Week Ahead for FX, Bonds: Focus on Fed Decision, U.S. Jobs Data and Weak Japanese Yen
Below are the most important global events likely to affect FX and bond markets in the coming week starting April 29.
The U.S. Federal Reserve's monetary policy decision on Wednesday is likely to take center stage as expectations for interest-rate cuts continue to dim due to inflation staying stubbornly high and the economy remaining strong. The U.S. monthly jobs data for April on Friday will then be scrutinized for signs of whether jobs growth has remained strong this month.
In the eurozone, inflation figures will be watched as investors seek further confirmation of whether the European Central Bank will cut interest rates in June, while a rate announcement is due in Norway. Many European markets are closed for a public holiday on Wednesday, May 1.
In Asia, PMI data awaits markets during a relatively calm week punctuated by various holidays. Official gauges are due from China as views remain divided as to whether the recovery has arrived or not. Data from Japan and Australia will be watched, as well as inflation and trade prints from South Korea and Indonesia, plus the first growth estimates of the year from both Taiwan and Hong Kong.
Focus will also remain on moves in the beleaguered Japanese yen, which has dropped to 34-year lows against the dollar, and whether Japanese authorities could step in to prop up the currency.
U.S.
The U.S. Federal Reserve announces a decision on Wednesday. Interest rates are fully expected to be left on hold but all eyes will be on the statement for any signals on prospects of interest-rate cuts this year.
With data consistently showing U.S. inflation remains elevated while the economy and the consumer hold up well, Federal Reserve officials have increasingly suggested that a rate cut won't happen any time soon, and even the prospect that the next move could be a hike isn't out of the question.
Money markets are now only fully pricing in one rate cut in 2024, potentially as late as December, a massive fall from the start of the year when they were pricing in a total of 150 basis points in rate reductions, according to Refinitiv.
Fed Chair Jerome Powell recently said that firmer inflation in March had likely pushed back the timetable for starting rate cuts. Although an outlier, Fed policymaker Michelle Bowman said earlier this month that it was possible that interest rates could have to move higher to control inflation while several others have hinted at possible delays to rate cuts.
"What will be interesting [in the Fed announcement] is any shifts in the rhetoric. There could be a change in the wording of the statement for example, or Powell, in his post announcement press conference could be more cautious with regard to potential interest rate cuts," analysts at Investec said in a note.
Moves in U.S. Treasury yields will be closely watched as the 10-year yield edges closer to the key 5% mark.
"The sharp repricing of the Treasury market since the beginning of the year, and especially in April, has been driven by a perfect storm, where stronger U.S. macro indicators and higher inflation have coincided with hawkish comments by the Fed," Jussi Hiljanen, chief strategist for U.S. dollar and euro rates at SEB Research, told Dow Jones Newswires.
U.S. monthly non-farm payrolls data for April on Friday will be closely watched to see whether jobs and wage growth are slowing, though both are still expected to be strong.
"The fading of weather-related support and broader evidence of easing labour demand lead us to expect a smaller 200,000 rise in non-farm payrolls in April. We expect the unemployment rate to be unchanged at 3.8%, while average hourly earnings growth should edge down to 4.0%," said Stephen Brown, deputy chief North America economist at Capital Economics, in a note.
Ahead of the jobs data, ADP private payrolls figures for April and JOLTs job openings figures will be released on Wednesday.
Other U.S. data include the first-quarter employment cost index and the Conference Board measure of consumer confidence for April on Tuesday, while trade and factory orders data for March are released on Thursday, alongside weekly jobless claims. The final ISM manufacturing PMI for April is due on Wednesday followed by the equivalent reading for services on Friday. Chicago PMI for April and the Case-Shiller house-price index for February are released on Tuesday.
The U.S. Treasury holds a refunding meeting on Wednesday, where it is expected to keep planned auction sizes of notes and bonds unchanged.
CANADA
Canadian gross domestic product data for February are due on Tuesday, followed by trade data for March on Thursday.
EUROZONE
The flash estimate of eurozone CPI inflation for April is released on Tuesday, alongside preliminary first-quarter gross domestic product data. These come in the context of expectations that the European Central Bank will probably cut interest rates in June but with uncertainty about what it will do after that.
"We forecast that headline inflation remained at 2.4% year-on-year, as downward pressure on core inflation is likely to have been offset by an acceleration in energy prices," UniCredit analysts said in a note.
