US Economic Trends Expected to Influence Euro-Area Economy, Despite ECB's Stance

Forex

Economic

Summary:

Economic developments in the US are likely to affect the euro-area economy, although the European Central Bank claims it won't be influenced by the Federal Reserve. Nonetheless, policymakers on both sides of the Atlantic are eager to respond to economic data.

The European Central Bank (ECB) asserts its independence from the Federal Reserve as it prepares to initiate interest rate cuts ahead of the US counterpart. However, despite this claim, the ECB's subsequent policy decisions may still be influenced by developments in the US economy, as trends in the world's largest economy tend to swiftly spill over into other regions, impacting financing conditions, exchange rates, and various economic metrics.

For ECB officials convening to deliberate on the timing and magnitude of monetary easing, the interconnectedness of global economies underscores the necessity of closely monitoring US developments. Although they emphasize charting their own course, ECB policymakers acknowledge the gravitational pull exerted by the Fed's actions on the broader economic landscape. US Economic Trends Expected to Influence Euro-Area Economy, Despite ECB's Stance_1

US Economic Trends Expected to Influence Euro-Area Economy, Despite ECB's Stance_1

While the ECB may move independently before the Fed, the prospect of sustained divergence in policies becomes challenging over an extended period. Ultimately, decisions made by the Fed are likely to reverberate across the Eurozone, influencing economic dynamics and policy considerations.

Traders anticipate multiple rate cuts by the ECB in response to rapidly easing price pressures, contrasting with uncertainty surrounding the Fed's rate trajectory. Despite recent resilience in the US economy, characterized by robust hiring and economic growth, the possibility of policy accommodation by the Fed remains uncertain, reflecting Chairman Jerome Powell's cautious approach to rate reductions.

The interplay between US and Eurozone economies extends beyond monetary policy, encompassing factors such as inflation trends and business confidence. Recent indicators suggest a tentative recovery in Europe, with business sentiment improving alongside moderate inflation rates. However, challenges persist, underscoring the ECB's cautious approach to easing monetary policy.

While Economics forecasts a slowdown in Eurozone inflation, aligning with the ECB's target, the path of monetary easing remains subject to uncertainty. ECB policymakers must navigate evolving economic conditions and balance the need for stimulus against potential risks to financial stability.

The ECB's ability to diverge from the Fed's path has been demonstrated in the past, indicating the potential for independent policy action amid global economic dynamics. However, the Swiss National Bank's recent decision to lower borrowing costs highlights the interconnectedness of central bank actions in responding to economic challenges.

While the ECB aims to assert its autonomy in navigating economic challenges, the influence of US economic trends remains significant. As policymakers weigh monetary policy decisions, they must carefully consider the implications of global economic interdependencies, ensuring stability and resilience in the Eurozone economy.

Source: Bloomberg

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Ukadike Micheal

Economic

Forex

Swiss inflation unexpectedly slowed in March, rising only 1% year-on-year, contrary to economists' predictions of a 1.3% increase. This unexpected easing validates the Swiss National Bank's recent surprise decision to cut interest rates, signaling the possibility of further rate cuts in the future.

The central bank's move, the first rate reduction by a Group-of-10 central bank since the global inflation shock, was prompted by outgoing President Thomas Jordan's belief that there's "very little risk" of price gains exceeding the 2% upper limit of the bank's target range. Despite this, the central bank had previously forecasted a slight acceleration in inflation over the second and third quarters, largely attributed to anticipated rent hikes. Unexpected Slowdown in Swiss Inflation Validates SNB Rate Reduction_1

Unexpected Slowdown in Swiss Inflation Validates SNB Rate Reduction_1

Following the release of the inflation data, the Swiss franc weakened against the euro, reaching its lowest level since June. This depreciation, coupled with the surprise rate cut, has intensified speculation about further rate reductions by the SNB.

The decline in Swiss inflation in March was driven by factors such as holiday lets, cars, and private transportation. Even the core inflation gauge, which excludes volatile elements like energy and food, experienced a decrease.

While SNB Vice President Martin Schlegel attributed most of Switzerland's consumer price growth to rising service prices, he reiterated the central bank's commitment to maintaining price stability over the medium term.

In contrast to the subdued inflation in Switzerland, the surrounding euro area saw prices rise by an annual 2.4% in March. Switzerland's gauge, based on the European Union's harmonized measure, came in at 1.1%.

