Fundamental News Facts for 10th April, 2024

Fundamental News Facts for 10th April, 2024

[Quick Facts]

1. Kazuo Ueda: Maintain loose monetary policy and consolidate the virtuous wage-price spiral.
   2. Bostic reiterates his expectation for one rate cut this year.
   3. Canada’s fiscal policy remains an uncertainty for rate cut forecasts.
   4. The BOJ will consider raising inflation forecasts this month.
   5. Dollar Sideways, Yen Under Watch Ahead of Key CPI Release.
   6. US CPI Data Unlikely To Ease Sticky Inflation Worries, But Will Markets Care?
   7. [Fed] Two Officials Have Different Views on the Number of Rate Cuts
   
   [News Details]
   
   Kazuo Ueda: Maintain loose monetary policy and consolidate the virtuous wage-price spiral.:
   Kazuo Ueda, the head of the Bank of Japan (BOJ), announced today that the Japanese economy has seen a moderate recovery, driven by factors such as the realisation of pent-up demand. However, due to the slower recovery of foreign economies, Japan’s economy may experience some downward pressure.
   In a monetary policy meeting last month, it was determined that the 2% price target would be met in a predictable, sustainable, and stable manner. This conclusion was drawn from the gradual evidence of a virtuous wage-price spiral in company data and information.
   Moving forward, the BOJ will implement monetary policy as needed, based on the developments in economic activity, prices, and financial conditions, with the aim of achieving its goals in a sustainable and stable manner. The main policy tool will be short-term interest rates. Given the current economic activity and price outlook, it is expected that accommodative financial conditions will be maintained for now.

Bostic reiterates his expectation for one rate cut this year:
Raphael Bostic, the President of the St. Louis Fed, reiterated his expectation for a single rate cut this year. He stated that he is open to changing his stance if the economic situation changes, and both delaying rate cuts and making additional rate cuts are possibilities.
If there are indications of a weakening job market, earlier and more cuts would be considered. Bostic believes that the risks are balanced, given the robustness and resilience of the U.S. economy. He doesn’t rule out the possibility that rate cuts may be postponed further, meaning there may not be a rate cut this year. However, if he starts to receive different signals indicating potential difficulties in the labor market, he would be open to changing the policy stance and possibly cutting rates sooner.

Canada’s fiscal policy remains an uncertainty for rate cut forecasts:
Canada’s fiscal policy introduces uncertainty into rate cut predictions. S&P Global Ratings downgraded the Province of British Columbia due to its capital spending program and projected significant deficit. The Canadian government’s stronger-than-expected spending could hinder its efforts to reduce inflation to 2%, thereby delaying a rate cut in Canada..

The BOJ will consider raising inflation forecasts this month:
The BOJ may contemplate increasing its inflation forecast at its policy meeting later this month following a surprisingly strong outcome in annual pay negotiations. In its initial forecast for FY2024, the BOJ might discuss raising its CPI forecast excluding fresh food. The BOJ may also consider increasing its inflation forecast for FY2024 excluding energy prices to 2% or higher.
Officials pointed to higher labor costs due to rising salaries as one of the factors driving future price increases. Despite the upward revision, officials said they also need to be wary of possible downside risks to inflation when making their projections for FY2026.

Dollar Sideways, Yen Under Watch Ahead of Key CPI Release:
The primary focus in the market on Wednesday is the U.S. consumer price inflation for March, which traders have been keenly anticipating for insights into the Federal Reserve’s policy direction. This inflation data comes after a robust jobs report last Friday that exceeded predictions, leading to more inquiries about the timing and extent of the central bank’s rate cuts this year.
Futures traders have lowered their bets to the lowest point since October, around 60 basis points in rate cuts this year, as shown by LSEG data on Monday, due to signs of ongoing strength in the U.S. economy. Prior to the data release, U.S. interest rate futures estimated the likelihood of the first cut happening in June at roughly 60%, up from 51% on Monday, according to CME Group’s FedWatch tool, though the chance of a hold has increased to 40%.
Carol Kong, a currency strategist at Commonwealth Bank of Australia, stated that a robust CPI figure will likely lead markets to rule out a June cut, potentially causing a sharp rise in the dollar. She added that a strong core CPI of 0.3% (month-to-month) or higher would likely undermine the case for a June rate cut, as there are two more CPI readings before the meeting which are unlikely to demonstrate a trend of slowing inflation.
Conversely, even if the data falls short of expectations, June bets will likely remain relatively unchanged due to existing obstacles, implying that the dollar may only slightly decrease, she said. Kong also noted that the U.S. CPI will be a significant test for Japanese authorities.
The U.S. dollar index, which compares the greenback against six competitors, remained steady at 104.10. The yen stayed near its 34-year low against the dollar ahead of the data, receiving some support as the Bank of Japan Governor Kazuo Ueda signalled the possibility of another interest rate increase later this year in line with market expectations. The Japanese currency appreciated 0.06% to 151.70 per dollar as the BOJ chief spoke again in the Asian morning.
In other news, the euro remained stable at $1.085575, with the European Central Bank meeting on Thursday rapidly approaching. The ECB is predicted to maintain rates this week, but traders who are betting that the central bank will begin cutting in June will be looking for indications from policymakers. The sterling was largely unchanged at $1.26760.
Before the U.S. CPI, the Reserve Bank of New Zealand is anticipated to keep rates at 5.5% at its monetary policy meeting on Wednesday. The focus will be on the tone of the RBNZ’s statement for insights into the outlook. The kiwi appreciated 0.07% against the greenback to $0.60655. The Australian dollar increased slightly by 0.05% to $0.6630.