Investec analysts expect that the GDP data will show the eurozone exited recession in the first quarter, with a 0.1% quarterly expansion in output, "given that economic data at the start of 2024 has been more positive."
CPI and GDP data from individual eurozone countries will also be released. Provisional April CPI data are due from Germany and Spain on Monday, then from France and Italy on Tuesday. First-quarter GDP estimates are due from France, Germany, Italy and Spain on Tuesday.
Eurozone business and consumer surveys for April on Monday could give a clue on the performance of the economy at the start of the second quarter. Final manufacturing PMI for April for the eurozone and individual countries are due on Thursday, while French industrial production data is released on Friday.
Bond auctions are scheduled from Italy on Monday, the Netherlands and Germany on Tuesday and France on Thursday. Italy's offer includes the launch of a new 2032-dated floating rate note, as well as the reopening of five- and 10-year fixed-rate bonds. Germany launches a new green federal note, or Bobl, with maturity in April 2029. France will tap long-dated bonds with maturities in 2033, 2034, 2043 and 2055.
U.K.
The week is relatively quiet in the U.K., with focus on data on mortgage approvals, lending and consumer credit for March on Tuesday for clues on the health of the housing market and the consumer. The Nationwide house price survey for April is also due on Thursday. Final U.K. manufacturing PMI for April is released on Wednesday, with the equivalent survey for services PMI due on Friday.
The U.K. will auction five-year government bonds-or gilts- on Tuesday and 10-year gilts on Wednesday.
NORWAY
The Norges Bank announces a decision on Friday when it is expected to leave interest rates on hold at 4.5%, with focus on signals for the timing of a future interest-rate cut.
"We expect that Norges Bank will play down the likelihood of an interest rate cut in the autumn, as they specified at the last press conference, and rather guide for the first interest rate cut to come later than signaled so far," Handelsbanken analyst Sara Midtgaard said in a note.
Markets anticipate that rates most likely won't be cut until December, albeit with a possibility of a reduction in September, she said. If Norges Bank still guides toward a September cut, however, "there is a clear risk that the Norwegian krone exchange rate will weaken even further; complicating the task of hitting the inflation target."
The purchasing managers' index on Norwegian manufacturing sector activity is due on Thursday.
SWEDEN
The flash estimate for Sweden's first-quarter gross domestic product and retail sales figures for March are due on Monday.
The purchasing managers' index on Swedish manufacturing sector activity is due on Thursday.
Sweden will auction inflation-linked bonds on Thursday.
SWITZERLAND
Swiss CPI inflation data for April are due on Thursday.
JAPAN
In Japan, the week kicks off with March labor market, retail sales and industrial production numbers, all due on Tuesday*. Meanwhile, all eyes remain on whether the Japanese yen continues to weaken from already low levels.
Traders will eye the data for signs about how inflation and wages might trend.
In its quarterly outlook, the Bank of Japan said it expects inflation to remain around the bank's 2% target over the next three years. It also projected that the economy will expand 0.8% in the current fiscal year, compared with the 1.2% growth predicted in its previous report.
Some economists and traders expect the BOJ to raise interest rates again as early as this summer. The yen's weakness will likely add to inflationary pressures via higher costs of imports.
Capital Economics viewed the BOJ's outlook as upbeat, seeing signals of growing confidence about the inflation outlook.
"We're sticking to our forecast that it will increase its policy rate further to 0.3% in July," said Marcel Thieliant, head of Asia-Pacific at Capital Economics.
On the forex front, intervention watch continues as the yen depreciates past levels which have previously been seen as lines in the sand.
The yen weakened beyond 156 against the dollar after Friday's central bank meeting, the lowest level since May 1990.
BOJ Governor Kazuo Ueda has said that monetary policy isn't aimed at controlling forex rates directly, but that yen weakness could affect monetary policy if it has an impact on underlying inflation.
Policy meeting minutes are also due from the BOJ.
CHINA
In China, all eyes are on official PMI gauges due Tuesday which take the temperature of activity in the country's manufacturing, services and construction sectors. A private measure of factory activity is set to follow shortly after, giving a deeper look into the health of the sprawling industrial sector.
A five-day Labor Day holiday that starts Wednesday offers an opportunity to get new clues on the strength of China's domestic consumption, though official data including tourism spending and box office sales for that period might be announced only after the holiday ends.
The Chinese communist party's end-April Politburo meeting will also be in focus, amid speculation about more stimulus in the pipeline.
