Ahead of the game: 12 April 2024

It's been a rollercoaster week for US stocks, thanks to a stubborn inflation report putting the brakes on any Fed rate cut dreams for 2024. All eyes are now peeled for Q1 2024 earnings, with the spotlight glaring on MegaTech's numbers, starting with Netflix, previewed here.

While the ASX 200 was quiet at an index, there was plenty of activity under the hood as investors rotated out of ASX 200 financial stocks and into undervalued energy and resource stocks.

• Fresh record highs for gold this week above $2375, inspired by cooler-than-expected US PPI, igniting Fed rate cut speculation.
• US headline inflation inched up to 3.5% YoY in March, a slight rise from 3.4%. Core inflation steadies at 3.8%, surpassing the 3.7% forecast.
• Crude oil took a 1.59% hit this week, dropping to $85.55 due to unexpectedly high US crude inventories and rising yields.
• Japan sees a consumer confidence boost to 39.5 in March, marking the highest point since April 2019.
• ECB keeps the Euro Area deposit rate steady at 4%, with hints at a possible rate cut come June.
• China's headline inflation barely moves, up only 0.1% in March, well below the expected 0.5%.
• US PPI and core PPI both posted a mild increase of 0.2% in March, with the latter meeting, but not exceeding, market forecasts.
• In Australia, consumer sentiment continues its slide, falling another 2.4% in April, signaling prolonged downturn feelings.
• The Volatility Index (VIX) sees a decrease to 14.92 as US stock markets start to stabilize within a certain range.

• NZ: Q1 CPI (Wednesday, 17 April at 8:45am AEDT)
• AU: Jobs report (Thursday, 18 April at 11:30am AEDT)

• CH: Q1 GDP, IP, and Retail Sales (Tuesday, 16 April at 12pm AEDT)
• JP: Inflation (Friday, 19 April at 9:30am AEDT)

• US: Retail Sales (Monday, 15 April at 10:30pm AEDT)
• US: Building Permits (Tuesday, 16 April at 10:30am AEDT)

• UK: Unemployment Rate (Tuesday, 16 April at 4:00pm AEDT)
• GE: ZEW Economic Survey Index (Tuesday, 16 April at 7:00pm AEDT)
• UK: Inflation Rate (Wednesday, 17 April at 4:00pm AEDT)
• UK: Retail Sales (Friday, 19 April at 4:00pm AEDT)

• CH

China’s 1Q GDP, industrial production, retail sales and fixed asset investment

Date: Tuesday, 16 April 2024 1PM

The recent run in China’s economic data continues to highlight a mixed picture for the country’s economic recovery. While upside surprises in its March Purchasing Managers' Index (PMI) numbers offered room for some relief, market participants will have to balance it with unresolved risks in the property sector, alongside prevailing weakness in domestic demand.

Price data for March showed China’s consumer prices flirting with deflationary territory once more, coming in lower-than-expected at just 0.1% year-on-year, down from the previous 0.7% in February.

Economic data releases next week may reflect more of the same in terms of easing recovery momentum. March industrial production is expected to ease to 5.4% YoY from previous 7.0%, while retail sales is expected to ease to 4.5% YoY from previous 5.5%. Expectations are for 1Q GDP to register a 4.6% growth, lower than the 5.5% in 4Q 2023. Quarter-on-quarter, 1Q GDP is expected to come in at 1.4% from previous 1.0%.

China’s retail sales, fixed asset investment, industrial production % YoY

• UK

Inflation numbers

Date: Wednesday, 17 April at 4.00pm

In February, the headline inflation rate in the UK eased to 3.4% YoY from 4.0% in January, below market expectations of 3.5%. It was the lowest rate since September 2021. The annual core inflation rate fell to 4.5% from 5.1% prior, below market expectations of 4.6%.

The softer inflation data fell the day before the BoE’s March Board meeting when the BoE shifted to a neutral stance, viewed as the first step towards rate cuts. The BoE said it will “continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation".

The initial response in the rates market was to price a cumulative 75 basis points (bp) of BoE rate cuts this year. However, following the hotter-than-expected US CPI data this week, the rates market is pricing in just 50bp of cuts, with a first-rate cut priced in September.

Last month, the annual rate of headline inflation is expected to fall to 3.1% from 3.4%, and the annual rate of core inflation is expected to ease to 4.3% from 4.5%.

UK inflation rate chart

• AU

Labour force

Date: Thursday, 18 April 18th at 11.30am

In February, the Australian economy added 116.5k jobs, versus consensus expectations of +40k. The robust increase in jobs saw the unemployment rate fall to 3.7%, the lowest since September 2023, from 4.1% prior. The participation rate ticked up to 66.7% from 66.6%. Meanwhile, the underutilisation rate, which combines the unemployment and underemployment rates, fell by 0.5 percentage points to 10.3%.

The ABS noted that the solid job growth in February followed a “larger than usual number of people in December and January who had jobs that they were waiting to start or to return to. This translated into a larger-than-usual flow of people into employment in February, even more so than in February last year.”

Last month, the market expected the economy to lose 70k jobs and the unemployment rate to rebound to 4% from 3.7%. With seasonal noise expected to subside in the coming months, allowing evidence of cooling within the labour market to emerge more clearly, we reiterate our call for the RBA to cut rates by 25 basis points (bp) in August before a second cut in November, which will see the cash rate end the year at 3.85%.

AU unemployment rate

• JP

Japan’s inflation rate

Date: Friday 19 April 10:30

Both Japan’s headline and core inflation rate accelerated in February to 2.8% YoY, but its core-core inflation (which excludes fresh food and energy) continues to ease to 3.2% from previous 3.5%. The core-core aspect is closely watched by the Bank of Japan (BoJ) as an indicator of broader price trends, and a touch of its lowest level since January 2023 injects some uncertainty on the BoJ’s next move.

In the previous BoJ meeting, the central bank raised its short-term interest rates for the first time in 17 years, with the hopes that a wage-price spiral may make its ‘stable and sustainable inflation’ goal more achievable. Recent follow-up comments by the BoJ Governor Kazuo Ueda also guided that the central bank may look to reduce monetary stimulus further if trend inflation rises.

Further clues on the timing of the BoJ’s next rate hike will be sought from the upcoming inflation data, with any upward pressures on prices likely to see its inflation forecasts raised at the upcoming April meeting. That may drive some hawkish rate expectations, with current consensus priced for the BoJ to hike rates further in July this year.

Japan’s inflation rate % YoY

• US

Q1 2024 earnings season

The Q1 2024 Earnings season picks up speed next week, with companies including Goldman Sachs, Johnson and Johnson, Bank of America, Morgan Stanley, Netflix (previewed here), Procter and Gamble, and American Express scheduled to report.

US earnings date