it reinforces the market’s current concerns over inflation’s persistence.

While only a qualitative guide, the FOMC’s April Beige Book depicted a much softer economy. Overall, “economic activity expanded slightly” over the 3 months to April, with 10 of the 12 districts experiencing “slight or modest economic growth”. “Consumer spending barely increased overall” and consumers’ price sensitivity was called out. Employment “rose at a slight pace overall”, and the labour market was seen as coming into balance. Wage growth was regarded as benign, annual wage growth having “recently returned to their historical averages”. This guidance points to a continued deceleration in inflation and restraint by consumers in the months ahead.

How much further progress is necessary for the FOMC to be comfortable easing policy remains an open question. At 2.5% and 2.8%, February’s annual headline and core PCE inflation was very similar to Europe’s CPI momentum at March, 2.4% and 2.9% for headline and core. But the US’ CPI measure has shown greater persistence January through March, primarily as a result of capacity constraints (e.g. rents) and the lagged secondary influence of prior goods inflation (e.g. motor vehicle insurance). Next week’s US GDP and March PCE reports are eagerly awaited.

Finally, back in Asia, China’s Q1 GDP highlighted the benefit of reform, with high-tech manufacturing and infrastructure investment driving a 6% annualised GDP gain in the quarter, even as the property sector continued to contract and consumer demand remained fragile. Authorities 5.0% target for 2024 is now within sight, only requiring annualised growth between 4% and 5% Q2 to Q4. Sentiment in China’s economy is unlikely to improve quickly, as property and financial sector risks remain front of mind. However, we expect the economy’s momentum to persist and authorities aims to be achieved, or modestly excee.

Oil and gold jumped on rising geopolitical tensions after Israel struck targets in western Iran as a response to last weekend’s attacks. One of the concerned cities is Isfahan, home to several military bases and facilities, but also to nuclear facilities including the main technology center. Iran said that the nuclear site is safe. Bloomberg journalists highlighted that as Iran’s weekend attack – which was designed to warn rather than to destroy - Israel bombing remained in the ‘realm of gaming out ‘calibrated’ actions to send messages without raising stakes. But uncertainty looms. Brent crude traded above the $90pb before easing to around $88.50 at the time of writing, US crude shortly trade past the $86pb level, wheat futures jumped 2%, gold rebounded to a near-record level and Swiss franc gained. We will likely see a further flight to safety before the weekly closing bell on fear of further escalation of tensions during the weekend. Shorting oil and gold is risky as Middle East is boiling. Having exposure to these commodities is a good hedge against the rising geopolitical tensions in the region.

In other hot commodity news, cocoa futures jumped close to 10% yesterday to above $11’000 per ton, and a hedge manager called Pierre Andurand said that the shortages will push the price of a ton of cocoa to $20K. For those who love speculation and adrenaline, cocoa futures is the place to be.

Unimpressed

Elsewhere, tech investors didn’t necessarily bought into TSM’s better-than-expected revenue and earnings compared to the same time last year. They were rather disappointed with a 5% decline in revenue and income compared to the last quarter. The company dialed back its outlook for the chip market expansion due to weakness in smartphones, personal computers and car industry but said that accelerating demand for AI chips should compensate for that weakness and justify spending for capacity expansion and upgrades. They expect their revenue to grow at least 20% this year. But alas, anything less than mind-blowing is not enough for the chip rally to continue given the latest exponential rise. TSM shares fell nearly 5% after the results yesterday, while Micron Technology, which was up pre-market on news that they will get more than $6 billion in grants from the US government for their domestic factory projects, ended up falling almost 4%. The S&P500 extended losses and Nasdaq 100 retreated to near its 100-DMA.

Netflix reported results after the closing bell yesterday and surprised with a third month of blowout subscriptions growth. The company added more than 9 million new watchers in Q1 2024 and posted its best start to a year since the pandemic. The password sharing ban continued to boost Netflix subscriptions as company estimated that they were around 100 mio people using an account without paying for it. Apparently, the password sharing ban convinced a lot of them that Netflix is worth paying for. Unfortunately, Netflix lost almost 5% in the afterhours trading as its Q2 revenue forecast failed to impress. They also said that they will stop reporting quarterly subscribers next year… What a disappointment, that was the most interesting thing to watch in Netflix quarterly results… In terms of market price, Netflix will slip below its 50-DMA today and the toppish signs goes beyond Netflix.

