Diminished Money Supply in Britain Casts Shadow on Prospects for Swift Economic Recovery

Traders' Opinions

Economic

Summary:

Monetarists foresaw double-digit inflation coupled with a recession.

At the outset of 2024, the UK witnessed a continued decline in its broad measure of money supply, prompting concerns among economists regarding the possibility of a rapid recovery from the recession experienced last year.

Recent data released by the Bank of England revealed a notable decrease in the M4 money supply during the initial two months of 2024, with a 1.1% decline observed in February compared to the previous year. Notably, this decline places the UK behind both the US and the eurozone in terms of money supply rebound.

These findings are disconcerting for monetarists, who had previously forecasted a double-digit surge in inflation along with the technical recession in the UK by closely monitoring money supply trends. While mainstream economists and the central bank are cautiously optimistic about a gradual economic improvement in the UK this year, monetarists remain more guarded in their outlook.

Source: Bank Of England

In recent months, numerous mainstream economic indicators have indicated a positive trend for the UK. However, the data on money supply has remained persistently lackluster, showing only a marginal uptick from the final months of 2023.

According to Bank of England data, M4 excluding intermediate other financial corporations – a closely monitored measure of money supply – declined by 1.6% year-on-year in January and by 1.1% in February. Although these figures represent an improvement compared to the previous year's declines, February marked the eighth consecutive month of contraction.

Source: Office for National Statistics

While central bankers have downplayed the significance of money supply data, the accurate forecasts made by unconventional monetarists have sparked calls for the Bank of England (BOE) to closely monitor these figures.

Money supply experienced a notable surge shortly before inflation escalated, peaking at over 11% in late 2022. Subsequently, it sharply declined, contracting for the first time in at least 13 years, prompting recession warnings, including from former BOE Governor Mervyn King. Official data has since confirmed that the UK endured a mild technical recession in the latter half of the previous year.

Recently, BOE Chief Economist Huw Pill acknowledged the necessity of adopting a "broader approach" to forecasting, which entails examining the money supply data. A review, led by former Federal Reserve chair Ben Bernanke, on the BOE's forecasting methods is scheduled for April 12 following criticism directed at the central bank for its failure to foresee the magnitude and duration of the inflationary shock.

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Owen Li

Energy

There was no surprise that a top meeting of OPEC+ ministers opted to keep output policy unchanged since the global crude oil market is almost exactly where the exporter group wants it.

OPEC+'s ministerial committee on Wednesday kept the current output targets but did note that some countries had been over-producing and had undertaken to increase compliance.

This means that the voluntary production cuts of 2.2 million barrels per day (bpd) will remain in place until at least the end of June, joining the existing 3.66 million bpd of cuts agreed in 2022.

The voluntary production cuts are led by Saudi Arabia and Russia, the top exporters in the group which brings together the Organization of the Petroleum Exporting Countries (OPEC) and allies.

Crude oil prices have rallied in recent months, with benchmark Brent futures hitting a six-month high and coming within one cent of $90 a barrel during Wednesday's trade.

Lower production from OPEC+, tensions in the Middle East from the Israel-Hamas conflict, and signs of stronger demand have all contributed to Brent's rally from a low of $72.29 a barrel on Dec. 13 to the close of $89.35 on Wednesday.

OPEC+ doesn't formally target an oil price level, but it's believed that most of the member countries currently favour a price closer to $90 a barrel than the $70 levels from late last year.

With the price now at that level, the trick for OPEC+ is getting $90 to act as an anchor around which the price can trade with the usual daily volatility, which is often driven by news headlines on events that threaten supply or change anticipated demand.

The risk is that $90 a barrel is surpassed and crude heads back toward $100, which is likely to fuel a new round of inflation in importing countries, as well as hurting anticipated demand growth.

Brent averaged about $82.10 a barrel in 2023, so any level well in excess of that will add to inflationary pressures and make monetary easing by central banks all the harder to deliver.