"Hints at conflicting views on monetary policy have surfaced in the past few days, sparking a discussion in domestic policy circles," said analysts at Pantheon Macroeconomics, referring to a budding debate between China's finance ministry and central bank over an unusual policy tool--treasury bond trading--to boost liquidity.
Remarks from the PBOC indicate it is unlikely to employ this policy option. Signs of division instead of coordination between policymakers could heighten concerns about how effective incoming stimulus will be.
AUSTRALIA
In Australia, a relatively busy week for data is headlined by March retail trade, due on Tuesday. Sales got a boost in February from spending around Taylor Swift's run of concerts in the country, and analysts think retail trade last month will be supported by the timing of Easter as households typically budget more for food.
Commonwealth Bank of Australia forecasts a 0.3% lift in spending in March, the same outcome as February. This would see an improvement of 0.5% in the first quarter.
Other data for March include credit growth, building approvals, lending indicators and the trade balance.
"We expect a modest 0.4% lift in credit growth, a 3% lift in the volatile building approvals series and a flat outcome for lending," said Belinda Allen, senior economist at CBA. "We do also expect the trade balance to widen to A$9.5 billion as imports normalize."
NEW ZEALAND
Wednesday* is shaping up to be an important day for investors trying to parse the intentions of the Reserve Bank of New Zealand.
The RBNZ will release its six-monthly Financial Stability Report, assessing how the economy is adjusting to higher interest rates. ANZ expects the report to highlight similar risks to those discussed in November, and also sees potential confirmation of changes to macroprudential policy settings.
ANZ points out that the consultation period for proposed debt-to-income restrictions and a slight loosening in loan-to-value ratio settings closed on March 12.
"The RBNZ have noted they expect to communicate final decisions in the middle of the year, suggesting the FSR could contain these details," ANZ said.
Wednesday* is also the scheduled release date for first-quarter labor-force data. Westpac forecast the unemployment rate to rise to 4.2%, from 4.0%, with wages growth slowing more.
"Our forecasts are similar to the Reserve Bank's most recent estimates, so we don't expect the results to provide any fresh direction for monetary policy," said Michael Gordon, Westpac's senior economist.
SOUTH KOREA
On Tuesday* industrial production figures for March are in focus, followed by trade figures on Wednesday. On Thursday*, eyes turn to inflation data for April and its implication for monetary policy.
More signs of sticky inflation could add to the case for the central bank to extend its policy pause.
South Korea's headline inflation topped 3% for a second consecutive month in March, remaining well above the central bank's 2% target.
The data will also be taken in the context of stronger-than-expected 1Q GDP growth, which is also pushing back rate-cut bets.
The Bank of Korea now seems to have more scope to be patient about easing its policy, ANZ economist Krystal Tan said in a note.
Nomura research analysts have sharply dialed back their expectations of rate cuts, penciling in only one cut this year and only once the BOK sees inflation well anchored to its 2% target. Although the BOK had been concerned about higher borrowing costs dragging on consumption, the 1Q GDP data shows that consumption was more resilient than expected.
Barclays economists suspect that higher oil prices are likely to keep disinflation in the March headline rate slow. Oil prices have been buoyed recently by heightened tensions in the Middle East. The economics team thinks industrial production growth will decelerate from a year earlier, citing slower exports growth in March.
SINGAPORE
Singapore watchers will be looking at first-quarter labor-market data on Tuesday, April manufacturing PMI on Thursday and March retail sales on Friday. The three releases will shed light on how the city-state's recovery is progressing, after flash estimates for growth in the first quarter were somewhat lackluster.
A continued expansion in the PMI could buoy expectations for recovery, while a solid showing in retail sales will reveal how consumer demand is faring.
Particular focus will be on the electronics sector. How this segment performs will be key to Singapore's manufacturing recovery in 2024, said DBS economist Chua Han Teng.
"The improvement in the global electronics cycle and demand remains intact, which should benefit Singapore's electronics manufacturers," he said. But simmering global uncertainties could keep the city-state's manufacturing improvement fragile.
Economists on the Barclays team expect unemployment to have stayed relatively low and stable during the month, which would continue signaling that the labor market remains moderately tight.
(All references to days for Asian events are in local times.)
- Additional reporting by David Winning, Amanda Lee, Xiao Xiao, Megumi Fujikawa, Kwanwoo Jun, Emese Bartha, Miriam Mukuru and Dominic Chopping
Write to Jessica Fleetham at jessica.fleetham@wsj.com and Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com
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