Focus turns to the Fed

In focus today

Today's main event will be the FOMC meeting, where we and the markets expect no changes to the Fed's policy rate. With no new economic projections, focus will be on Powell's verbal guidance as well as on any hints on the Fed's plans to taper the pace of QT. Read more in Research US - Fed preview - Cuts still in the horizon, 26 April.

Just ahead of the rate decision, ISM Manufacturing index and ADP private sector employment report will be released for April alongside JOLTs labour turnover data for March.

Economic and market news

What happened over night

Markets in Asia have kicked off the first trading session of May ahead of the Fed decision in mixed fashion, with Australian and Japanese stock indices trading lower, and South Korean indices trading marginally higher. This also comes on the back of US equities yesterday closing their worst month since September last year. US equities ended up taking a turn for the worse yesterday after the release of the Employment Cost Index (read more below). Most US futures are also in the red as of this morning with only Dow Jones futures trading slightly up.

In Japan, data indicated that Japanese authorities had intervened in FX markets Monday using upwards of USD35bn supporting the yen, which hit a 34-year low against the dollar (USDJPY). This morning the yen is trading around 157.9 against the dollar.

With today marking International Labour Day, Hong Kong and Chinese markets are closed. China will also be out for the remainder of the week.

What happened yesterday

In the euro area, headline HICP inflation for April came in at 2.4% y/y as was expected, and unchanged from the month prior. Core inflation stood slightly higher than expected at 2.7% y/y (consensus 2.6% y/y), although it declined from 2.9% y/y the month before. Headline was unchanged despite the lower core inflation due to a rise in both food and energy inflation.

The much-important momentum in services inflation came in at 0.35% m/m s.a. which does not rhyme with 2% annual inflation. As such it poses an upside risk to the aggregate inflation outlook. Momentum in services inflation has been strong in the first months of 2024 and this has likely caused some concerns at the ECB.

The euro area economy grew more than what consensus expected in Q1 2024, as the economy saw 0.3% growth q/q (consensus: 0.1% q/q). However, the Q4 2023 number was revised down from 0.0% q/q to -0.1% q/q. We are yet to receive a full and detailed picture of what subcomponents stood out as growth drivers. However, country data suggests that demand especially from outside the euro zone contributed to and drove economic growth in Q1.

In the US, consumer confidence numbers for April surprised to the downside, as it the confidence metric stood at index 97 (prior: 104.7), whereas index 104 had been expected.

Conversely, the Employment Cost Index surprised to the upside, as it rose 1.2% q/q in Q1 2024 (prior: 0.9% q/q) compared to expectations of 1.0% q/q. The subcomponents for wages and benefits both rose 1.1% q/q (prior: 0.9% q/q and 0.7% q/q, respectively). Markets reacted by sending yields higher and EUR/USD lower.