Stronger oil prices may also crimp demand, especially in the price-sensitive developing economies in Asia, the world's top importing region.

Robust Asia

Asian demand has accelerated in recent months, with LSEG Oil Research data showing March imports of 27.33 million bpd, up from 26.68 million bpd in February and the highest since June last year.

China, the world's top crude importer, led the way with March arrivals of 11.68 million bpd, up from February's 11.16 million bpd.

India, Asia's second-largest crude buyer, saw imports of 5.07 million bpd in March, up from February's 4.55 million bpd as the South Asian nation bought more Russian oil, with imports from the Western-sanctioned nation coming in at an eight-month high of 1.53 million bpd.

While Asia's crude demand is robust, the same can't be said for its refinery margins, which have been squeezed by higher oil prices that haven't been matched by price increases for refined products.

The profit margin on turning a barrel of Dubai crude into products at a typical Singapore refinery dropped to a four-month low of $4.22 a barrel on April 2, before recovering slightly to end at $4.33 on Wednesday.

The margin has shrunk 56% since the high so far in 2024 of $9.91 a barrel, reached on Feb. 13.

The question for the market is whether higher crude prices and under pressure refining margins will result in Asian import demand growth weakening, or whether the economic recovery story in China and the ongoing strength in India will be enough to keep demand robust.

Certainly, recent history suggests that China tends to trim imports when its refiners believe prices have risen too high, too quickly, and they turn to inventories to keep throughput high if demand warrants it.

But any reduction in imports by China comes with a lag to movements in prices as it takes around two months from the time oil is bought for it to physically arrive at a Chinese port.

Source: Reuters

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Samantha Luan

Economic

China’s real estate troubles are likely far from over and industry problems need to be addressed quickly if overall GDP growth is to pick up significantly, according to a report released Thursday by global investment firm KKR.

That’s one of the two key takeaways from a recent trip to China by the firm’s head of global and macro asset allocation, Henry H. McVey. It was his fourth visit in just over a year.

“A fundamentally overbuilt real estate industry needs to be addressed — and quickly,” he said in the report, which counts Changchun Hua, KKR’s chief economist for Greater China, among the co-authors.

“Second, confidence must be restored to drive savings back down,” McVey said, noting that would spur consumers and businesses to spend on upgrading to higher quality products, as Chinese authorities have promoted.

Real estate and related sectors once accounted for about one fifth or more of China’s economy, depending on the breadth of analysts’ calculations. The property industry has slumped in the last few years after Beijing’s crackdown on developers’ high reliance on debt for growth.

Based on comparisons to housing corrections in the U.S., Japan and Spain, China’s “housing market correction may be just halfway complete” in terms of its depth, the KKR report said.

“Both price and volume must come under pressure to finish the cleansing cycle,” the report said. “To date, though, it has largely been a contraction in volume.”

While KKR’s report didn’t provide much detail on expectations for specific real estate policy, the authors said more action by Beijing to improve China’s real estate sector “could materially shift investor perception.”

Amid geopolitical tensions, the country’s property market slump and drop in stocks have given many foreign institutional investors pause about China investing.

“According to some of our proprietary survey work, many allocators have considered reducing China exposure to 5-6%, down from 10-12% today at a time that we think fundamentals in the economy are likely bottoming,” the KKR report said.

Much of official Chinese data to start the year beat analysts’ expectations.

Chinese officials have said the real estate sector remains in a period of adjustment, while Beijing shifts its emphasis toward manufacturing and what it considers “high-quality development.”

Authorities have also released policies to promote financial support for select property developers, while many local governments — though not necessarily the largest cities — have significantly relaxed home purchase restrictions.

Real estate’s drag to moderate

KKR expects a modest slowdown in China’s GDP growth to 4.7% this year, and 4.5% next year, with real estate and Covid-related factors halving their drag on the economy from 1.4 percentage points in 2024 to a 0.7 percentage point drag in 2025.