Overall

US jobless claims came in lower than expected, the Philly Fed manufacturing index unexpectedly jumped . Fed’s Raphael Bostic said that he doesn’t expect a rate cut until the end of this year, Neel Kashkari said that the Fed could ‘potentially’ hold its rates steady all year and John Williams said that there is no urgency to cut rates and that he doesn’t rule out a rate hike, though this is not his base case scenario. But the US 2-year yield remained capped near the 5% psychological mark despite strong data and hawkish comments indicating that investors are hesitant to give up their final hope of seeing the Fed loosen its policy.

The EURUSD is under a renewed downside pressure as the divergence between the hawkish Fed and dovish ECB expectations justifies a further weakness in the single currency. The USDJPY remained offered as core inflation in Japan eased more than expected by analysts to 2.6%. We are still waiting for the Japanese authorities to stop the bleeding as they said they would if the selloff became unsustainable…

The US futures are in the negative at the time of writing. The rising hawkish voices from the Fed back further weakness in stocks, especially the rate-sensitive tech stocks. Unfortunately, the quarterly results from the world’s leading chip and chip equipment makers failed to satisfy this week and set the tone for a – maybe – challenging earnings season for chip companies. And if that’s the case, we could see the risk rally fade into May… which is known to be the month where investors sell and go away.

In focus today

Today is a quiet day on the data front. We will monitor the situation in the Middle East after reports of explosions in the Iranian city of Isfahan which houses a military base. See more below.

In Sweden, the market is likely to continue to digest the messages from Riksbank's Bunge and Jansson yesterday, arguing the weaker SEK and delayed Fed monetary easing will influence the decision between a May and June rate cut. We believe this supports our take for the latter.

Economic and market news

What happened overnight

Reports of an explosion in Iran, near the city of Isfahan which houses a major military base, renewed fears about an escalation in the Israel/Iran conflict. Iranian officials say explosions were due to Iran's air defence system destroying three drones rather than missiles, Reuters reports. Israel has not commented, but Bloomberg reports Israeli officials had notified the US earlier Thursday that they planned to retaliate in the next 24-48 hours, according to two US officials who asked not to be identified discussing private conversations. Oil prices regained some of its earlier losses to hit 89.1 USD/bbl. (+2%) as of this morning, and safe-haven assets such as gold (+0.4%) and the CHF gained, while Asian equities slid.

Japan nationwide CPI was largely in line with earlier Tokyo data, as the core CPI slowed to 2.6% y/y in March, and "core-core" CPI (excl. fresh food and energy) slowed to 2.9% from 3.2% in February. The moves were in line with market expectations.

What happened yesterday

More hawkish signals from the US, with the Philly Fed's prices paid index jumping to 23.0 in April (prior: 3.7) which markets took as another sign that price pressures are still too high. Flat jobless claims and hawkish comments from Fed officials once again pointed to fewer rate cuts this year. The greenback gained during the day and the US 10Y government yield was up 6bp as of last night.

In Japan, the fourth wage tally from Rengo showed a total pay rise of 5.2%. This is promising news for the Bank of Japan's hopes of sustained demand driven inflation. However, it is still unclear how broad-based these wage jumps will be, with signs that there will be a big pay rise gap between large and small businesses as a Teikoku survey showing 23% of surveyed businesses have not raised wages at all, meaning the effect on domestic demand may not be as great as the BoJ could hope.

Several ECB policymakers all but confirmed a June rate cut with Villeroy saying there was a "very large consensus" for a June cut, and ECB VP de Guindos stating the central bank would be "ready to reduce the restriction" of monetary policy if things evolve as expected. Things are less clear for the meetings in between quarterly projections. Villeroy, Simkus and Cipollone have all suggested that July is not off the table while others (Knot) have indicated potential cuts will coincide with new quarterly forecasts.

