Preparing for Soft-Landing!
As April closes, with likely negative returns across most risk assets, some interesting trends bear watching.
In this one month, paradigm shift: Yields elevated, and you don't get mails saying that bonds offer the opportunity of this generation - Fed easing expectations have been pushed out even further. Higher-for-longer monetary policy appears well priced into rate markets now and the ‘soft landing’ appears to be getting priced out gradually in the risk asset markets.
Before media blackout, virtually all Fed speakers have signalled patience before easing and a couple have even floated the possibility of rate hikes. As such, the bar for a hawkish surprise is high.
When actual core PCE data only slightly surprised to the upside, the reaction was one of relief, with rates moving slightly lower across the yield curve. This leaves Treasury yields at or near 2024’s highest levels, with the 2-year yield at roughly 5% and the 10-year sitting at 4.65%.
While Real income growth is strong, real spending is stronger, forcing consumers to dip into savings. In the short run, that's problematic as it keeps pressure on inflation, particularly services prices. But the reach is not sustainable indefinitely amid mounting personal interest expense.
Eurozone data highlight will be April CPI today and Q1 GDP data tomorrow.
Sustained pick-up in growth is unlikely without policies that cause growth to shift from unproductive debt-fuelled investment. With PBOC still in easing mode and Fed staying hawkish, downside pressure on CNY is intact. The moment it breaks past 7.35, it will reduce the pressure on yen.
U.K. has a light data week. March money and credit data tomorrow. Net mortgage approvals for house purchases (indicator of future borrowing) expected to remain consistent with a further recovery in house prices.200-hma & 23.6% fib of YTD range at 1.2430 offers support. Resistance at 1.2555 (200-DMA)
High dealt at 160.20 - now 156.84 - they'll always be vague - We'll only get 100% certainty once the actual FX data comes out from BOJ in the next few weeks. As humour had it, BOJ could have a made in India strategy and keep 156 159 range.
Anyway, by delivering dovish hold last week, BOJ invited yen weakness -any intervention would be throwing good money after bad.
Iron grip.to loosen a bit - Guess 83.50 plus close today for eventual test of 83.77.