“Our bottom line is that: with the ongoing [property] correction as well as some potential further policy support, we think the drag to [the] overall economy should moderate a bit over the next few years,” McVey said in a separate statement. He is also chief investment officer of KKR Balance Sheet.

Catering, accommodation and wholesale are set to modestly increase their contribution to growth in the next two years, while digitalization and the shift toward more carbon-neutral, green industry are expected to remain the largest drivers of growth, according to the report.

For investors, the report said a more important development than China’s GDP increase would be whether authorities could make it easier for businesses and households to tap capital markets.

“Repairing soft spots in [the] economy, especially around housing, will ultimately improve the cost of capital, and will also allow new consumer companies to access the capital markets likely at better prices if real estate and confidence are doing better,” McVey said in the statement.

Beijing in March announced a GDP target of around 5% for this year. Minister of Housing and Urban-Rural Development Ni Hong said last month that developers should go bankrupt if necessary and that authorities would promote the development of affordable housing.

Recent data have pointed to some stabilization in the property sector slowdown. The seven-day-moving average of new home sales in 21 major cities fell by 34.5% year-on-year as of Monday, better than the 45.3% drop recorded a week earlier, according to Nomura, citing Wind Information.

Compared with the same period in 2019, that sales average was only down by 27.8% as of Monday, versus a 47% drop a week earlier, Nomura said, noting most of the improvement was in China’s biggest cities.

Consumer outlook

KKR said most of its local portfolio is in consumer and services companies, whose business reflect how Chinese people in the middle to higher income range are spending modestly to upgrade their lifestyles.

“Top line growth is solid, margins are holding, and consumers are spending on less conspicuous items such as ‘smart homes,’ pets, and recreational activities,” the report said. “Domestic travel is also strong.”

Retail sales rose by a better-than-expected 5.5% year-on-year in January and February, boosted by significant growth in Lunar New Year holiday spending.

Longer term, KKR still expects that China can follow historical precedent in changing policy to be “more investor friendly.”

“While our message is not an all-clear signal to lean in,” the report said, “it is a reminder – using history as our guide – that, if China does adjust its domestic policies to be more investor friendly (especially as it relates to supply side reforms), this market could rebound significantly from current levels.”

Source：CNBC

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Thomas

Economic

The first electric cars assembled in Saudi Arabia with Lucid Group Inc. twinkled under factory spotlights, designed to show the world how a kingdom built on oil could draw in foreign capital to become a global hub for the industries of the future.

The short-term reality is more complicated. California-based Lucid is increasingly guzzling Saudi money to stay in business. Last week it got a $1 billion cash lifeline from the kingdom, on top of the $5.4 billion Saudi Arabia’s Public Investment Fund (PIF) has already pumped in.

Lucid, which counts the PIF as its top shareholder, had been held up as an example of foreign firms investing in Saudi Arabia’s multi-trillion-dollar “Vision 2030” economic transformation plan. But Lucid’s need for Saudi money is one sign the country’s rushed attempt at reinvention is being paid for out of pocket, with the kingdom relying heavily on its oil riches to entice firms in.

“The government had to give Lucid tremendous incentives to come,” said Karen Young, a Gulf-focused political economist at the Columbia University Center on Global Energy Policy.

It also speaks of the difficulties foreign companies face in Saudi Arabia, a country with little experience of complex manufacturing or heavy industry beyond the petroleum sector.

“Lucid is fully committed to our long-term partnership with the PIF and supporting the goals of Saudi Arabia’s Vision 2030,” Chief Executive Officer Peter Rawlinson said in a statement to Bloomberg. “Lucid is creating hundreds, and eventually thousands, of new employment opportunities for Saudi talent.”

The PIF did not respond to a request for comment.

Saudi Arabia has long recognized its funding requirements would mostly be backed by local capital and only partly by foreign money. Still, it wants to hit $100 billion of foreign direct investment annually by 2030, a haul roughly three times bigger than it has ever achieved and about 50% more than what India gets today. Between 2017-2022 annual FDI inflows into the kingdom averaged just over $17 billion. Preliminary data for 2023 shows FDI below target, at about $19 billion, according to a statement from the Ministry of Investment.

