What to watch in the week ahead
Tapas Strickland & Taylor Nugent | NAB Markets Research
What to Watch - Week of 6 May 2024
Past Week
- Speculation Japan intervened twice this week to support the Yen. To the extent Yen weakness was putting pressure on Chinese authorities to depreciate the Yuan, a firmer Yen should help stabilise the AUD
- Markets rally in the glow of the FOMC where Powell said it was “unlikely” the next move would be a hike. Instead, policy focus is on how long to keep policy restrictive before then cutting rates
- Diverging policy paths priced for the ECB and Fed. Markets broadly fully priced for a June ECB rate cut, in contrast the US Fed is only priced to cut rates from November, while for the RBA it is not until September 2025!
Comment
- Government spending is one of the reasons activity has surprised globally despite substantial monetary tightening. In some countries, that is occurring when the output gap is still positive – US and NZ
- A key question for markets should be whether bloated government spending will be reined in. We are doubtful – no politician ever got fired for spending too much
- Political discourse appears to have shifted post-pandemic to a greater role of government. With important elections in 2024-early 2025 (US Nov 2024; UK by Jan 2025; AUS by May 2025) it could be large deficits remain
Week ahead
- The RBA (Tuesday) is expected to be on hold. Low unemployment and hot inflation should see a tilt back towards a tightening bias after what many interpreted was a neutral bias at the March meeting
- Soft activity growth and a tighter for longer forecast assumption are some offset for the RBA’s inflation forecasts, but the reluctant hikers are once again challenged by the data. Also note ANZ and WBC report this week.
- The BoE (Thursday) is seen on hold. Markets though almost fully price a cut by August. Note it is a Bank Holiday on Monday. Elsewhere in Europe the Riksbank (Wednesday) meets with markets pricing 47% chance of a cut
- US data calendar is light, with UMich Sentiment (Friday). There are, a few Fed speakers. with the Fed’s Williams (Monday) the most notable, and the Senior Loan Officers Survey (Monday).
- China back from holidays (as is Japan). Caixin Services PMI (Monday) and Trade (Thursday), while Xi visits Europe – trade/investment relations
- Canadian Employment (Friday) is the final labour market update ahead of the 5 June meeting, where a cut is two-thirds priced.
View the full report here
Also in the What to Watch
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All prices and analysis at 3 May 2024. This information has been prepared by National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 ("NAB").
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