IC Markets Europe Fundamental Forecast | 16 April 2024
What happened in the Asia session?
China’s GDP grew more than anticipated in the first quarter of 2024 as the economy expanded 5.3% YoY versus the forecast of 4.8%. This latest reading showed the economy was on track to meet the government’s GDP target of 5%, largely due to sustained stimulus measures and some improvements in consumer spending.
However, industrial production and retail sales figures both failed to beat their respective forecasts as they increased at a much slower pace on an annualised basis. The miss in industrial production output was offset by stronger GDP figures which could continue to prop up prices for crude oil amidst the ongoing geopolitical tensions in the Middle East.
What does it mean for the Europe & US sessions?
The claimant count change increased sharply in February, spiking to 16.8K from just 3.1K in the previous month. The forecast of 17.2K for March points to a second consecutive month of higher claims which could potentially signal a softening of the labour market. The average earnings index – which tracks wage growth – has moderated significantly lower since mid-2023 which potentially reduces the spending power of the UK consumer – an effect that could nudge inflation lower in the coming months. Should the latest data indicate a further slowdown in wage growth and higher-than-expected claims, it could potentially cause the Pound to come under heavy selling pressure once more.
Federal Reserve Bank of Richmond President Thomas Barkin will be speaking on the economic outlook at the Rotary Club of Winston-Salem in North Carolina where audience questions are expected followed by Fed Chair Jerome Powell’s participation in a fireside chat about economic trends at the Wilson Center’s Washington Forum in Washington DC. Following last week’s hotter-than-anticipated CPI and PPI data as well as the overnight robust consumer spending, markets will be keeping a close ear to any remarks from these two Fed officials.
The Dollar Index (DXY)
Key news events today
Industrial Production (1:15 pm GMT)
FOMC Member Barkin Speaks (5:00 pm GMT)
Fed Chair Powell Speaks (5:15 pm GMT)
What can we expect from DXY today?
Industrial production has been mixed over the past six months with February’s data showing a very minor gain of 0.1% MoM following two months of large declines. The estimate of a 0.4%-growth points to an improved reading and should production come in higher than market expectations, it could function as a potential bullish catalyst for the dollar.
Federal Reserve Bank of Richmond President Thomas Barkin will be speaking on the economic outlook at the Rotary Club of Winston-Salem in North Carolina where audience questions are expected followed by Fed Chair Jerome Powell’s participation in a fireside chat about economic trends at the Wilson Center’s Washington Forum in Washington DC. Following last week’s hotter-than-anticipated CPI and PPI data as well as the overnight robust consumer spending, markets will be keeping a close ear to any remarks from these two Fed officials.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fifth meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals are moving into better balance.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks; inflation has eased over the past year but remains elevated.
- Recent indicators suggest that economic activity has been expanding at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks and does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
- Next meeting runs from 30 April to 1 May 2024.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
Industrial Production (1:15 pm GMT)
FOMC Member Barkin Speaks (5:00 pm GMT)
Fed Chair Powell Speaks (5:15 pm GMT)
What can we expect from Gold today?
Industrial production has been mixed over the past six months with February’s data showing a very minor gain of 0.1% MoM following two months of large declines. The estimate of a 0.4%-growth points to an improved reading and should production come in higher than market expectations, it could function as a potential bullish catalyst for the dollar and limit the recent gains in gold.
Federal Reserve Bank of Richmond President Thomas Barkin will be speaking on the economic outlook at the Rotary Club of Winston-Salem in North Carolina where audience questions are expected followed by Fed Chair Jerome Powell’s participation in a fireside chat about economic trends at the Wilson Center’s Washington Forum in Washington DC. Following last week’s hotter-than-anticipated CPI and PPI data as well as the overnight robust consumer spending, markets will be keeping a close ear to any remarks from these two Fed officials.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Following yesterday’s stronger-than-expected retail sales from the US, the Aussie tumbled hard as it fell from 0.6485 to as low as 0.6440 by the end of the US session. This currency pair resumed to the downfall to trade around 0.6425 as Asian markets came online.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the seventh pause out of the last eight board meetings.
- The headline monthly CPI indicator was steady at 3.4% over the year to January, with momentum easing over recent months, driven by moderating goods inflation. Services inflation remains elevated, and is moderating at a more gradual pace.
- The central forecasts are for inflation to return to the target range of 2–3% in 2025, and to the midpoint in 2026.
- While recent data indicate that inflation is easing, it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.
- Next meeting is on 7 May 2024.
Next 24 Hours Bias
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
CPI (10:45 pm GMT)
What can we expect from NZD today?
Inflation in New Zealand has been trending lower on a quarterly and annualised basis since mid-2023. However, both headline and core CPI readings – at 4.7% and 4.4% respectively – are well above the Reserve Bank of New Zealand’s (RBNZ) target of 2%. Should the latest inflation print come in hot, it could provide some much-needed tailwind for the Kiwi after diving sharply from 0.5950 overnight – this currency pair was trading around 0.5890 at the beginning of the Asia session.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the sixth meeting in a row.
- The Committee remains confident that the current level of the OCR is contributing to an easing in capacity pressures to ensure inflation returns to target.
- However, current consumer price inflation remains above the Committee’s 1 to 3% target range. A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation.
- The Committee discussed upside risks to the inflation outlook: persistent services inflation remains a risk and goods price inflation remains elevated while anticipated near-term increases to local government rates, insurance, and utility costs, could also further slow the decline in headline inflation.
