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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, inflation remains "stubborn". The CPI continued to rebound year-on-year in March, and the decline in core inflation fell into "stagnation". The PPI continued to rise year-on-year, but fell month-on-month. In April, the University of Michigan consumers' 1-year and 5-year inflation expectations both rebounded more than expected, and the consumer confidence index fell slightly but still showed an overall upward trend. The Sentix Investor Confidence Index continued to rebound in April. Inflation remains relatively "stubborn".
Interest rate cut expectations have fallen, and the market expects the Fed to postpone the timing of the first interest rate cut from June to July the previous week, and the expected number of interest rate cuts this year has also been lowered from 3 to 2, with a rate cut of 50BP. The yield on the 10-year Treasury note recovered to 4.50%, mainly due to higher real interest rates.
In Europe, the Eurozone Sentix investor confidence index continued to recover in April. Policy: Fed officials still stressed that they are not in a hurry to cut interest rates and may slow down the pace of balance sheet reduction in the future, the European Central Bank will keep interest rates unchanged or cut interest rates in June, the Bank of Japan will maintain loose monetary policy, the Bank of Canada may cut interest rates in June, the Bank of Peru will cut interest rates by 25bp, and the Central Bank of Uruguay will cut interest rates by 50bp. Risk warning: overseas monetary policy adjustment exceeded expectations
1
US: Inflation downside "stalled"
Inflation continues to pick up. The US CPI in March was 3.5% year-on-year, up 0.3 percentage points from February, and the seasonally adjusted month-on-month was 0.4%, unchanged from February. The continued rebound in inflation in March is still linked to a recovery in energy prices.
The decline in core inflation has stalled. The US core CPI in March was 3.8% year-on-year and seasonally adjusted 0.4% month-on-month, both unchanged from February. The downward "stalemate" of core CPI is more related to the services sector. Core goods inflation in March was -0.7%, widening the decline from February, while core services inflation was 5.4% in March, picking up from February. Among them, the rebound in core services inflation came more from non-rent inflation. (For details, see "Inflation is Difficult to Fall: Which Supports?—— Review of U.S. Price Data for March 2024").
PPI continued to rise year-on-year. In March, the US PPI was 2.1% year-on-year and the core PPI was 2.4% year-on-year, up 0.5 percentage points and 0.3 percentage points respectively from February. However, the PPI growth rate was 0.2% month-on-month, slightly lower than the market expectation of 0.3%, down 0.4 percentage points from February. The core PPI also fell 0.1 percentage points from February to 0.2% month-on-month.
Consumer inflation expectations have picked up. The University of Michigan consumer 1-year inflation expectation was 3.1% in April, up 0.2 percentage points from March and higher than the market expectation of 2.9%. The 5-year inflation forecast also rose 0.2 percentage points from the previous value to 3%, higher than the market expectation of 2.8%. At present, the "last mile" of disinflation in the United States is still relatively bumpy, household consumer demand is still stable, and energy prices have also rebounded, which may have raised consumers' expectations for future inflation to a certain extent.
The consumer confidence index is still on the upswing. The University of Michigan consumer sentiment index in April was 77.9, down 1.5 from March, less than the expected 79, but overall still in the recovery range.
Investor confidence continues to recover. The US Sentix Investor Confidence Index was 18.9 in April, up 2.0 from March and the highest since February 2022. Since 2024, the pace of recovery in US investor confidence has accelerated, which may reflect investors' more optimistic expectations for the US economic outlook.
In addition, as of April 10, 2024, the Atlanta Fed's GDPNow model estimated the annualized rate of U.S. GDP quarter-on-quarter at 2.4%, which remained generally stable compared to the previous week (April 5).
Expectations of interest rate cuts have fallen. As of April 12, the market expects the Fed to cut interest rates for the first time from June to July the previous week, and the expected number of interest rate cuts this year has also been lowered from 3 to 2, with a rate cut of 50bp. Overall, market expectations for interest rate cuts have continued to cool in the near term as U.S. inflation has been blocked and the U.S. labor market remains stable.