From a technical perspective, the unexpected slowdown in Swiss inflation raises questions about the underlying drivers of economic activity in the country. Factors such as holiday lets, car sales, and private transportation costs play a significant role in shaping consumer spending patterns and overall inflation trends. Moreover, the Swiss National Bank's decision to cut interest rates in response to subdued inflation highlights the delicate balance between supporting economic growth and maintaining price stability. As policymakers navigate these challenges, they must carefully monitor inflationary pressures and adjust monetary policy accordingly to ensure sustainable economic expansion.

Overall, the unexpected easing of Swiss inflation underscores the challenges facing the economy and the central bank's efforts to maintain stability. The potential for further rate cuts reflects a proactive approach to address economic headwinds, although the impact on monetary policy remains uncertain. As markets digest these developments, attention will be on future inflation data and central bank decisions, shaping investor sentiment and market dynamics in the coming months.

Source: Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

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Stocks

Commodity

Stocks edge higher as Chairman Powell sounds reassuring

The market continues to be driven by fundamentals, reacting to almost every single piece of data. We remain in the “bad data is good news” phase as the market yesterday tried to largely ignore the stronger ADP employment report, which has lost some of its predictive ability regarding Friday's non-farm payroll, and focused on the weaker ISM services PMI.

While the decrease in the headline ISM was decent, the stock market probably got a bit excited when it drilled down the data and discovered that the prices paid subindex dropped to the lowest point since March 2020. This is probably the strongest indication to date of abating inflationary pressures in the US economy.

Therefore, tomorrow's labour market report is even more important for sentiment. US stock indices finished Wednesday's session in the green but there is angst and uncertainty about the short-term outlook which could quickly result in a sizeable correction if tomorrow's data fails to point to a weakening labour market.

Fed Chairman Powell tried to downplay the importance of the stronger data prints and reassure the market about the Fed's rate cut aspirations, but it is obvious that the US economic outlook remains positive.

This situation is fueling hawkish commentary from some Fed officials, which the market does not enjoy. On Wednesday, Atlanta Fed Governor Bostic, a 2024 voter, talked about the first rate cut taking place in the final quarter of 2024. Eight more Fed speakers will be on the wires during today's session covering the entire spectrum of doves and hawks and potentially impacting today's market sentiment.

Oil rallies as euro area inflation eases further

In the meantime, oil prices continue to rise with certain investment houses pointing to further upside. Various reasons could explain the current move including geopolitical developments, supply issues and the renewed dollar weakness, but some market participants are pointing to China's growth picking up pace. If this is indeed the case, it could prove to be the most important development in 2024 so far with strong implications across the globe and especially the euro area.

Yesterday's euro area aggregate inflation report confirmed expectations for a weaker print with the core indicator dropping below 3% for the first time since March 2022. There is a strong belief that the ECB is preparing for its rate cut announcement in June with the foundation possibly being laid out at next week's ECB meeting. Today, the minutes from the last ECB meeting will be released but they do not tend to be market-moving.

Gold reached $2,300, bitcoin under pressure

Gold continued its journey north reaching a new all-time high above $2,300 earlier today, benefiting from the renewed dollar weakness. On the flip side, bitcoin remains under pressure, matching partly the US stock markets' performance and preparing for an action-packed Friday session.

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Thomas

Cryptocurrency

Commodity

Spot gold prices have reached an all-time high, resulting in a resurgence of Bitcoin derision from the precious yellow metal’s investors.

Gold hit an all-time high of $2,304 per ounce on April 3, according to the American Hartford Gold Group, posting an 11.5% year-to-date gain for the usually slow-moving asset.

Gold started gaining momentum in mid-February, rising from around $2,000 per ounce to over $2,200 in late March, having held up well alongside other safe-haven assets due to growing global tensions, uncertainty over possible interest-rate cuts and de-dollarization Hartford Funds investment strategist Nanette Abuhoff Jacobson told MarketWatch on April 3.

Goldbugs Renew Mocking Bitcoin as the Yellow Metal Hits All-Time High_1

Bitcoin is sometimes referred to as “digital gold,” but the real gold's price peak sparked renewed mockery from goldbugs and Bitcoin belittlers.

Gold bull and Bitcoin detractor Peter Schiff said in an April 3 X post that so far in the second quarter of 2024, Bitcoin is down 7% while silver and gold are respectively up 8.7% and 3.4%, claiming: “The results speak for themselves.”

However, the second quarter began three days ago at the time of Schiff’s post and BTC has gained 55% this year, eclipsing gold’s gains over the same time by a factor of five.

