Morning Brew April 11 2024

Good morning,

A hotter than feared CPI changes the US Rate scenario drastically. The expectation shifted from 3 to now less than 2 rate cuts and the first cut is priced in in September from July.

US Indexes gave up app 1% and  the 10 Year yields touched the 4.50% resistance, the USD Index rose to 105 again and EURUSD fell to 1.0740, GBPUSD 1.2540 and USDJPY soared through the 152 and is testing the 153.  The US 30 is 38450 now, the US500 5160 and the US TECH 100 NAS 18020. The GER40 18080 and the JAPAN 225 39360.

Gold and Silver are 2340 and 27.91 .  Oil rose despite a stronger USD,

Chinese CPI came at +0.1% vs an expectation of 0.4%.

UBS fell nearly 3* yesterday after the Swiss ministry of Finance said it envisions tougher capital requirements but without many details as of now. The stock is worth watching today.

Key events today is the rate decision by the ECB and the following press conference. Our Strats expectation for the ECB: Interest rate maintained at 4.5%. Laying the ground at the press conference for a potential rate cut in June.

How will the market likely react? The previous ECB rate decision on 7 March delivered the biggest single day rally in European equities since early January as the ECB revised down its inflation forecast for 2024 to 2.3% from 2.7%. It also guided lower economic growth supporting the market’s view that a rate cut could come in June. With yesterday's upside surprise to US March inflation figures showing inflation is entrenched in the US economy, the ECB is put in a difficult position. The market is now pricing the same ECB policy rate by December 2024 as it did in late November 2023. If the ECB leads the Fed in cutting rates, it could weaken the euro and support the export sector of the European economy. The recent ECB Bank Lending Survey showed that loan demand from firms has declined substantially, but the overall message across all credit was still balanced. The market in Europe has set itself up for a June rate cut, so any hawkish lean from the ECB will upset risk sentiment. Read Althea Spinozzi’s, Head of Fixed Income Strategy, ECB preview from this Monday.

Besides the ECB, the usual US Initial Jobless claims and the manufacturing PPI will be of interest but I would expect that position adjustments due to the shift caused by yesterday's data to be more significant.

The Bank of Japan will need to act if they don`t want to lose credibility completely.

Geopolitical risks remain elevated as well.

Trade safely

Thursday
- Data China M2, CPI and PPI, ECB Rate, US Initial Jobless Claims, PPI, Feds Collins, and Bostic speaks.

Friday
- Data China Trade Balance, DE&SWE&FR CPI, US Import Prices Bostic and Daly speak.
- Earnings: Blackrock, JP Morgan, Wells Fargo, State Street, Citigroup