Scaling up to the 2030 goal seems out of reach for now as foreign investors remain cautious, according to conversations with bankers, lawyers who advise investors and people with knowledge of Saudi Arabia's fundraising efforts.

That’s led to a reckoning for the government as it weighs up the possibility of self-funding a larger portion of its economic remake on a tight timeline. Already, it has started to cut back on megaprojects designed to revamp its $1.1 trillion economy. And it’s issuing billions of dollars in bonds to help plug a fiscal deficit that it hadn’t been forecasting until late last year.

How it wields its money carries implications for its investments at home and abroad, and for oil policies that shape global markets.

‘Insanely Expensive’

The crown prince, or MBS as he is known, wants foreign investors to transfer expertise and co-fund megaprojects like the one to develop Neom. That $500 billion plan envisions turning the remote north-western region into a carbon-free high tech hub filled with robots.

While Neom has rolled out marketing and investor roadshows, it’s not made serious progress raising capital yet, people familiar with the matter said.

It’s not just along the less-developed coastline that projects are facing headwinds. Near the capital, an entertainment city dubbed Qiddiya has more than $1 trillion of committed spending — but that’s backed entirely by the PIF and a Saudi developer it owns, two people briefed on the project said.

“If we don’t have clear evidence of more funding by the end of the year, then it’s certainly worth asking where the money is going to come from for these projects,” said David Dawkins from London-based investment data firm Preqin, which analyzes Saudi trends. “They are insanely expensive.”Delays approving regulations for Neom have left question marks for investors. Many say their reluctance to commit funds to the kingdom is often down to unclear and untested laws governing contracts and investment.

There are signs the push for more external capital is gaining traction. There were 232 investment deals closed in 2023, many of which have “sizable” components of foreign investments that may start “working their way” into 2024 FDI numbers, the Ministry of Investment said in a statement.More recently, Amazon.com Inc.'s cloud unit led a group of firms that agreed to invest more than $10 billion in Saudi data centers. Read more: Saudi Manufacturing Push Draws SoftBank, China Surveillance Firm

Shrinking Money Pot

But the government, burning through cash, is stepping up efforts to attract much more foreign money. It asked smaller neighbor Kuwait for over $16 billion in financing for projects including Neom as recently as this year, people familiar with the matter said.

At stake for MBS are ambitions synonymous with Vision 2030. While companies like US-based Air Products have signed on for joint ventures at Neom, Saudi Arabia is still on the hook for underwriting close to the entirety of the cost — roughly equivalent to half its current economic output.

“It's effectively still a public sector-led development model," said Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC. "At the moment they're using all their pockets of strength for this transformation plan and I think going forward it will still be predominantly a Saudi-led development plan.”

How Saudi Arabia spends its cash will resonate around the world given its investing footprint now extends from a London airport to golf and private equity, making it a critical source of funds for Wall Street and governments alike. As the kingdom fills in the financing gaps at home, it will be leaning on earning money from the way it knows best: oil.

That realization is ushering in an approach that consolidates spending power in the hands of the PIF. The kingdom recently gave the fund an additional $164 billion stake in Saudi Aramco, which will translate into a dividend payment of at least $20 billion this year.

The move is basically “raising money from one public pocket at the expense of the other,” said Mohamed Abu Basha, head of research at Cairo-based investment bank EFG Hermes.

It shows how the kingdom remains reliant on on high oil prices to sustain its diversification plans, he said.

Saudi Arabia is likely to advocate longer production curbs by OPEC+, the oil cartel it leads along with Russia, that have helped prop up prices, said Jean-Michel Saliba, Bank of America Corp.’s Middle East and North Africa economist.

