The Week Ahead
8 April

The Week Ahead – 8 April

Financial markets had a little bit of reality over the week with all major markets lower as both the US payroll numbers surprised on the upside (330k v’s 203k f’cst), while the US Fed continued to reiterate that potential rate cuts were not a forgone conclusion should inflation remain sticky while the economy continues to maintain a solid growth outlook.  The net result was a sell-off in both equity and bond markets.  Overall, the messaging from the US Fed continues to be consistent in our view.  While we discount the likelihood of no rate cuts through 2024, we are now revising our assessment of (at least) three cuts to two, with the first in the 3q24.

With the US economy continuing to remain sound there is little incentive for the US Fed to be aggressively looking to add further stimulus. Accordingly, the focus of markets this week will be on the release of both the CPI (f’cst 0.3% m/m (+0.1% pcp) & 3.4% y/y (+0.2% pcp)) and PPI data (f’cst +0.3% m/m -0.3% pcp) & 2.2% y/y (+0.6% pcp)), all of which point to an economy which is continuing to expand.  In addition to the CPI/PPI data, jobless claims (f’cst 215k, flat), retail sales and the University of Michigan sentiment conditions survey will also provide further data on both consumer behaviour as well as confidence levels across the economy.

However, while the data does point to the fact that the Fed will be more cautious on any rates cuts, it does reflect that the strength of the US economy, which we fundamentally view as a positive for growth assets over the medium term as we head into the US reporting season, which kicks off at the end of this week.  With the likelihood of ‘higher for longer rates’ out of the US we continue to expect that the US$ will remain strong. While markets will be closely watching the Fed, the ECB also meets this week (f’cst 4.50%, no change) while the release of Chinese CPI (f’cst +0.4% y/y) and PPI data (f’cst -2.8%) is likely to show that deflationary still remain despite some improvement in recent economic data.

Outside the Locally, the release of the (Mar) NAB Business Conditions survey along with the WBC Consumer Conf data (Apr) and CBA H’hld Spending data (Mar) will provide additional insights into consumer and business trends. With the ongoing closures of retail stores/restaurants/building companies it seems clear that consumers are continuing to tighten their belts as the likelihood of any domestic rates cuts continues to be pushed out.

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