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Haitong Macro Liang Zhonghua team
Authors of this report:
李俊 S0850521090002
王宇晴 S0850122070054
梁中华 S0850520120001
·Summary ·
Economy: In the US, the job market remains stable. The number of new non-farm payrolls in the United States in March exceeded market expectations, and the unemployment rate fell slightly. The ISM manufacturing PMI rebounded to the expansion range more than expected, and the non-manufacturing PMI fell back, but it was still above the boom and bust line.
As of April 5, the market expects the Fed to cut interest rates in June 2024, and the number of rate cuts is still expected to be three times this year. The yield on the 10-year Treasury note rose 19bp to 4.39%.
In Europe, inflation continues to moderate. The year-on-year growth rate of HICP continued to decline in March, and the growth rate of PPI was still in the negative range. The Eurozone unemployment rate was unchanged in February compared to January, and the job market remained solid. Retail sales growth picked up slightly, but remained in negative territory. Policy: Fed officials have expressed hawkish views intensively, emphasizing that it is still too early to cut interest rates, many ECB officials believe that the time is coming, or in June, the BOJ's monetary policy remains on the sidelines, and the interest rate decision will depend on inflation data, while emphasizing appropriate action if the exchange rate is excessively volatile. Chile's central bank cut interest rates by 75bp to 6.5%. Risk warning: overseas monetary policy adjustment exceeded expectations
1
US: Employment remains steady
New non-farm payrolls remained stable. The number of new non-farm payrolls in the United States in March was 303,000, higher than market expectations of 214,000 and the highest since May 2023. Among them, the February data was revised down from 275,000 to 270,000, but the January data was revised up to 256,000, and the overall performance is still not weak.
Specifically, the services and government sectors contributed more to job creation in March, while the manufacturing sector was flat, mainly dragged down by the non-durable goods manufacturing sector (negative growth for two consecutive months). On the other hand, the construction sector performed better, adding 39,000 jobs in March, the highest since May 2022. Or related to the continued recovery of new home sales in U.S. real estate.
The unemployment rate fell slightly. The U.S. unemployment rate was 3.8% in March, down 0.1 percentage points from February, which may be partly related to the recovery in the labor force participation rate. The labor force participation rate rebounded to 62.7% in March, the highest since November 2023, and the employment rate also rebounded to 60.3%. (For details, see "Employment Remains Stable - Review of U.S. Non-Farm Payrolls Data for March 2024")
The prosperity of the manufacturing industry has rebounded significantly. The U.S. ISM manufacturing PMI rebounded 2.5 from February to 50.3 in March, significantly exceeding market expectations of 48.3 and rising above the boom-bust line for the first time since November 2022. Specifically, the output and new orders sub-items both rebounded above the boom-wither line, of which the output sub-item rebounded to 54.6 from 48.4 in February, with the most obvious improvement. In addition, the price index also rebounded significantly from February.
The prosperity of the non-manufacturing industry fell slightly. The U.S. ISM non-manufacturing PMI fell 1.2 to 51.4 in March from the previous value, lower than the market expectation of 52.8, but still above the boom and bust line. Among them, the order inventory, price index and supplier delivery sub-items declined significantly, and the employment index was still in the shrinking range.
From the perspective of high-frequency consumption data, BEA's estimation of retail and food service spending based on transaction data such as credit cards, debit cards and gift cards shows that although the scale of retail and food spending in the United States in the week of March 27 has fallen from the previous period, it is still at a high level and significantly higher than the pre-epidemic level, or reflects that short-term U.S. consumption is still temporarily stable.
In addition, as of April 4, the Atlanta Fed's GDPNow model estimated the annualized rate of US GDP in the first quarter at 2.5%, up 0.1 percentage points from a week ago (March 29).
The market is still pricing in a high probability of a rate cut in June. As of April 5, the market still expects the Fed to cut interest rates in June, but the probability has fallen back to about 50%. The number of rate cuts is expected to remain unchanged at three during the year.
Treasury yields recovered to 4.39%. As of April 5, the nominal yield on US 10-year Treasury bonds was 4.39%, up 19bp from the previous week, or affected by the still-stable non-farm payrolls data and intensive hawkish speeches from Fed officials. Among them, the real yield on the 10-year Treasury note was 2.02%, up 14BP from last week, and the 10-year inflation expectation increased by 5BP from the previous week to 2.37%.
