Focus on April PMIs today

In focus today

In the euro area, focus today will be on the euro area PMIs for April. The previous months' PMIs have shown a return of the two-speed economy with the service sector in expansionary territory and manufacturing sector stuck in contraction. We expect that service PMIs will remain above 50 as rising real wages and a strong labour market are supporting activity. The manufacturing PMIs will likely increase but stay below 50 as the global manufacturing cycle is slowly turning positive, inventory dynamics support production, and financial conditions have eased. We also keep an eye on PMIs from the UK.

In Sweden, Riksbank governor Erik Thedéen gives a speech on monetary policy and the current economy at 18.00 CET.

The Hungarian National Bank will announce their rate decision following their rate setting meeting. We expect the bank to deliver a 50bp rate cut. If we are right, it will be the seventh cut since October last year.

Tesla will deliver their Q1 earnings today, after Tesla fell 3.4% in yesterday's trading to record the seventh straight loss.

Economic and market news

What happened overnight

In Japan, Bank of Japan (BoJ) Governor Ueda said that the BoJ would hike interest rates again if trend inflation accelerates towards its 2% target, in line with their forecast. He also stated that for the time being BoJ must keep its ultra-loose monetary policy as trend inflation remains somewhat below the 2% target. BoJ hosts its two-day policy meeting at the end of this week. We expect the BoJ to stay on hold at this week's meeting, but hike interest rates one more time later this year, especially if the JPY remains week.

Speaking of the weak JPY, the Japanese Finance Minister Suzuki issued yet another warning of possible currency intervention. Suzuki told the parliament that last week, he voiced strong concerns of the week JPY at the trilateral level with his counterparts from the US and South Korea, and that they agreed with him. He was not more specific about how big an intervention would be. USD/JPY hit as high as 154.84 overnight, which is the highest level since 1990. Already last month there were speculation about the government intervening if USD/JPY would hit the 152 level, and the market reaction has been very modest to this point, indicating that markets at this stage need to see action.

The US is preparing a draft of sanctions, that threatens to cut off some Chinese banks from the global financial system according to Wall Street Journal (see U.S. Takes Aim at Chinese Banks Aiding Russia War Effort). The sanctions should target Chinese banks offering commercial support of Russia's military production.

What happened yesterday

Euro area consumer confidence rose marginally to -14.7 in April (cons: -14.5, prior: -14.9). The level indicates that consumers remain pessimistic despite record-low unemployment and rising real income. The weak consumer confidence is likely one of the reasons for the still weak private consumption and declining consumption share. However, confidence is moving upward and is now at the highest level since February 2022. As economic fundamentals for households are decent, we expect private consumption to tick up during the year.

The Oil market remained calm yesterday as news of new sanctions from the USA against Iran's oil sector was absorbed. Brent was stable around 87 dollars per barrel - a modest price level considering the recent escalation of geopolitical tensions in the Middle East. The dollar has also risen recently - primarily driven by higher US interest rates. The strong dollar may also help alleviate pressure on the oil price. We expect the oil price to stay around the current level for the foreseeable future.

Equities: Global equities surged across regions yesterday. Notably, this was led by banks and defensive sectors, while technology made only a marginal recovery following last week's underperformance. This reinforces our fundamental belief that the real challenge at present is primarily tied to inflation and central bank concerns rather than geopolitical issues and earnings. In the US yesterday, the Dow saw a +0.7% increase, S&P 500 +0.8%, Nasdaq +1.1%, and Russell 2000 +1.0%. This morning, Asian markets and European futures are broadly higher, while US futures are stable.

FI: European rate markets continued to fluctuate significantly in yesterday's session with curves generally ending lower. BTPs rallied following S&P's decision to confirm its BBB (stable) rating last Friday despite Italy's worsening budget outlook. The Bund curve bull-flattened slightly with the 10Y tenor dipping below the 2.5% mark. The 10Y US Treasury yield was down 6bp to the current level of 4.60%. Markets added 4bp to ECB rate cut expectations for 2024 (now 77bp) following dovish comments from Banco de Portugal's Centeno who said cuts at around 100bp could be compatible with inflation reaching 2% in the medium-term. The Bund ASW spread was steady at 34.5, while credit spreads continued tightening throughout the day.

Yesterday's macro news flow was very limited. Eurozone consumer confidence improved further in preliminary April data, but the current index level at -14.7 is still low in a historical context. As economic fundamentals for households are decent, we expect private consumption to tick up during the year, but we will likely have to wait until confidence rises further.

FX: A quiet and rather uneventful session yesterday. The dollar was little changed, while the scandies were stronger on the day, supported by benign risk sentiment as the S&P 500 ending its 6-day rout. The yen continues to shrug off intervention warnings and USD/JPY is closing in on 155.