In focus today

In the US, FOMC minutes from the May meeting are due for release. The focus is naturally on any clues regarding the outlook for rate cuts but given that the meeting was held before the recent key NFP and CPI data releases, some of the views could be somewhat outdated. Chicago Fed's Austan Goolsbee (non-voter) could provide some more timely views in his speech this evening.

In Sweden, we get Statistics Sweden's Labour Force Survey (LFS) for April. Last month the unemployment rate took a drastic jump to 8.6% seasonally adjusted, but we downplay the implications from that as employment remains stable and hours worked even rose again. We expect the unemployment rate to decline in comparison to March. Further, Riksbank Governor Thedéen will deliver a speech at a conference in Canada, but since the headline is about transatlantic dialogue about monetary policy, we do not expect him to deliver news about Swedish monetary policy.

Economic and market news

What happened overnight

The Reserve Bank of New Zealand (RBNZ) left its Official Cash Rate (OCR) unchanged at its meeting this morning, as widely expected by both markets and analyst consensus. As inflation has remained stickier than expected, RBNZ's rate path was revised higher. The updated path implies around 50% probability of another 25bp rate hike during H2 2024 while the first cut is expected only in Q4 2025 (prev. Q2-Q3 2025). The long-term nominal neutral rate estimate was also increased by 25bp to 2.75%. The accompanying communication was less hawkish though, as RBNZ saw capacity pressures and labour markets easing while imported inflation had also moderated. Slowing hiring and recovery in immigration contributed to balancing labour markets, reducing shortages and cooling wage growth pressures. NZD/USD initially strengthened after the decision, but the move partially faded later. We maintain a downward-sloping forecast profile for NZD/USD, with 12m forecast at 0.57.

What happened yesterday

US Secretary of the Treasury, Janet Yellen, urged the EU to join the US to clamp down on China's green tech exports. She warned that a glut of cheap Chinese goods could threaten factories all over the world and that the EU and the US put their own industries at risk if they do not react to China's growing manufacturing power. EU commissioner Ursula Von der Leyen has earlier denied going to trade war with China and implement tariffs on Chinese goods; she shares the concern but does not want to take the same approach as the US. Yellen also talked to German banks and warned them to step up efforts to comply with US sanctions against Russia and shut down efforts to circumvent them, so that they would avoid potential sanctions themselves.

Also in the US, more Fed officials spoke with caution about future monetary policy easing. Waller said that without weakening in the labour market he needs to see several more months with 'good' inflation data before he could support monetary easing. On the other hand, he also stated that the probability of rate hikes is very low. Waller's views have often represented broader consensus across FOMC well, so markets are keeping a close eye on his comments. Fed's Bostic said that to be sure, he would rather wait longer for a cut, and that they need to be sure that inflation is going back to 2% before they start cutting rates.

In the euro area, ECB president Lagarde said that she is confident that euro area inflation is under control. We see it as close to a done deal that the ECB will deliver its first rate cut at the June meeting in line with expectations.

In the UK, the IMF warned the British government about rate cuts before an election later this year, because the UK is about to miss its debt targets and encouraged the British government to find revenue raising measures.

In Hungary, the Hungarian central bank (MNB) reduced its key rate by 50bp, to 7.25% as widely expected in markets. With domestic inflation fears mounting, this might well prove the penultimate cut for this cycle. This is further emphasized by recent comments from the MNB Board, guiding for a terminal rate between 6.5% and 7%.

Market movements

Equities: Global equities were marginally higher yesterday, lifted primarily by the US, while other regions reported lower figures. The absence of significant macro and monetary policy news gave no strong directional drivers or rotations. As a result, the steady, low-volatility rise in equities was the order of the day, ahead of Nvidia's report tonight.

Nvidia's reporting is especially noteworthy as it serves as a proxy for the entire AI secular growth narrative. This is further amplified by the substantial volatility that has followed this mega cap's reporting over the past few quarters. Yesterday in the US, Dow increased by 0.2%, S&P by 0.3%, Nasdaq by 0.2%, and Russell decreased by 0.2%. This morning, Asian markets are mixed, with Taiwan standing out on the positive side and Japan being the worst performer. Futures in the US and Europe are both marginally higher this morning.

FI: There was a modest decline in the global bond yields yesterday across the curve. The Bund ASW-spread is also testing the 30bp-level again on the back of all the new deals, with four sovereign deals announced, of which one is the 15Y benchmark from Norway, while the others are from France, Austria and Portugal. Yesterda'’s dual tranche from EFSF shows that there is still plenty of cash among investors. The rate cut in June was"“confirme"” yesterday by comments by EC'’s Lagarde on an interview with Irish TV. Furthermore, EC'’s Nagel made similar comments. However, both cautioned against expecting that ECB was on"“auto pilo"” regarding rate cuts, so what comes after June is uncertain and dependent on the data.

FX: EUR/USD has been trading sideways in the 1.0800-1.0900 range over the past week. Scandies have been this week's early winners within G10. EUR/NOK broke below 11,60 and we see some tactical downside in the cross in the coming weeks but recommend clients to strategically buy into the dip. EUR/SEK also challenges 11.60 in a continuation of recent improved momentum. We look for further downside in the near term with next support around 11.55 (24 Apr low).

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