Written Commentary
ADM Corporate Sustainability Report 2023
May 16, 2024
Quiet day for statistics has German Production, Taiwan Trade and Brazil Retail Sales, Sweden & Brazil Rate decision, busy day for central bank speakers, European earnings; UK, Canada and US debt sales
Sweden: finely balanced decision, CPI and GDP say yes to rate cut, weak SEK may stay Riksbank’s hand
Brazil: ever cautious hawks likely to win argument for slower pace of rate cuts, despite increasing number of doves on committee
EVENTS PREVIEW
Today’s data schedule is likely to go largely unnoticed by financial markets, amounting as it does to little more than German Industrial Production, Taiwan Trade Balance and Brazilian Retail Sales. But there will be plenty of central bank speakers, and there are somewhat uncertain rate decisions in Sweden and Brazil, as well as a busy run of European and Asian corporate earnings, with Larsen & Toubro, Toyota Motor, Anheuser-Busch InBev, ARM, BMW, Henkel and Munich Re, with Air BnB and Liberty Media featuring in the US. A busier day for govt debt auctions has Japan 10-yr, UK 30-yr, Canada 5-yr and US 10-yr.
** Sweden – Riksbank rate decision **
There is a marginal majority looking for the Riksbank to initiate rate cuts with a 25 bps cut to 3.75%, and swaps market pricing is equally ambivalent. Those arguing for a rate cut will cite the much lower than expected headline CPIF (4.1% vs. prior 4.5%) and core CPIF (2.9% y/y vs. prior 3.5%), and doubtless also note the rise in Unemployment to 8.6% from 8.1% and the weaker than expected monthly (-0.3% m/m) and Q1 GDP (-0.1% vs. forecast 0.2% q/q). However, in contrast to Switzerland’s rate cut “trailblazing” SNB, the Riksbank will be concerned that the SEK was the weakest of the G10 currencies (falling 1.5% since the last meeting in March), in no small part due to expectations that it will cut rates more aggressively than either the ECB or the Fed this year, and also running counter to its down expectations of a modest rise for the SEK.
** Brazil – BCB COPOM rate decision **
Rising CPI forecasts for 2025 and 2026, despite an expected drop in this Friday’s IPCA Inflation to 3.66% y/y (lowest since June 2023’s 3.16%, but still above the BCB’s 3.0% target), and a weaker trend for the BRL, after some sharp recent gyrations in response to Fed rate expectations will likely make the BCB err on the side of caution, and reduce its rate cut pace to 25 bps, to bring the Selic rate down to a still loft 10.5%. That said, the balance of hawks to doves has shifted given the four appointments by President Lula since he came to power, but the typically hawkish majority should hold sway.
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