No One Dimensional Convergence!
It’s common knowledge that if the factors that enabled disinflation in 2023 stay still in play, then the macro back drop would be much better for second half of 2024. In this context, Yesterday's productivity data gave a very timely insight.
A part of the pain-free disinflation last year was a remarkable surge in how much economic output each hour of labour could generate. Data showed productivity boom continues in this year too if not at breakneck pace of 2023.
Labour productivity rose 0.3% in Q1, which pushed y/y number to a remarkably strong 2.9%- this elevated level would allow golden mix of surging growth, rising real incomes and falling inflation. While AI may drive strong gains in future, there is little evidence it is contributing now. The major factor is the jump in entrepreneurship- (New business applications through Q1 quarter of 2024 have outpaced 2019 by 54%).
The push and pull continues in the dollar this week but it is leaning slightly softer Markets squeezed USD long positions since FOMC., mainly on Japan being less tolerant of a post-intervention depreciation of the yen. Today's payrolls will be pivotal for FX - howsoever the number is, market would strive to be digging one or two reasons to sell Dollar.
Lane said there is no one-dimensional view of Fed-ECB divergence. What we are observing in markets is convergence of both Fed pricing to ECB’s & more cautious stance as seen in the lowest sensitivity of EUR to moves in 2-year USD swap rate.
Moreso, European natural gas prices rallied yesterday despite comfortable storage and a bearish outlook. - not a good sign for EURUSD- target 1.0611 Fibo- Still seeing EUR lower.
GBPUSD : expectations of a momentum shift - very little directional hint 1.2550 caps.
Honestly this is not the BOJ that we grew up with - Kanta is emerging as T20 player whereas Sakakibara a test player of the olden days - Concerns / hopes (depending on your position & perspective) are of the BoJ intervening again during holidays- better to. Support 152.61, 38.2% Fibo of Dec-April rally; resistance 153.90-154.00.