In today’s briefing:
- EIA Lifts Price Forecast on Higher Oil Consumption Plus Tighter Supply
- Indonesia Economics: Disinflation Setbacks Tie Central Bank’s Hands Tighter
- Running Out of Runway
- Indonesia Economics: More of the Same Won’t Cut It
- [US CPI Review] Energy, Housing, And Services Keep Inflation Hotter Than Expected
- Company Earnings: They Will Go Up, and Expectations Are Far from Excessive
- ECB Loosely Tied to Cut in June
- G3 Rates Watch: No one’s got a clue on R*, yet the market is convinced that it does!
EIA Lifts Price Forecast on Higher Oil Consumption Plus Tighter Supply
- EIA raised its crude oil price forecast for 2024 and 2025, cites higher global oil consumption outlook and concerns over geopolitical tensions.
- The agency also increased global liquid fuels production outlook for 2024 compared to the previous month.
- Increased forecast on US retail gasoline prices relative to March STEO, expects lower gasoline inventories and higher net exports drive price rise.
Indonesia Economics: Disinflation Setbacks Tie Central Bank’s Hands Tighter
- The latest figures show headline inflation inch further away from the central bank’s target, showcasing the difficulties caused by volatile food inflation worldwide.
- In addition to sticky inflation, fiscal policy uncertainty also lurks in the background; the new government has many big-ticket manifesto pledges that need to be funded.
- Still-Strong growth, sticky inflation, and depreciationary risks to the rupiah will cause Bank Indonesia to delay rate cuts, possibly for the whole year.
Running Out of Runway
- US Services ex Shelter inflation spiked to over 8% in March!
- Powell must work magic to stick to three rate cuts for this year.
- Yet the odds remain high that we will see three or more rate cuts, but that doesn’t help you much now.
Indonesia Economics: More of the Same Won’t Cut It
- Can Indonesia finally fulfil its potential as an economic superpower, or will it merely be able to maintain its stable but middling growth performance?
- The Widodo inheritance has been mixed at best; the economy has not diversified away from its reliance on commodities, while the quality of governance has deteriorated.
- Unless Prabowo pursues deep-rooted reform to liberalize and diversify the Indonesian economy, it risks merely continuing to grow at around 5%, which is simply not enough.
[US CPI Review] Energy, Housing, And Services Keep Inflation Hotter Than Expected
- March CPI print came in above expectations at 3.5% YoY. CPI has come in above expectations for the past four months.
- Gasoline, shelter, and transportation services were the major inflation drivers.
- Dollar was the winner following the release as other currencies weakened. Euro declined the most while JPY weakened the least.
Company Earnings: They Will Go Up, and Expectations Are Far from Excessive
- Three out of my four global earnings indicators point to significant earnings growth.
- Chinese producer prices are the outlier, but it’s no surprise that domestic factors are at play here.
- Equally important, investor expectations do not deviate all that much from the growth in earnings-per-share forecasted by the aggregate global earnings bellwether.
ECB Loosely Tied to Cut in June
- The ECB maintained its policy rates and did not pre-commit to a June cut. However, a few members wanted to cut now, and the statement added explicit conditionality.
- Guidance now ties the ECB to a June cut, albeit with ongoing data dependence preserving wriggle room. Sticky services inflation and Fed rates won’t stay its hand.
- Resilient data are rolling back Fed views to our September call, but we now doubt the ECB will want to delay past June. The BoE would probably only then wait until Nov-24.
G3 Rates Watch: No one’s got a clue on R*, yet the market is convinced that it does!
- What a week in Fixed Income space! The bloodbath after the hot US CPI report partially continued today, but equities have a tremendous ability to recover fast after inflation/rate shocks these months as the anticipated lean from central banks remains dovish.
- In this short G3 rates watch, we take a practical stance on the R* concept.
- If an economy can re-accelerate given current rate levels, it seems likely that R* is even higher than thought by many economists including the entire ilk of PhDs at the Federal Reserve.
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