Metal price indices continued to trend up with the LMEX index up 1.5% for the day. The turn in the manufacturing cycle has been supporting metal prices which have increased for a while now (LMEX +13.1% YTD). On top of this, new US and UK sanctions on Russian metals have given supply-side pressure. Rising commodity prices are an upside risk to inflation and thus could complicate the outlook for global rates.

Equities: Global equities were lower again yesterday increasing the streak of losses to 5 days with MSCI world being down almost 5% from the peak. Sell-off again led by US tech sector, growth, and long duration stocks. While the sell-off initially happened alongside higher yields and increasing VIX, that has not been the case the last couple of days when yields have been moving more sideways while VIX has been ticking lower. In US yesterday, Dow +0.1%, S&P 500 -0.2%, Nasdaq -0.5% and Russell 2000 -0.3%. Markets in Asia are lower this morning, though off their lows as the Middel East crisis and uncertainty has increased this morning after Israel launched a retaliatory attack on Iran. Futures in US and Europe are lower this morning as well.

FI: Long-end rates drifted higher in yesterday's session as Philly-Fed confirmed the recent signs of a global manufacturing rebound taking place. The UST curve flattened slightly from the front end with the 10Y tenor peaking at 4.65%. 10Y Bunds ended the session 3bp higher at 2.50%. Overnight, the Israeli attacks on Iranian territory have led to a classic risk-off reaction in markets with Asian equity indices down, oil prices rising (Brent briefly above USD90) and bonds gaining traction (10Y USTs now at 4.55%). The risk of further escalation will be today's focus.

FX: Safe haven currencies rallied alongside US Treasuries, Brent oil temporarily moved back above USD 90/bbl and equities took a dive as the conflict in the Middle East escalated overnight. Some of the initial moves have reversed though. EUR/USD tested the downside but remains within 1.06-1.07. USD/JPY dropped sharply but is back above 154. USD/CHF knee-jerked toward 0.90 but has recovered closer to 0.91. Scandies in general came under pressure. USD/SEK made a new year high at 11.03 but is back below the 11.00 mark.

Daily Pivots: (S1) 1.0626; (P) 1.0658; (R1) 1.0675; More...

Range trading continues in EUR/USD and intraday bias remains neutral. While stronger recovery cannot be ruled out, upside should be limited by 1.0723 support turned resistance. On the downside, break of 1.0601 will resume the decline from 1.1138 to 100% projection of 1.1138 to 1.0694 from 1.0980 at 1.0536 next.

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) 1.2418; (P) 1.2452; (R1) 1.2469; More...

Intraday bias in GBP/USD is back on the downside as fall from 1.2892 resumes. Deeper decline would be seen to 100% projection of 1.2892 to 1.2538 from 1.2708 at 1.2354. Firm break there will target 161.8% projection at 1.2207 next. On the upside, above 1.2483 resistance will turn intraday bias neutral again first.

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) 0.9095; (P) 0.9110; (R1) 0.9140; More....

While USD/CHF's pull back from 0.9151 extended lower, down side is supported above 0.8996 support so far. Intraday bias remains neutral and further rally is expected. Break of 0.9151 will resume larger rally from 0.8332 to 0.9243 resistance. However, firm break of 0.8996 will confirm short term topping, and turn bias to the downside for 55 D EMA (now at 08932).

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) 154.18; (P) 154.43; (R1) 154.90; More...

USD/JPY's correction from 154.77 extended lower to 153.58 but recovered just ahead of 55 4H EMA (now at 153.56). Intraday bias remains neutral first. On the upside, break of 154.77 will resume larger up trend. But considering divergence condition in 4H MACD upside should be limited by 155.20 fibonacci projection level. On the downside, below 153.58 will turn bias to the downside for deeper pullback.

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 61.8% projection of 127.20 to 151.89 from 140.25 at 155.20. Outlook will now remain bullish as long as 146.47 support holds, even in case of deep pullback.

Daily Pivots: (S1) 1.3745; (P) 1.3765; (R1) 1.3788; More...

Intraday bias in USD/CAD is turned neutral with current recovery. Corrective pattern from 1.3845 could extend lower. But downside should be contained by 1.3660 support to bring another rally. Break of 1.3845 will resume the whole rally from 1.3716 to 1.3976 key resistance.

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.