Yet for all that the cuts have restricted supply, prices remain below what the crown price requires to fund his grand ambitions. When accounting for domestic spending by the PIF, the kingdom needs crude of at least $108 a barrel to balance its budget, according to Bloomberg Economics. Brent’s jumped in recent weeks but remains below $90.

Mind the Gap

The PIF is feeling the pinch already. It controls assets of about $900 billion but had just $15 billion in cash reserves as of September.

The fund, which previously deployed almost 30% of its capital for international investments, is now targeting an allocation of 20% to 25%, though the absolute number is still set to rise over time, according to its governor, Yasir Al-Rumayyan.

“Our deployment will continue internationally but our focus right now is on the projects that we have in Saudi Arabia,” he said in February.

Finance Minister Mohammed Al-Jadaan has also acknowledged a funding shortfall and flagged the issuance of more debt. He’s been part of a committee chaired by MBS that studied Vision 2030’s massive financing needs and set them against the kingdom's expected revenue streams.

“There was a gap,” he told the Thmanyah’s Socrates podcast. “We called it the Gap Study.”

Postponing and scrapping some projects will plug that hole, he said, without going into detail.

That marks a crossroads for some of Saudi Arabia’s most ambitious projects. Those in Riyadh, where Expo 2030 is due to take place, may start taking priority. And some like Lucid will see the kingdom committing even more funds, not less. The kingdom sees it as part of a wider plan to build an autos supply chain, in which the PIF is also partnering with Hyundai Motor Co. and suppliers such as Italian tire-maker Pirelli & C. SpA.

But other Vision 2030 dreams will fade or be cut back, according to people familiar with the matter.

“Some of them were strategies where we said to ourselves: we actually do not need to spend on this,” Jadaan said.

Source: Bloomberg

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Owen Li

Economic

Stocks

Benchmarks rose from Australia to Japan and South Korea, with the Topix index up as much as 1.7% to head for its best day in about two weeks. Markets in Hong Kong, mainland China and Taiwan are closed for a holiday.

US equity futures also edged higher in Asian trading after the S&P 500 index added 0.1% Wednesday, while the tech-heavy Nasdaq 100 index gained 0.2%.

The dollar’s recent retreat has eased pressure on the region’s equities, which have been searching for a clear direction after delivering their best first quarter since 2019. A gauge for the greenback steadied after it saw its biggest drop in nearly four weeks on Wednesday as price pressures in the US services industry eased.

Fed Chair Powell reiterated that the central bank will take a wait-and-see approach before reducing borrowing costs. However, his views that recent inflation figures did not “materially change” the overall picture offered support for risk assets.

In recent days, traders had scaled back their rate-cut expectations amid signs of economic resilience and a more cautious tone from a drumbeat of Fed officials. That has led to skepticism on whether Powell and his colleagues would be able to deliver on the central bank’s projection of three rate reductions this year.

“Powell says recent data has not materially changed the picture,” said Krishna Guha at Evercore. “We read this as confirming that the spasm of concern in markets that the economy might be too strong for the Fed to cut in June was overdone — and the base case remains June and three cuts this year.”

Treasuries were steady after ending broadly higher Wednesday following a minor rally tilted toward the front end of the curve. In Japan, the breakeven inflation rate for the 10-year CPI-linked bonds rose one basis point to a record high.

Elsewhere, gold held near a fresh record set Wednesday, when it topped $2,300 per ounce in a rally helped along by Powell’s support for potential rate cuts this year. West Texas Intermediate extended gains, poised for its fifth straight session of advances, leaving the US benchmark price at around $85 per barrel. Meanwhile, copper jumped to the highest since January 2023 amid fresh signs of demand.

Investors were also assessing the impact of the strongest earthquake to hit Taiwan in a quarter of a century. The shock killed at least nine people and has disrupted semiconductor production. Taiwan Semiconductor Manufacturing Co., a major supplier of chips to Apple Inc. and Nvidia Corp, moved some staff out of its production centers but said there was “no damage to critical tools”.

