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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 United States, the University of Michigan consumers' 1-year and 5-year inflation expectations both rose in May, and the consumer confidence index fell significantly. Initial jobless claims rose more than expected in the week of May 4.
As of May 10, the market expects the Fed to maintain a high probability of interest rate cuts in September, and the expected number of interest rate cuts will remain at 2 times during the year, with an annual rate cut of 50BP. The yield on the 10-year Treasury note held steady at 4.5%.
In Europe, the year-on-year PPI in the euro area remained at a low level in March, and the year-on-year growth rate of the retail sales index in the 19 countries of the euro area rebounded. The Eurozone Sentix Investment Confidence Index continued to improve in May.
Policy: Some Fed officials said that interest rates will still be cut this year, and many officials stressed that they still need to wait patiently for interest rate cuts. The ECB may cut interest rates in June, but has not committed to the path of the cut. The Bank of Japan said that if prices continue to rise, the Bank of Japan may raise interest rates. The Bank of England keeps interest rates unchanged and may cut them sooner. The Riksbank cut interest rates by 25bp. Brazil's central bank cut interest rates by 25bp. Peru's central bank cut interest rates by 25bp. Risk warning: overseas monetary policy adjustment exceeded expectations
1
US: Inflation expectations rise
Consumer inflation expectations have risen. The University of Michigan consumer 1-year inflation expectation was 3.5% in May, up 0.3 percentage points from April and higher than the market expectation of 3.2%. Five-year inflation expectations rose 0.1 percentage points from April to 3.1%, also higher than the consensus of 3%. The rebound in inflation expectations reflects that the road to disinflation in the United States may still be bumpy, and the Fed may still have to wait for interest rate cuts.
Consumer confidence fell back. The University of Michigan consumer sentiment index in the United States was 67.4 in May, down 9.8 from April and significantly lower than the market expectation of 76.2.
Initial jobless claims have risen significantly. In the week of May 4, the number of initial jobless claims in the United States increased by 22,000 from the previous week (April 27) to 231,000 (market expectation of 212,000).
In addition, as of May 8, the Atlanta Fed's GDPNow model estimated the annualized rate of U.S. GDP in the second quarter at 4.2%, a significant increase of 0.9 percentage points from a week ago (May 1).
Expectations for interest rate cuts remain stable. As of May 10, the market expects the Fed to maintain a high probability of interest rate cuts in September, and the expected number of interest rate cuts will remain at 2 times during the year, with an annual rate cut of 50BP.
Treasury yields remained unchanged at 4.5%. As of May 10, the nominal yield on US 10-year Treasuries stood at 4.50%, unchanged from the previous week. Among them, the real yield of the 10-year US Treasury bond was 2.16%, up 1BP from last week, and the 10-year inflation expectation fell 1BP from the previous week to 2.34%.
2
Europe: Retail sales improved
PPI is still low year-on-year. The Eurozone PPI in March was -7.8% year-on-year (market expectation of -7.7%), up 0.7 percentage points from February, still at a relatively low level, and has been in the negative growth range for 11 consecutive months.
Eurozone retail sales growth improved. The retail sales index of the 19 countries in the euro area grew by 0.7% year-on-year in March, a significant rebound of 1.2 percentage points from February, entering the positive growth range for the first time since September 2022, or reflecting a marginal improvement in retail consumption in the euro area.
The investment confidence index continued to rise. The Eurozone Sentix Investment Confidence Index was -3.6 in May, up 2.3 from April, which has risen for seven consecutive months and is at its highest level since February 2022. After the European Central Bank is expected to cut interest rates in June, market investment confidence may be boosted to a certain extent.
3
Policy: The Fed will have to wait for a rate cut
Some officials say the Fed will still cut interest rates this year. New York Fed President Williams said the Fed will still cut interest rates eventually. U.S. households are more cautious in spending, and U.S. GDP growth is expected to slow in 2024. Atlanta Fed President Bostic said the Fed is still on track to cut interest rates this year, with a 25bp cut expected. However, Fed Governor Bowman believes that there is no reason for the Fed to cut interest rates in 2024 and may have to wait for several monetary policy meetings before being ready to support it.
Many officials believe that the Fed still needs to be patient in cutting interest rates. Boston Fed President Collins said that the data from 2024 do not show a trend of further decline in inflation, and the Fed should maintain the current policy rate until it has more confidence in the decline of inflation. Fed's Kashkari also believes that the Fed is most likely to keep its policy rate stable for a longer period of time, and may continue to raise interest rates if necessary if inflation becomes entrenched, although the threshold for another rate hike is quite high. It will take a number of positive inflation data to help the Fed start cutting interest rates. Dallas Fed President Logan also said that the progress of the decline in inflation has been disappointing and that it is too early to consider cutting interest rates.
Chicago Fed President Goolsbee said that monetary policy is relatively restrictive, and inflation is currently fluctuating, and the Fed needs to stay on the sidelines. If a rebound in inflation means that demand is overheated, the Fed must do whatever it takes to bring inflation down to 2%. Fed San Francisco Fed President Daly also said that there is uncertainty about the level of inflation in the coming months, and if the job market deteriorates, the Fed will consider cutting interest rates, although it is too early to declare that the job market is deteriorating. Richmond Fed President Barkin believes that monetary policy can bring inflation down to 2% at this stage, and the current policy impact of high interest rates has not yet been fully felt. The strength of the labor market gives the Fed time to confirm whether inflation is moving lower sustainably.
The European Central Bank may cut interest rates in June. ECB Governing Council member De Cos said that if the price trajectory holds, interest rates could be cut from June. In terms of the number of interest rate cuts, ECB Governing Council member Simkus said that the ECB is expected to cut interest rates three times in 2024.
However, in terms of the path of future rate cuts, ECB Vice President Guindos said that there will be no commitment to further action in the future after the planned rate cut in June. ECB Governing Council member Wunsch also said that there are still significant risks to wage growth and inflation trends in the services sector, and that now is not the time to commit to the stated actions, and the path of interest rate cuts depends on the specific data. On the other hand, the policy divergence between the ECB and the Fed could have a significant impact on the euro.
If prices continue to rise, the Bank of Japan may raise interest rates. Bank of Japan Governor Kazuo Ueda said that if the price trend rises as expected, the Bank of Japan may raise interest rates, and it is difficult to determine the level of the neutral interest rate in Japan at this time. He also stressed the need to pay attention to the impact of a weak yen and oil prices on real wages. If foreign exchange affects price trends, monetary policy is required.
The Bank of England left interest rates unchanged or could start cutting them sooner. The Bank of England kept interest rates at 5.25%, in line with market expectations. Bank of England Governor Andrew Bailey said that the Bank of England may need to cut interest rates to make policy less restrictive. Interest rates are likely to fall more than the market expects. Bank of England Deputy Governor Ramsden joined the bandwagon in favor of a rate cut, calling for an immediate cut in the benchmark rate.
The Riksbank cut interest rates by 25bp. The Riksbank cut its benchmark interest rate by 25 basis points to 3.75%, in line with market expectations, and it was the first rate cut by the Riksbank since 2016. The Riksbank said it expects two more rate cuts in the second half of 2024 if the inflation outlook remains unchanged.
Brazil's central bank cut interest rates by 25bp. Brazil's central bank cut its key interest rate by 25 basis points to 10.50%.
Peru's central bank cut interest rates by 25bp. Peru's central bank cut its benchmark interest rate by 25 basis points to 5.75%.
Risk warning: overseas monetary policy adjustment exceeded expectations
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