Treasury yields recovered to 4.50%. As of April 12, the nominal yield on the US 10-year Treasury bond was 4.50%, a further increase of 11BP from the previous week, or affected by the rebound of US inflation in March and the gradual cooling of market interest rate cut expectations. Among them, the real yield on the 10-year Treasury note was 2.11%, up 9BP from the previous week, and the 10-year inflation expectation increased by 2BP from the previous week to 2.39%.
2
Europe: Investor confidence picks up
Investor confidence continued to rise. The Eurozone Sentix Investor Confidence Index was -5.9 in April, up 4.6 from March, which has risen for six consecutive months and is the highest level since February 2022. Investor confidence may also be boosted by the continued decline in inflation in the euro area and the growing confidence of the European Central Bank in cutting interest rates.
3
Policy: The European Central Bank may cut interest rates in June
Fed officials still stressed that there is no rush to cut interest rates. The minutes of the Federal Reserve's March monetary policy meeting showed that almost all officials believe that a rate cut this year is appropriate. However, many officials still said that the timing of the rate cut will have to wait. New York Fed President Williams, San Francisco Fed President Daly, and Kansas Fed President Jeff Schmid all believe that there is no need to adjust interest rate policy in the short term, and it will still take some time for US inflation to fall back to 2%. Boston Fed President Collins also believes that there is no urgency for the Fed to cut interest rates in the short term, and it is expected that the Fed will cut interest rates later than previously expected, and the election will not affect interest rate cuts. Atlanta Fed President Bostic said that the Fed may only cut interest rates once by the end of 2024.
In terms of balance sheet reduction, Collins said there was general agreement to slow the pace of balance sheet restructuring. Williams noted that slowing the pace of balance sheet reduction does not indicate that the Fed will stop shrinking its balance sheet anytime soon. The minutes of the Fed's March monetary policy meeting noted a preference for reducing the size of its balance sheet reduction by about half each month and preferring to adjust the ceiling on its holdings of U.S. Treasuries rather than adjusting mortgage-backed securities.
The European Central Bank (ECB) will keep interest rates unchanged or cut them in June. In April, the European Central Bank (ECB) kept the three main interest rates unchanged as scheduled, keeping the main refinancing rate, the deposit facility rate, and the marginal lending rate at historical highs of 4.5%, 4%, and 4.75%, which was the fifth consecutive meeting of the ECB to keep interest rates unchanged. In terms of inflation expectations, the ECB said that most underlying inflation measures are slowing and wage growth is flattening, and it is confident that it will reach the target inflation level of 2%.
In terms of monetary policy, the ECB stressed that it will not commit to a specific interest rate path in advance and will continue to make decisions based on data-driven meetings. ECB Governing Council member Stournaras said that the current monetary policy is too cautious and there is a risk of inflation falling below 2%, reiterating that it is time to part ways with the Fed's policy, and that there should be four rate cuts in 2024.
In terms of the timing of interest rate cuts, ECB Governing Council member Muller said that the slowdown in inflation has increased the likelihood of a rate cut in June. ECB Governing Council members Kazaks and Holzmann also believe that inflation in the eurozone has come down, wage growth remains strong, and if nothing else, interest rates will be cut in June.
The Bank of Japan maintains an accommodative monetary policy. Bank of Japan Governor Kazuo Ueda said that overall, large-scale easing has been positive and has had a positive effect on the growth of economic activity. The Bank of Japan holds about 7% of the entire Japanese stock market, and deciding on ETF holdings is a daunting task. In addition, Kazuo Ueda stressed that monetary policy will not be formulated directly in response to foreign exchange fluctuations at present, but if exchange rate changes hinder price growth, the Bank of Japan will make corresponding policy adjustments.
The Bank of Canada may cut interest rates in June. The Governor of the Bank of Canada said that June is within the time frame when the Bank of Canada may cut interest rates.
Peru's central bank cut interest rates by 25bp. Peru's central bank cut its benchmark interest rate by 25 basis points to 6%.
The Central Bank of Uruguay cut interest rates by 50bp. The Central Bank of Uruguay cut its benchmark interest rate by 50 basis points to 8.5%.
Risk warning: overseas monetary policy adjustment exceeded expectations
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