- The Committee discussed downside risks to the inflation outlook: ongoing restrictive monetary policy in an environment of weak global growth could lead to a more rapid decline in inflation than expected. Business and consumer confidence remain particularly weak which could lead to more unemployment and financial stress than expected while structural challenges facing the economy in China remain a concern given its importance for the global economy and for New Zealand’s trade.
- Next meeting is on 10 July 2024.
Next 24 Hours Bias
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Robust consumer spending in the US drove USD/JPY to surge past 154 and hit an overnight high of 154.45. This currency pair pulled back slightly as Asian markets came online but it remained elevated above this 154-level – powerful tailwinds are likely to nudge this pair higher as the day progresses.
Central Bank Notes:
- The Bank considers that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date have fulfilled their roles. With the price stability target of 2%, it will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool.
- The Bank of Japan decided on the following measures:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1% while continuing its JGB purchases with broadly the same amount as before.
- In addition, the Bank will discontinue purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) and will also gradually reduce the amount of purchases of CP and corporate bonds and will discontinue the purchases in about one year.
- Underlying CPI inflation is likely to increase gradually toward achieving the price stability target of 2%, as the output gap turns positive and as medium- to long-term inflation expectations and wage growth rise.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 26 April 2024.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
ZEW Economic Sentiment (9:00 am GMT)
What can we expect from EUR today?
The ZEW Economic Sentiment for the Euro Area has increased steadily since November 2023 as overall sentiment for economic growth rebounded over this period. April’s forecast of 37.8 points to another month of higher sentiment – a result that could provide some much-needed lift for the Euro.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fifth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Inflation has continued to fall, led by lower food and goods price inflation with most measures of underlying inflation easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits.
- Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation but domestic price pressures are strong and are keeping services price inflation high.
- The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and if the Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.
- Next meeting is on 6 June 2024.
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Despite stronger consumer spending in the US, the jump in USD/CHF was short-lived as it hit an overnight high of 0.9152 before reversing quite sharply to touch the threshold of 0.9100 by the end of the US session. This currency pair retraced higher as Asian markets came online to trade around 0.9130 but it could edge lower as the day progresses.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points, going from 1.75% to 1.50% in March.
- For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability.
- According to the new forecast, inflation is also likely to remain in this range over the next few years.
- The forecast puts average annual inflation at 1.4% for 2024, 1.2% for 2025 and 1.1% for 2026, based on the assumption that the SNB policy rate is 1.5% over the entire forecast horizon.
- Swiss GDP growth was moderate in the fourth quarter of last year and it is likely to remain modest in the coming quarters.
- Overall, Switzerland’s GDP is likely to grow by around 1% this year.
- Next meeting is on 20 June 2024.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
Claimant Count Change (6:00 am GMT)
Average Earnings Index (6:00 am GMT)
What can we expect from GBP today?
The claimant count change increased sharply in February, spiking to 16.8K from just 3.1K in the previous month. The forecast of 17.2K for March points to a second consecutive month of higher claims which could potentially signal a softening of the labour market. The average earnings index – which tracks wage growth – has moderated significantly lower since mid-2023 which potentially reduces the spending power of the UK consumer – an effect that could nudge inflation lower in the coming months. Should the latest data indicate a further slowdown in wage growth and higher-than-expected claims, it could potentially cause the Pound to come under heavy selling pressure once more.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-to-1 to maintain its Official Bank Rate at 5.25% for the fifth consecutive meeting.
- One member preferred to reduce the Bank Rate by 25 basis points to 5.0%.
- Twelve-month CPI inflation fell to 3.4% in February from 4.0% in January and December while Services consumer price inflation has declined but remains elevated, at 6.1% in February.
- CPI inflation is projected to fall to slightly below the 2% target in 2024 Q2, marginally weaker than previously expected owing to the freeze in fuel duty announced in the Budget.
- In the February Report projection, CPI inflation had been expected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4, to around 2.75%.
- Having declined through the second half of last year, UK GDP and market sector output are expected to start growing again during the first half of this year while the fiscal measures in Spring Budget 2024 are likely to increase the level of GDP by around 0.25% over coming years.
- Next meeting is on 9 May 2024.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
CPI (12:30 pm GMT)
What can we expect from CAD today?
Inflation in Canada has moderated lower for both headline and core CPI over the past ten months or so. However, the monthly headline CPI is expected to rise 0.7% MoM which would mark the highest increase since April 2023. Should inflation readings in Canada come in hot, it could strengthen the Loonie and potentially reign in the recent gains for USD/CAD.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fifth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled in the second half of last year and the economy moved into excess supply but economic growth is forecasted to pick up in 2024. Overall, the Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
- CPI inflation slowed to 2.8% in February, with easing in price pressures becoming more broad-based across goods and services. However, shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs.
- Core measures of inflation, which had been running around 3.5%, slowed to just over 3% in February, and 3-month annualized rates are suggesting downward momentum. The Bank expects CPI inflation to be close to 3% during the first half of this year, move below 2.5% in the second half, and reach the 2% inflation target in 2025.
- The Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months and the Council will be looking for evidence that this downward momentum is sustained.
- Next meeting is on 5 June 2024.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
API Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
After briefly dipping under $84.50 per barrel overnight, prices for WTI oil rebounded as geopolitical tensions in the Middle East heightened. Tensions rose as Israel weighed a response to the attack by Iran over the weekend. Further escalation in this latest conflict is bound to keep crude prices elevated this week. The API will release its inventory levels for last week and should stockpiles indicate a higher-than-anticipated drawdown, it could function as an additional bullish catalyst for this commodity.
Next 24 Hours Bias
Weak Bullish