2
Europe: Inflation continues to cool
Inflation continues to come down. The year-on-year growth rate of HICP in the euro area in March fell by 0.2 percentage points from February to 2.4%, lower than the market expectation of 2.5%. Core HICP fell 0.2 percentage points year-on-year to 2.9%, also below market expectations of 3.0%. The growth rate of PPI is still at a low level. Eurozone PPI came in at -8.3% year-on-year in February, down 0.3 percentage points from January and slightly higher than market expectations of -8.5%. The month-on-month growth rate was -1%, the largest month-on-month decline since May 2023. Overall, inflation in the eurozone continues to fall and is gradually approaching its 2% inflation target, which may provide confidence for the ECB to cut interest rates.
The job market remains solid. The unemployment rate in the 20 countries of the eurozone and 6.0% in the 27 countries of the European Union in February was 6.0%, both unchanged from January. Overall, the unemployment rate in the eurozone remains at historically low levels and the job market remains stable.
Retail sales growth remains weak. In February, the retail sales index of the 19 countries in the euro area grew by -0.7% year-on-year, a slight increase of 0.2 percentage points from January, but it has been in the negative growth range for 17 consecutive months, and the overall performance of consumption is still weak.
3
Policy: The Fed remains hawkish
Fed officials have intensively voiced hawkish views. In terms of the timing of interest rate cuts, many Fed officials stressed that it is still too early to cut interest rates. Fed Chair Jerome Powell said that a rate cut would not be considered until more progress was seen on inflation. Fed Governor Bowman pointed out that the decline in inflation in the United States has stalled, and until inflation returns to the pullback, a rate cut will not be a satisfactory action. Dallas Fed President Logan also believes that there are still great risks in the process of inflation falling, and that U.S. productivity may enter a period of strong growth, and that monetary policy is not as restrictive as expected, and the Fed is not in a hurry to cut interest rates immediately. Cleveland Fed President Mester believes that a rate cut later this year is appropriate, and the Fed will not have enough information to support a rate cut before May. Atlanta Fed President Bostic said that a rate cut in the fourth quarter may be appropriate and that more patience will be needed if inflation progresses slowly. In terms of the number of interest rate cuts, Fed member Daly stressed that three rate cuts this year is a good expectation, but if inflation stickiness increases, the Fed may reduce the number of rate cuts. Fed Governor Kugler also said that some rate cuts this year may be appropriate, and it is expected to achieve more inflation while avoiding a broad-based economic slowdown. However, Minneapolis Fed President Kashkari said that the Fed may not cut interest rates this year if inflation progress stalls.
The European Central Bank may cut interest rates in June. ECB Governing Council member Holzmann said that if there is more ample inflation data showing a favorable environment for interest rate cuts, in principle, there is no objection to easing policy in June. ECB Governing Council member and Bank of Spain Governor De Cos also said that interest rates could be cut for the first time in June this year. ECB officials agreed that Eurozone inflation is moving towards its 2% target, and while it would be wise to wait for new data, the case for a rate cut is now strengthening, according to ECB minutes.
The Bank of Japan's monetary policy still needs to wait and see. Bank of Japan Governor Kazuo Ueda said that more certainty is needed to achieve the inflation target at the moment, and that the interest rate decision will depend on the movement of inflation, and the rise in wages after the "spring fight" will push inflation higher. In addition, the size of BOJ's bond holdings will remain stable for some time.
In addition, Ueda stressed that the weakness of the yen may become another factor in the BOJ's interest rate hike, and if exchange rate changes have a non-negligible impact on the virtuous cycle of wage and price growth, the BOJ will make corresponding policy adjustments, and does not rule out any options for intervening in the foreign exchange market.
Chile's central bank cut interest rates by 75bp. Chile's central bank cut its benchmark interest rate by 75 basis points to 6.5%, in line with market expectations.
Risk warning: overseas monetary policy adjustment exceeded expectations
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Rising to the Challenge: Haitong's Macroeconomic and Policy Outlook in 2024 (Haitong Macro Research Team)
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