In a follow-up post, Schiff claimed it might be the “last chance to sell your Bitcoin and buy some gold and silver at favorable prices.”

“If you fail to act, have fun staying poor,” he claimed.

The irony was not lost on some of the respondents, crypto trader “Quasar” said that they didn’t “have another 60 years to wait for gold to go up another $1,500.”

Bytetree analyst and researcher Charlie Morris also took a swipe at Bitcoin in an April 3 X post, commenting that gold has reached its all-time high “without electricity consumption” — referring to Bitcoin’s power-intensive mining process.

However, environmentalist and Bitcoin ESG researcher Daniel Batten was quick to point out that the energy required for gold extraction is mostly from fossil fuels, adding:

“[Gold] has a much higher environmental impact and emission intensity than Bitcoin mining, which is fully electrified, and does not leave mercury or arsenic in the local land and water supply.”

Goldbugs Renew Mocking Bitcoin as the Yellow Metal Hits All-Time High_2

Swan co-founder Brady Swenson added: “How can you be a gold bug and not understand the gold mining process[?] I visited a gold mine once, it was apocalyptic.”

Meanwhile, the 14 leading gold-tracking exchange-traded funds (ETFs) had lost $2.4 billion from the start of the year to mid-February, in contrast to spot Bitcoin funds which had seen $3.89 billion in inflows over the same period.

Source: CoinTelegraph

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Economic

Stocks

Stocks higher as Chairman Powell sounds reassuming

The market continues to be driven by fundamentals, reacting to almost every single piece of data. We remain in the “bad data is good news” phase as the market yesterday tried to largely ignore the stronger ADP employment report, which has lost some of its predictive ability regarding Friday’s non-farm payroll, and focused on the weaker ISM services PMI.

Therefore, tomorrow’s labour market report is even more important for sentiment. US stock indices finished Wednesday’s session in the green but there is angst and uncertainty about the short-term outlook which could quickly result in a sizeable correction if tomorrow’s data fails to point to a weakening labour market.

Fed Chairman Powell tried to downplay the importance of the stronger data prints and reassure the market about the Fed’s rate cut aspirations, but it is obvious that the US economy outlook remains positive.

This situation is fueling hawkish commentary from some Fed officials, which the market does not enjoy. On Wednesday, Atlanta Fed Governor Bostic, a 2024 voter, talked about the first rate cut taking place in the final quarter of 2024. Eight more Fed speakers will be on the wires during today’s session covering the entire spectrum of doves and hawks and potentially impacting today’s market sentiment.

Oil rallies as euro area inflation eases further

In the meantime, oil prices continue to rise with certain investment houses pointing to further upside. Various reasons could explain the current move including geopolitical developments, supply issues and the renewed dollar weakness, but some market participants are pointing to China’s growth picking up pace. If this is indeed the case, it could prove to be the most important development in 2024 so far with strong implications across the globe and especially the euro area.

Yesterday’s euro area aggregate inflation report confirmed expectations for a weaker print with the core indicator dropping below 3% for the first time since March 2022. There is a strong belief that the ECB is preparing for its rate cut announcement in June with the foundation possibly being laid out at next week’s ECB meeting. Today, the minutes from the last ECB meeting will be released but they do not tend to be market-moving.

Gold reached $2,300, bitcoin under pressure

Gold continued its journey north reaching a new all-time high above $2,300 earlier today, benefiting from the renewed dollar weakness. On the flip side, bitcoin remains under pressure, matching partly the US stock markets’ performance and preparing for an action-packed Friday session.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Ukadike Micheal

Forex

Economic

The latest HCOB PMI® survey by S&P Global indicates a more stable footing for Germany's service sector at the close of the first quarter, accompanied by growing optimism about the future outlook. Despite ongoing challenges, such as rising wage pressures and inflation, firms in the service industry have shown resilience and sustained job creation. Notably, both input and output price inflation rates have slowed noticeably from the previous month, offering some relief to businesses.

In March, the HCOB Germany Services PMI® Business Activity Index rose to 50.1, marking the end of a five-month contraction in activity. While challenges persist, including a decline in new business inflows influenced by weakness in the wider economy, there are signs of improvement. Business expectations for future activity have improved for the fourth consecutive month, reaching their highest level since February 2022.

Despite ongoing challenges, such as rising wage pressures and inflation, firms in the service industry have shown resilience and sustained job creation. Notably, both input and output price inflation rates have slowed noticeably from the previous month, offering some relief to businesses.

Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, highlighted a "glimmer of hope" emerging in the German services sector, with activity stabilizing instead of contracting for the first time in six months. Despite challenges in acquiring new business, there are indications of a gradual easing in the downward trend, including business conducted with international clients.

However, despite these positive trends, it is unlikely that the services sector alone will be sufficient to avert another quarter of declining GDP at the start of the year. The labor shortage continues to prevent most companies from laying off staff, with recent growth in employment showing some moderation. Nevertheless, companies are operating under the assumption that future workloads will justify the current staff expansion.

While costs within the service sector continue to rise, the pace of growth has slowed, hinting at a deceleration in wage growth momentum. Moreover, inflation in sales prices has declined, indicating more competitive pressure among service providers and a corresponding decrease in pricing power. This may have implications for the European Central Bank's monetary policy decisions, although a single monthly figure may not be sufficient to prompt a loosening in April.

From a technical viewpoint, the stabilization of the service sector in Germany suggests a potential turning point in the economy's trajectory. As one of the leading economies in Europe, Germany's performance has significant implications for the broader Eurozone and global markets. The easing of inflationary pressures and growing confidence in the service sector may contribute to a more positive outlook for the region, although challenges such as the labor shortage and global economic uncertainties persist.

While challenges persist, there are signs of stabilization and growing optimism in Germany's service sector. However, the broader economic landscape remains uncertain, and continued monitoring of key indicators will be essential for understanding market dynamics and making informed decisions.

Source: Hamburg Commercial Bank

To stay updated on all economic events of today, please check out our Economic calendar

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Ukadike Micheal

Economic

Forex

In the latest report from S&P Global on France's service sector, it's revealed that activity levels continued to shrink at the close of the first quarter, reflecting the persistent weakness in the broader economy. However, there's a notable silver lining amidst the contraction: the declines in output and new orders are softer compared to the latter half of 2023, hinting at some improvement in underlying conditions. Despite the challenges, firms' growth expectations have surged since February to their highest in over a year-and-a-half, accompanied by a significant expansion in employment.

Inflationary pressures persist stubbornly, with both output charges and input costs remaining above their long-term averages. The seasonally adjusted HCOB France Services PMI® Business Activity Index dipped slightly in March, indicating a modest contraction in service sector output, although the rate of decline remains consistent with the recent trend.

Economic weakness and inflation are cited as reasons for lower business activity in March, although some firms noted relative improvements in underlying market conditions compared to the end of the previous year. New business continued to decline in the final month of the first quarter, albeit at a slightly quicker pace than in February. Sales to non-domestic clients, particularly exports, faced headwinds, declining at the fastest rate in three months.

However, amidst the challenges, there's a glimmer of optimism for the future. Survey data suggests a marked improvement in French service sector business confidence, with growth expectations reaching their strongest levels since July 2022. This optimism is reflected in the expansion of employment across the sector, signaling a positive outlook for activity in the coming months.

While the report highlights the persisting inflationary pressures, it also notes a slight subsiding of input cost pressures in March, although they remain steep by historical standards. Reports of higher salary and energy costs are mentioned as contributing factors. Despite this, the overall pace of increase in operating expenses saw a slowdown, providing some relief to businesses.

Regarding pricing dynamics, there's little movement in the rate of service sector output charge inflation in France. While hikes in selling prices remain strong, they are broadly in line with previous months, albeit slightly weaker. However, the report suggests that the Prices Charged Index is approaching a critical threshold, indicating potential changes in pricing strategies.

In summary, the French economy faces challenges, including weak economic conditions, high interest rates, and inflationary pressures. However, there are signs of resilience and optimism within the service sector, with firms expecting better economic conditions ahead and planning for increased activity through hiring.

From a technical viewpoint, this data suggests that the French service sector is navigating through a challenging economic landscape, characterized by inflationary pressures and subdued demand. The resilience shown by firms amidst these challenges indicates a potential for recovery, especially with the expected improvement in broader economic conditions. However, uncertainties remain, particularly regarding the trajectory of inflation and global demand dynamics, which could influence future business decisions and market trends.

While the French service sector faces headwinds, there are indications of resilience and optimism, setting the stage for potential recovery in the coming months. As businesses navigate through these challenges, monitoring key indicators such as inflation, demand trends, and business confidence will be crucial for understanding the evolving market dynamics and making informed decisions.