The ADP job report is due in the US – Q1 GDP growth is also on tap

Markets

The US released a first batch of economic data yesterday. Both JOLTS (7.19mn March vs 7.48mn in February) and Conference Board consumer confidence (April) fell short of expectations. The latter saw a particular deterioration in the forward looking component, which tumbled to the lowest since 2011. Given the survey’s skew to the employment and income situation, the numbers are essentially a partial update of the labour market ahead of Friday’s payrolls. It explains the market reaction, consisting of a 3.4-4.7 bps yield drop across the US curve, wiping out earlier gains. There was a slight outperformance at the front as markets raised Fed easing bets to just shy of 100 bps for the year. President Trump would approve. He lashed out at Fed chair Powell again during an event to mark his 100th day in office. He also touted his tariff policy, saying it would bring growth and manufacturing back to the US. Net daily changes for Bund yields varied between -0.6 bps (2-yr) to -2.4 bps (10-yr). The dollar held a minor advantage in technically insignificant trading. EUR/USD oscillated around 1.14, the trade-weighted dollar index held north of 99. Sterling’s attack at the EUR/GBP 0.85 level is unrelenting but could soon face tough resistance around the 0.8474 area in case of a break. The economic calendar today goes straight into highest gear with GDP numbers in France this morning (printed in line with expectations), Germany and the euro area (expected at 0.2% q/q, 1.1% y/y). Those member states also release April inflation numbers. The ADP job report is due in the US and could show employment growth easing from 155k to 115k. Q1 GDP growth is also on tap. Heavy import frontloading ahead of the April 2 tariff announcement weighs on the expected headline print (-0.2% q/q annualized). We are therefore focused at the contribution coming from consumer and capital spending. US price deflators published simultaneously should confirm the Fed’s limited scope to cut rates in the near term – as long as the labour market remains resilient. A unidirectional market reaction against the backdrop of such a wide data range is not obvious. We’re instead looking for some bottoming out and consolidation in core bond yields, especially in Europe where we think markets went ahead of themselves. EUR/USD & DXY are locked in a stalemate in the 1.14 & 98-100 area.

News and views

Australian Q1 inflation was a bit mixed but didn’t change market expectations for the Reserve Bank of Australia to continue with a second 25 bps rate cut at the May 19-20 meeting. Headline inflation printed 0.9% Q/Q (from 0.2% Q/Q). Y/Y measures unexpectedly stayed unchanged at 2.4%. The trimmed mean measure rose sightly more than expected from 0.5% Q/Q to 0.7% Q/Q. Even so, the Y/Y figure slowed from 3.3% to 2.9%, the lowest since 2021Q4. It also bring this inflation measure back within the 2-3% RBA inflation target range. Annual services inflation was 3.7% in the March quarter, down from 4.3% in the December quarter and the slowest since the June 2022 quarter. The Aussie dollar this morning rises modestly to AUD/USD 0.6415, but stays in consolidation modus after recent rebound against a broadly weaker dollar.

The central bank of Hungary (MNB) as expected yesterday left its policy rate unchanged at 6.50%. A careful and patient approach to monetary policy remains necessary due to risks to the inflation environment as well as trade policy and geopolitical tensions, it said. For now maintaining tight monetary conditions is warranted. The MNB expects inflation to cool further in April after a decline to 4.7% in March. From there it is expected to remain near the upper bound of the central bank tolerance band in the coming months. Profit margin caps introduced by the authorities are expected to moderate inflation, as will lower energy prices. However, upside risks to inflation could intensify in the event of increases in tariff rates. Rising uncertainty in international financial markets also increases risk aversion towards Hungarian assets, which also poses a risk of higher inflation. Despite current MNB cautious wait-and-see attitude markets still expect the MNB to cut interest rate further in 2025H2. The forint hardly reacted and maintained recent gains (EUR/HUF 404.35).

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