Rise and shine everyone.

We get the FOMC minutes today but with all the Fed speakers we’ve had in the interim, the minutes are likely very stale and won’t have much shock value.

The bigger news today is Nvidia's earnings after market close. The options-implied move for earnings is about 8%, which is roughly in line with their historical realized move of 7.6% over the last few quarters. With Nvidia’s track record, the market is still looking for those outsized beats. It’s no longer just about beating consensus but, more about beating consensus by that $2B or so.

Asian markets were mixed this morning, with China recovering and India still gaining ground despite news of fraud allegations about Adani. Other markets pulled back as we saw rates rise on RBNZ’s surprise hold and rate hike discussion.

The Euro Area also remains in pullback mode, after their recent run. The UK pulled back as services inflation data came in hotter than expected pushing rate cut bets to November. This gives us reason to be bullish on the GBP, even though I think the first cut will be in August.

Finally, in keeping with global markets, US equities are also muted this morning, although I’m writing this early. No one is trading because they’re waiting for Nvidia’s earnings… or at least that’s what the news is saying!

Commodities are pulling back this morning and the US Dollar is flat. Although, it’s looking a bit more constructive on shorter timeframes.

Yields are higher across the curve. Yesterday’s Fed Speak seems to have changed some of the bets for rate cuts. We’re back to one and this time in November. It’s becoming tiresome to keep track of these but, to CME’s credit they’ve now updated their Fed Watch tool with Aggregate Meeting Probabilities which makes it easier.

The UK printed headline inflation lower than the US or EA

But, this doesn’t mean that they are out of the woods yet.

Wednesday’s CPI release for the UK showed remarkable progress on headline inflation, but hotter-than-expected services inflation pushed back the market expectations to November for the first rate cut. We still think August is the likely timing of the first cut, given the economy is out of a technical recession, and inflation is making progress.

Headline CPI printed lower than the US and the Euro Area, at 2.3% YoY, down from their peak of 11.1% in Oct 2022. However, most of the headline inflation was driven by the energy price caps, so the deceleration may start to stall in the months to come.

Core CPI still remains relatively sticky at 3.9% vs. 3.6% est and Services Inflation moderated to 5.9% from 6%, missing the BoE’s estimate of 5.5%. Wages have been keeping core CPI higher, as the deceleration has been much slower than expected. While there has been progress, wage growth still remains at 6% down from the peak of 8%, but above the pre-pandemic level of about 3.9%.

New Zealand Central Bank talks about Hikes

New Zealand’s central bank held the Official Cash Rate at 5.5% for the seventh consecutive meeting, signaling that tight monetary policy will persist longer to combat stubborn inflation. Despite the economy being in recession and a slackening labor market, the Reserve Bank of New Zealand (RBNZ) finds it challenging to bring inflation back to target. The bank’s forecasts now predict rate cuts starting in the third quarter of 2025 instead of the second, with the average OCR peaking at 5.65% this year.

RBNZ Governor Adrian Orr mentioned that a rate hike was seriously considered, and the bank has limited tolerance for inflation surprises. Globally, central banks are maintaining higher rates due to persistent price pressures. New Zealand's inflation, influenced by non-rate-sensitive sectors like rents and insurance, eased to 4% in the first quarter. However, domestic inflation remains high, posing significant risks. Despite hawkish signals, some economists believe the RBNZ may cut rates sooner than projected if domestic data weakens further and if the US Federal Reserve reduces rates.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)