Macroeconomics: The Day Ahead for 18 April

A rather light data schedule features the overnight Australia jobs data, with only US weekly jobless claims, Philly Fed Manufacturing and Existing Home Sales ahead, and unlikely to have much impact on markets, barring some very sharp outliers. The roster of central bank speakers is even longer than on Tuesday and Wednesday, though by this stage the divergent messages on rates from the Fed, ECB and BoE should be very clear, and with many speakers having already spoke in recent days, there is likely to be little in the way of fresh insights. That said, and following on from the Bernanke report on UK monetary policy, it was interesting to note that ECB’s Schnabel yesterday also advocating the use of ‘alternative scenarios’ in forecasts and policy outlooks. There is however a risk that this leads to greater confusion in financial markets, perhaps most particularly from automated trading algorithms that scan headlines. Meanwhile in commodity markets, there are regional Q1 Cocoa grindings and monthly IGC Grains reports, to accompany the Black Sea Grain conference, while Brazil’s Conab publishes Cane, Sugar and Ethanol Production data. Netflix will be the headliner in terms of US corporate earnings, while there are govt debt auctions in France, US and Canada. Geopolitics continues to cast a very long shadow, with so much now hinging on Israel’s response to last weekend’s Iranian attack. It is well worth noting that the multiple launch locations utilizing Iran affiliated groups is a reminder that there is a very large constituency of people across those countries who have nothing and little hope of a better future to aspire to, like the civilian population in Gaza, and these are the likely biggest ‘powder keg’ to explode in the event of a broader escalation.

In terms of the overnight run of reports, the US ‘nod’ to Japan and South Korea’s currency concerns was perhaps most significant, in effect greenlighting some FX intervention. The Fed’s Beige Book was rather more circumspect about the strength of the US economy, with the growth picture proving to be very mixed across sectors, and noting that “Employment rose at a slight pace overall, with nine Districts reporting very slow to modest increases, and the remaining three Districts reporting no changes in employment. Most Districts noted increases in labor supply and in the quality of job applicants.” While on inflation, it said: “Price increases were modest, on average, running at about the same pace as in the last report…. Contacts in several Districts reported sharp increases in insurance rates, for both businesses and homeowners. Another frequent comment was that firms’ ability to pass cost increases on to consumers had weakened considerably in recent months, resulting in smaller profit margins.”  BoE’s Bailey comments on yesterday’s higher than expected CPI (“We are pretty much on track with where we thought we would be – a bit under in February and a bit over in the latest figures. Next month will see quite a strong drop”) and labour data (“It looks like we are getting a loosening of the labour market. …. But we are disinflating at full employment”), keep the door to a June rate cut firmly open.