Zhitong Financial APP learned that Shenwan Hongyuan released a research report that there are still many uncertain risks in US CPI inflation, such as rent inflation, oil prices and other factors, or make the future market expectations of Fed interest rate cuts more sawed, aggravating 10Y US debt interest rate fluctuations, if the US non-farm, CPI, and consumption data released next month are weaker than market expectations, interest rate cut expectations may also make a comeback. For the dollar index, although European industrial production rebounded slightly, it was still much weaker than the Federal Reserve and could also support the high volatility of the dollar index.
The main points of Shen Wanhongyuan are as followsAsiaqualifiersworldcup2022:
From the end of April to the middle of May, under the influence of weaker-than-expected US first-quarter GDP, April employment data and April retail data, the market expected the Fed to cut interest rates, and 10Y US debt interest rates and the dollar index both fell.Asiaqualifiersworldcup2022.7% fell back to 4.35%. However, since mid-May, market concerns about inflation have deepened again, and Fed officials have expressed their eagle stance, leading to a small rebound in US bond interest rates and the dollar, and market expectations for the Fed's first interest rate cut have been pushed back to November.
The improvement of manufacturing PMI in the United States and Europe shows that replenishment is accelerated, which is conducive to China's exports. Nearly a week after the release of May Markit PMI data of the United States, Europe, Japan and Britain, three economic clues can be observed:
1) the US Markit manufacturing and service PMI both strengthened in May, indicating that supply and demand are booming. After the decline in April, the US Markit manufacturing PMI rebounded again to 50.9 in May, up 0.9 from April, above the line of rise and decline, and corresponding to the fact that new orders for durable goods in the United States exceeded market expectations in April, indicating that the trend of replenishment in the United States has not changed. The early twists and turns were mainly affected by higher interest rates on US debt in the first quarter and tighter domestic financial conditions in the United States. At the same time, the PMI of the Markit service industry in the United States rose sharply to 54.8 in May, 3.5 higher than in April, indicating that employment and prosperity in the service industry as a whole in the United States are still strong, but it is an indisputable fact that the income-consumption cycle of US residents has weakened, and it remains to be seen whether non-farmers will exceed expectations again in May.
2) the marginal improvement of manufacturing in euro area. Markit euro zone manufacturing PMI rose 1.7 to 47.4 in May, which is indeed related to the rebound in the euro zone and Germany's industrial production index, but it is still weak compared with the United States, helping to keep the dollar index high. In addition, the eurozone services PMI was unchanged at 53.3 in May from the previous month, with no bright spot.
3) the recovery of Japanese residents' service consumption has slowed down. Japan's services PMI fell 0.7 to 53.6 in May, indicating a slight slowdown in the recovery of Japanese household consumption, corresponding to a year-on-year decline in CPI in recent months (April: 2.5 per cent), with the contribution of core services falling.
The minutes of the May Fed meeting were hawkish, prompting market expectations of interest rate cuts to diminish. The stronger US service PMI in May rekindled market concerns about the resilience of US inflation, which was a major factor in the rebound in US debt interest rates and the dollar index. At the same time, the trend of PMI recovery / replenishment of US manufacturing actually implies the possibility that the US PPI rebound will pull inflation on core commodities, thus the market will adjust its expectations of Fed interest rate cuts again. In the minutes of the Fed's FOMC meeting in May, Fed officials expressed hawkish views such as "it will take longer than expected for inflation to fall back to 2 per cent" and "further policy tightening once the inflation risk becomes a reality", fuelling concerns about US inflation resilience.
Conclusion: the anchoring of economic data by Fed decisions may make expectations of interest rate cuts sawed back and forth. The decline of American residents' income-consumption cycle in 2024 does have an impact on inflation and consumption data, and it is also the main reason for the rebound of interest rate cut expectations from the end of April to mid-May. However, there are still many uncertain risks in CPI inflation in the United States, such as rent inflation, oil prices and other factors, which may lead to more market expectations of Fed interest rate cuts in the future, aggravating the volatility of interest rates on 10Y Treasuries. If the US non-farm, CPI and consumption data released next month are weaker than market expectations, interest rate cut expectations are also likely to make a comeback. For the dollar index, although European industrial production rebounded slightly, it was still much weaker than the Federal Reserve and could also support the high volatility of the dollar index.
Developed economy tracking: Japan's April CPI 2.5% year-on-year; emerging market tracking: South Korea's PPI continued to rise year-on-year; Global Macro Calendar: follow the US April PCE price index.
Risk tip: the Fed tightened more than expected.