Daily Brief Macro: China Moves to Directly Support the Market and more

• China has now moved from supporting its economy to directly target its markets.
• Market demand and volume is supported through government buying and company buybacks.
• New regulatory measures will substantially decrease selling pressure going forward.

• Welcome back to our weekly 5 Things We Watch, where we go through 5 things that we keep an eye on in the world of global macro.
• With Japanese wage negotiations and the US CPI report out, there are plenty of things to shed some light on, so let’s get to it!This week we are watching out for the following 5 topics within global macro: US CPI, Japan, China, Germany, Central Banks.
• 1) US CPI Report leaves the Fed in a difficult situation. Yesterday’s CPI report revealed that the inflation outlook is not as benign as the Fed would have hoped, with energy / transportation services dragging the MoM figure higher.

• UK GDP rebounded by 0.2% m-o-m in January 2024, as expected. The retail sector’s seasonal adjustment issue from December was already known to have unwound.
• We currently see GDP growth of 0.3% q-o-q in Q1, restoring the level broadly held since 4Q22. January’s rebound means the recession ended before its February declaration.
• This was never a recessionary regime that could crush inflationary pressures. Its likely end stops that risk from developing, negating that potential need for an early rate cut.

• In our “out of the box” series, we aim at being ahead of the current consensus narrative and think of the next theme that could drive price action before anyone else has given it any noteworthy attention or provide food for thought on topics of relevance that seem neglected by the economic consensus.
• After the change in methodology to the CPI basket in 1983, interest rates aren’t reflected to the same extent as before in the inflation basket.
• But that also means that Americans feel rising costs of living to a larger extent than the CPI basket reflects.

• US commercial crude oil inventory build-up slows while refined products’ withdrawal accelerates.
• OPEC+ members announced the extension of their voluntary supply cut of 2.2 million barrels per day to end of June (from end of March as previously announced).
• US refinery utilisation rates show signs of a speedy recovery, rises for the second consecutive week and jumps to 84.9%.

• Powell’s testimony to Congress and the non farm payrolls report suggest global central bank easing may occur in the second half of the year
• Labor market showing signs of moderating, leading to declining yields and high policy uncertainty
• Options markets imply a wide range of scenarios, indicating high policy uncertainty and declining volatility trend

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• Inflation in Japan rebounds in February as energy subsidies are lifted.
• Economic performance was better than expected, pointing to a resilient economy.
• With a view on the Shunto negotiations, the BoJ is expected to issue rate hikes over the next two policy meetings, supporting the strengthening of the Yen.

• The February CPI release, while less of a surprise compared to the January print, was directionally favorable
• My proprietary CPI indicators on inflation momentum and the most persistent inflation cluster offer additional clues    
• Although market-based expectations compressed further, the near-distant odds of potential Fed action remain fluid and unsettled   

• In November 2023, Germany’s constitutional court made a landmark ruling that had significant implications for the country’s budget and investment in green initiatives.
• The court ruled against the government’s plan to reallocate €60 billion in unused pandemic emergency funds to its Climate and Transformation Fund (KTF), deeming this move unconstitutional.
• This decision came at a critical time when Germany, Europe’s largest economy, was already facing an economic slow down.

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