As the trading day comes to an end, the CAD and the USD are ending as the strongest of the major currencies and the EUR is the weakest . However, the variation from the strongest to the weakest was relatively close.
The economic calendar today saw the Philadelphia Fed manufacturing business index rise join in expectations of 15.5 versus 2.3. Initial jobless claims continues to show steady strength. Later existing home sales came in as expected.
The US dollar got a boost after Fed officials continued to talk more hawkish/less dovish than .
NY Fed President Williams spoke about the current state of the economy and the Federal Reserve’s monetary policy, expressing that he does not feel an urgency to cut interest rates at the moment. He highlighted that the economy is strong and economic imbalances have been reduced, suggesting that the current Fed rates have not overly slowed the economy. Williams emphasized that monetary policy is currently well-positioned but acknowledged that interest rates will eventually need to be lowered depending on economic activity. He also mentioned that further rate hikes are not his baseline forecast, but the Fed would consider them if the data supported such a move. Additionally, he reiterated the importance of the Fed’s 2% inflation target and the need for the Fed to continue working toward lowering inflation. Williams also noted that he is keeping an eye on China’s economic performance, indicating its potential impact on the global economy. US rates and the US dollar moved higher after Williams kept the window open for a rate hike (even though it was not his baseline).
Later in the day, Atlanta Fed President Bostic reiterated his recent view. He addressed concerns regarding current US inflation levels, stating they remain too high and acknowledging that there’s still significant progress needed to control inflation. Despite the urgency of the situation, Bostic expressed a readiness to approach adjustments with patience, emphasizing that there is no need to rush the process. He suggested that maintaining stable jobs and wages, while ensuring inflation moves towards the target, could justify keeping interest rates steady for the time being. Bostic remains optimistic about the economic outlook, not foreseeing a recession and predicting continued growth as the economy aligns more closely with the Fed’s dual mandates. However, he indicated that any potential rate reductions would likely not occur until towards the end of the year.
The Fed officials are looking for a cut, but when is anyone guess. However, it is not June and July and more likely September being the earliest.
In contrast to the more hawkish Fed, the ECB commentary today had the common theme of a June rate cut.
ECB’s Knot expressed his comfort with the market’s expectations of rate cuts, reflecting a positive outlook on the disinflationary process. He indicated a harmonious stance with market sentiment, which anticipates a rate cut in June. Concurrently, ECB’s Nagel also commented, foreseeing a cautious decline in rates starting in June, which suggests a coordinated and gradual approach to easing monetary policy within the ECB as inflation pressures begin to ease
ECB’s Rehn spoke later and discussed the current state of inflation, noting its convergence towards the ECB’s 2% target. He emphasized that ongoing monetary restraint has effectively helped to reduce inflation and its broader impact on the real economy. Rehn pointed out that while the ECB’s rates have been crucial in the disinflation process, there is no longer a need to maintain them at the current high levels for an extended period. He indicated that, assuming no further geopolitical or energy price setbacks, it would be appropriate to begin easing the monetary policy stance and consider rate cuts as soon as June, provided the confidence that inflation will continue to sustainably approach the 2% target.
From the Bank of England today, BOE’s Greene commented on the latest economic indicators and was a bit more hawkish. She noted that recent pay data shows a substantial increase in wage growth, which, although high, is moving in a favorable direction. Despite this, the latest inflation data slightly exceeded expectations, presenting a challenge in achieving a sustainable return to the BOE’s 2% inflation target. Greene highlighted inconsistencies between wage growth and services price inflation, which could hinder progress towards stabilizing inflation. He also mentioned that the UK labor market is beginning to loosen yet remains relatively tight, projecting that inflation may meet the target in the upcoming months but is unlikely to remain stable. Consequently, Greene does not anticipate a rate cut in the near future
Looking at the other markets as the day comes to an end:
- Crude oil is trading lower By about $0.85 or -1.03% $81.84
- Spot gold rose by $18.07 or 0.76% at $2378.50
- Silver was little changed at $28.22.
- Bitcoin moved to the upside trading at $63,496. The start of the day the price was trading at $62,800
US stocks were mixed with the Dow industrial average rising modestly. The broader S&P and NASDAQ indices both fell
- Dow Industrial Average rose 0.06%
- S&P index fell -0.22%
- NASDAQ and I fell -0.52%
All three indices are lower going into the final day of the trading week. Both the S&P and Dow are on pace to close lower for the 3rd consecutive week. The Nasdaq is down for the 4th week in a row.
US yields are closing higher:
- 2 year yield, 4.99%, up 5.8 basis points
- 5-year yield 4.680%, up 6.3 basis points
- 10 year yield 4.638%, +5.2 basis points
- 30-year yield 4.735%, +3.6 basis points