Shares in Samsung Electronics and SK Hynix rose on expectations for higher chip prices due to production disruptions in Taiwan caused by the island’s latest earthquake.

The yen was steady against the dollar Thursday. Former Bank of Japan board member Makoto Sakurai had said Wednesday that the central bank is likely to wait until around October before mulling another interest rate hike.

US Economy

Despite a “solid” outlook for a US soft landing, stock investors’ expectations have gotten stretched, according to a note from Morgan Stanley’s global investment committee. The dynamic provides an opportunity to seek opportunities outside the S&P 500,

The US equity benchmark’s rally was driven by multiples expansion, with investors expecting improving profits despite cooling growth, Morgan Stanley Wealth Management Chief Investment Officer Lisa Shalett wrote this week.

Investors appear to be showing “persistent” demand for US stocks, according to Citigroup Inc. strategists, suggesting there’s room for the rally to resume after the recent pullback.

More than $16 billion in net long positions was added to S&P 500 futures last week, while exchange-traded funds showed net inflows, strategists led by Chris Montagu wrote this week.

Source: Bloomberg

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SAXO

Economic

Equities

US stock futures were modestly higher after Chair Powell reiterated that rate cuts will begin at some point this year. A somewhat softer ISM services print overnight also helped the Wall Street to stem the two-day rout and focus turns to the US jobs data due on Friday. Intel fell more than 8% after it disclosed $7 billion in operating losses for its foundry business through 2023, as it lost out more business to Asian rivals including TSMC and Samsung. Disney fell over 3% as CEO Iger wins proxy vote over Peltz with board’s election, while Paramount jumped 14% on reports of a deal with Skydance. Tesla managed to close higher despite dismal Q1 delivery numbers, and price target cuts and numerous brokerages, and Saxo’s equity Strategist Peter Garnry draws parallels between Tesla and Nvidia given their elevated expectations.

Meanwhile, Japan stocks opened higher by 1% on Thursday as US ISM services miss and Chair Powell comments kept rate cuts on the radar. Japanese stocks are also approaching a season of full-year earnings reports which could bring the focus back on increasing shareholder returns. HK and China markets closed lower on Wednesday and will be closed today.

FX

The dollar weakened further yesterday with the miss in ISM services once again questioning the pushback to rate cut expectations that has been priced in by markets. Strong NFP data can bring some gains back for the dollar, but it remains hard to see a strong and sustained rally from here given seasonality and technicals remain out of favor for the dollar. Japanese yen, however, failed to gain despite lower yield and dollar, and USDJPY traded to highs of 151.95 before retreating to 151.60 on dollar weakness. Lack of intervention at these levels is a clear signal that Japanese authorities are unlikely to let the markets be fixated at certain levels, but NFP beat is a key risk for yen intervention. EURUSD rose to 1.0840 despite softer EZ inflation, while GBPUSD reclaimed 1.2650. Yuan continued to test the upper limit of its trading band, and offshore CNH will be in focus today as China goes on a long weekend holiday. Read our FX note on CNH bearishness to know more.

Commodities

Weaker dollar broadly supported commodities to extend gains. OPEC+ recommended no changes to the 2mb/d cut to output which has been in place since the start of the year. The current agreement is scheduled to continue until the end of June 2024. While this was widely expected, it provides some assurance that the recent rise in tension in the Middle East has not altered the group’s view on the market. On the weekly EIA data, crude stocks saw a surprise build, against the larger-than-expected draw in the private inventory data on Tuesday night. Gasoline and Distillates both saw larger than forecasted draws. Gold touched $2,300 level while copper was up 3%, hitting its highest level since Jan 2023.

Fixed income

The 10-year yields continue to test the critical resistance at 4.35%, moving higher earlier in the session but closing right at the level yet again. A break and close above 4.35% could signal a potential rise towards 4.5%. Key to watch the non-farm payrolls report on Friday where a beat on the expectations can drive yields higher.

