Ahead of the game: 3 June 2024

This week, key US equity markets fell on hawkish Fed Speak and as volatility in the bond market, encouraged traders to move to the sidelines. Also likely playing a part, when markets have outperformed during the month as the NASDAQ has done, fund managers are forced to sell the outperformers to return to benchmark portfolio weightings for month end reporting.

The ASX 200 fell for a second consecutive week on headwinds from Wall Street and following a firmer than expected Australian inflation reading for April which will likely see the RBA keep interest rates higher for longer.

• In the US, CB Consumer Confidence increased to 102 in May from 94 prior
• The second estimate of US Q1 GDP was revised lower to 1.3% below 1.6% in the advanced estimate
• In Germany, the Ifo Business Climate remained stable in May at 89.3, below consensus expectations of 90.5
• Staying in Germany, Consumer confidence rose to -20.9, improving for a fourth straight month to its highest level since April 2022
• In Japan, Consumer Confidence dropped to 36.2 in May 2024 from 38.3 in the previous month
• In Australia, the Monthly CPI indicator for April rose by 3.6% year-on-year (YoY), above market forecasts of 3.4%. Annual trimmed mean inflation increased to 4.1% in April from 4.0% in March
• Crude oil is trading flat this week at $77.76 per barrel
• Gold rose 0.41% this week to $2343, holding ground despite a sharp rise in US yields
• Wall Street's gauge of fear, the Volatility (VIX) Index, rose to 14.46 from 11.92 prior

• AU – Company Gross Profits (Tuesday, 4 June at 11.30 am AEST)
• AU – Q1 2024 GDP (Wednesday, 5 June at 11.30 am AEST)
• AU – Balance of Trade and Home Loans (Thursday, 6 June at 11.30 am AEST)

• CH – Caixin Manufacturing PMI (Monday, 3 June at 11.45 am AEST)
• CH – Caixin Services PMI (Wednesday, 5 June at 11.45 am AEST)
• CH – Balance of Trade (Friday, 7 June at 1.00 pm AEST)

• US – ISM Manufacturing PMI (Tuesday, 4 June at 12.00 am AEST)
• US – JOLTs Job Openings (Wednesday, 5 June at 12.00 am AEST)
• US – Factory Orders (Wednesday, 5 June at 12.00 am AEST)
• US – ADP employment (Wednesday, 5 June at 10.15 pm AEST)
• US – ISM Services PMI (Thursday, 6 June at 12.00 am AEST)
• US – Non-Farm Payrolls (Friday, 7 June at 10.30 pm AEST)

• EA – ECB interest rate meeting (Thursday, 6 June at 10.15 pm AEST)

• CH

Caixin manufacturing PMI

Date: Monday, 3 June at 9.45am SGT

Caixin services PMI

Date: Wednesday, 5 June at 9.45am SGT

The series of economic data out of China lately has been rather mixed. While there are some green shoots seen from higher-than-expected Q1 GDP and improved April trade activities, market participants also have to digest weak domestic demand from underperforming retail sales and inflation data, overall pointing to an uneven recovery.

The latest official PMI numbers for May have also surprised on the downside, with manufacturing PMI dipping back into contraction (49.5 versus 50.5 consensus) and services activities coming in weaker-than-expected (51.5 versus 51.5 consensus). Further signs of economic weakness may call for a step-up in supportive measures from authorities into the second half of the year.

Current expectations are for China’s Caixin manufacturing PMI to tick slightly higher to 51.5 from the 51.4 prior.

China's Caixin manufacturing and services PMI

• AU

Q1 2024 GDP

Date: Wednesday, 5 June at 11.30 am AEST

Australian GDP rose by 0.2% in the December quarter of 2023 for an annual rate of 1.5% YoY. While it was the ninth straight rise in quarterly GDP, it was viewed as a soft number as more normal levels of GDP in Australia are closer to 3%.

Katherine Keenan, ABS head of national accounts, said: “Growth was steady in December, but slowed across each quarter in 2023.” and “Government spending and private business investment were the main drivers of GDP growth this quarter.”

Within the details:

• Per capita GDP growth fell by 0.3% QoQ. It was the third consecutive quarterly fall in per capita GDP as the “per capita recession” deepens
• After eight quarters of falls, household saving-to-income ratio increased to 3.2%, from 1.9%, as income received by households outpacing their income paid
• Inventories subtracted 0.3 percentage points from growth
• Net exports added 0.6 percentage points to growth as imports fell 3.4%
• Household spending increased by 0.1% in the December quarter with increases across all essential categories
• These categories including electricity, rent, food and health. Meanwhile, households wound back spending in discretionary areas, including hotels, cafes and restaurants, cigarettes and tobacco, new vehicle purchases and clothing and footwear

This quarter, the preliminary expectation is for GDP to increase by 0.3% and for the annual growth rate to rise by 1.2%. This aligns with the RBA’s revised forecasts from the May Statement of Monetary Policy. The RBA’s revisions lower mainly reflect a weaker outlook for consumer spending, which is expected to help return demand and supply into balance in the coming quarters. GDP growth is forecast to increase gradually from late 2024, driven by a pick-up in household consumption growth as viewed in the second chart below.

AU annual GDP rate

RBA growth, unemployment and inflation forecasts from the May SoMP

• EU

ECB interest rate meeting

Date: Thursday, 6 June at 10.15 pm AEST

At the April policy meeting, the ECB revealed greater confidence that inflation is on track towards target and opened the door for a rate cut in the upcoming June meeting. Follow-up comments from policymakers since then also highlighted their intention for imminent rate easing, with ECB President Christine Lagarde recently saying “strong likelihood” of a June move.

With that, a 25 basis-point rate cut next week looks to be a done deal, with the rates markets pricing a 97% odd for a cut. But beyond that, opinions remain split on the rate trajectory into the second half of the year, which will leave focus on any upcoming guidance from the statement and press conference to offer clues on the timing of future rate cuts.

Fresh economic projections on growth and inflation will also be provided at the upcoming meeting. At least for now, policymakers may still likely lean on their data-dependent stance, potentially awaiting more clues from incoming economic data and for when the Fed may make its first rate move.

Key ECB interest rates

• US

Non-farm payrolls

Date: Friday, 7 June at 10.30 pm AEST

In April, the US economy added 175,000 jobs, a sharp fall from an upwardly revised 315,000 jobs in March, and below consensus expectations, looking for a 243,000 increase. The unemployment rate edged up to 3.9% from 3.8% on an unchanged participation rate of 62.7%. Rounding out the softer set of numbers, average hourly earnings rose by 0.2% month-on-month (MoM), allowing the annual rate to fall to 3.9% YoY in April from 4.1% prior.

Fed speakers have emphasised they are in no rush to cut rates, and this week, Federal Reserve Bank of Minneapolis president, Neel Kashkari, even floated the idea that another rate hike might still be needed to bring inflation back to target. However, Fed Speakers have also signalled that an unexpected deterioration in the labour market would provide a faster path to rate cuts.

This month, the market is looking for the US economy to add 180k jobs and for the unemployment rate to remain stable at 3.9%. The participation rate is expected to remain at 62.7%, and average hourly earnings are expected to remain stable at 3.9% YoY.

US unemployment rate