US CPI Data Unlikely To Ease Sticky Inflation Worries, But Will Markets Care?
Could the CPI report increase rate cut predictions? Recently, inflation data based on the CPI and PCE measures have begun to diverge, making the outlook unclear as the Fed seeks more clarity on price trends. The headline CPI has consistently remained above 3.0% since last summer, while the core CPI has been slowly decreasing.
The trend is somewhat more positive when considering the personal consumption expenditures (PCE) metric that the Fed prefers to concentrate on. The headline PCE price index slightly increased to 2.5% in February, but the core PCE reduced to 2.8%.
However, for the consumer price index, there likely wasn’t much convergence in March. The annual headline rate of CPI is anticipated to have risen slightly to 3.4% in March from 3.2%, with the month-on-month rate slowing to a 0.3% pace from 0.4%. Core CPI is also predicted to have slightly decreased, both monthly and annually, expected at 0.3% and 3.7% respectively.
A rate cut in June is no longer a certainty. While such figures wouldn’t necessarily cause concern, they also wouldn’t alleviate fears about inflation falling short of the Fed’s 2% target. However, for now, Fed officials remain hopeful that inflation will continue to decrease in the upcoming months, permitting a rate cut at some point in the second half of the year. It’s unlikely that the minutes from the March FOMC meeting will deviate much from this message.
The expectation that rate cuts are imminent, and that the US economy will almost certainly dodge a recession, has offset the disappointment from the diminishing expectations for a June rate cut. The chances of a 25-basis-point cut in June have been significantly reduced in recent weeks, especially after Friday’s impressive payrolls report. Markets are evenly divided on the likelihood of the Fed initiating its rate-cutting cycle in June, compared to it being almost fully priced in a few weeks ago.
Markets are hopeful that inflation will decrease. The US dollar has been on a general upward trend this year as investors have repeatedly had to reassess the timing of Fed easing. However, there’s still a tendency to give more importance to the soft indicators than the hot data, which is limiting dollar gains.
For instance, the decrease in the ISM services prices paid index more than compensated for the impact from the surge in manufacturing prices days earlier as well as hawkish commentary from Fed officials during the week. Meanwhile, the cooling wage pressures in the March NFP numbers were sufficient to keep concerns over accelerating job growth to a minimum.
A goldilocks economy. To be fair, the idea that the US labor market can continue to expand without triggering faster wage increases is not entirely unreasonable given the influx of migrants into the country, which is increasing the labor supply and thus meeting the rise in demand.
But even if this goldilocks scenario can persist, strong consumer demand due to the tight labor market will be an obstacle to reducing inflation all the way to 2%, particularly for services inflation. CPI less rental costs increased to 3.9% in February, having reversed from a low of 2.8% last September. If the decrease in the ISM services price gauge results in a lower reading for the CPI component as well, that could be enough to maintain the current positive sentiment in the markets even if the headline figure increases slightly.
However, if either or both the core and services CPI prints are stronger than forecast in March, the upbeat mood may fade, boosting the dollar, but putting pressure on Wall Street.

[Fed] Two Officials Have Different Views on the Number of Rate Cuts
On April 9, Raphael Bostic, the President of the Atlanta Fed, shared his views in an interview. He predicted a single rate cut this year, but with the ongoing evolution of economic activity and inflation, there could be two rate cuts or none in the forthcoming months. This is subject to the progression of the U.S. economy and inflation.
He stated that risks are currently even. Given the robustness and resilience of the U.S. economy, he didn’t dismiss the possibility that rate cuts might need to be deferred. If inflation starts to decrease as it did in the latter part of last year, or if there is an unforeseen slump in the labor market, he would be willing to modify our policy direction and possibly lower rates earlier. This indicates that there is still the chance for multiple rate cuts this year.
Austan Goolsbee, the President of the Chicago Fed, also gave a speech the previous day, the key points of which are as follows. Some indicators suggest that the current labor market is overheating, but considering the severe labor shortage, this overheating will not last. The economy is slowly moving towards a better equilibrium. However, there are still some troubling factors, such as the increase in consumer credit defaults.
Current interest rates are high compared to inflation. In this situation, the Fed must contemplate how long it needs to uphold the current restrictive interest rates. If rates remain high for an extended period, the unemployment rate will start to climb.
Both officials are apprehensive about potential unexpected downturns in the labor market. However, Goolsbee and Bostic have differing opinions on the number of rate cuts. The former anticipates three rate cuts this year, while the latter believes that only one cut is necessary or even no rate cut this year.

Sources :
– CNBC, Bloomberg, Reuters, Fastbull, Yahoo Finance, CNN, ForexFactory News, Myfxbook News etc

Prepared to you by “Akif Matin“

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