Macro

US data was mixed. ADP employment for March came in better than expected, but ISM services was soft but still in expansion. ADP for March came in at 184k, above the expected 148k, and the prior, revised higher, 155k. Headline ISM services printed 51.4 for March printed 51.4, falling short of the 52.7 expected and 52.6 prior. Prices paid fell to 53.4 (prev. 58.6), its lowest reading since March 2020, which was a welcome sign for the markets after the pushback seen to Fed rate cut pricing recently.

Fed’s Bostic said he thinks it is appropriate to cut rates in Q4 this year if the economy evolves as he expects. He also said he still only expects one rate cut in 2024. Chair Powell still remained inclined to believe that the recent pickup in prices was a bump, and does not see a material change in the overall picture. He reiterated that it will likely be appropriate to cut rates at some point this year.

Euro-area March CPI came in a notch lower than expected at 2.4% YoY (vs. 2.5% exp and 2.6% prior) suggesting that the move below 2% maybe just a few months ahead. June rate cut is priced in with 85% odds, and the probability could pick up further.

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

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Kevin Du

Economic

Central Bank

Forex

The Bank of Japan and the Japanese Government

On Thursday, investors should consider Bank of Japan forward guidance and Japanese government threats to intervene.

Recent BoJ views on the interest rate trajectory have pressured the Yen. BoJ Governor Kazuo Ueda reiterated the need to support the economy for the BoJ to achieve its 2% inflation target.

Market expectations of the BoJ holding interest rates at zero leave interest rate differentials firmly favoring the US dollar. The outlook for carry trades also favors the greenback, supporting the USD/JPY at current levels.

In contrast, the Japanese government remains committed to preventing further Yen weakness. The line in the sand remains the USD/JPY at 152. A break above 152 could force the Japanese government to deliver on threats to bolster the Yen.

The dynamic could change once the spring wage hikes translate into household spending. An upward trend in household spending could fuel demand-driven inflationary pressures. The BoJ could respond by raising interest rates to deliver price stability at the 2% inflation target.

There are no economic indicators from Japan for investors to consider on Thursday. The lack of stats will leave the BoJ-government dynamic to influence morning trends.

US Economic Calendar: US Jobless Claims and FOMC Member Speeches

On Thursday, the weekly US jobless claims numbers will garner investor interest. After the March ADP Report, an unexpected slide in jobless claims could impact bets on a June Fed rate cut.

Tighter labor market conditions could support wage growth and increase disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation. A higher-for-longer Fed rate path could reduce disposable income. Consumers could curb consumption, easing demand-driven inflationary pressures.

Economists forecast initial jobless claims to increase from 210k to 214k in the week ending March 30.

With the US labor market in focus, Fed speeches also need monitoring. FOMC members Thomas Barkin, Michelle Bowman, Austan Goolsbee, Loretta Mester, and Adriana Kugler are on the calendar to speak. Views on inflation, the US economy, and the interest rate trajectory could move the dial.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the US Jobs Report and central bank chatter. A hotter-than-expected US Jobs Report and hawkish Fed chatter could tilt monetary policy divergence toward the USD dollar. However, tighter US labor market conditions could force the Japanese government to intervene to bolster the Yen. 152 remains the near-term USD/JPY cap.

USD/JPY Price Action

Daily Chart

USD/JPY Forecast: BoJ, Japanese Government in Spotlight as 152 Barrier Holds_1

The USD/JPY hovered comfortably above the 50-day and 200-day EMAs, sending bullish price signals.

A USD/JPY break out from the 151.685 resistance level could give the bulls a run at the 152 handle. The USD/JPY must break down resistance at the Wednesday high of 151.951 to breach the 152 barrier.

The BoJ, the Japanese government, US labor market data, and the Fed need consideration.

Conversely, a USD/JPY drop below the 151.500 handle could signal a fall through the 150 handle. A break below 150 would bring the 50-day EMA into play.

The 14-day RSI at 63.77 suggests a USD/JPY break above the 152 barrier before entering overbought territory.