Weekly Market Outlook (07-11 April)

UPCOMING EVENTS:

• Monday: BoC Business Outlook Survey.
• Tuesday: US NFIB Small Business Optimism Index.
• Wednesday: RBNZ Policy Announcement, FOMC Minutes.
• Thursday: Japan PPI, China CPI, US CPI, US Jobless Claims.
• Friday: New Zealand Manufacturing PMI, UK GDP, US PPI, US University of Michigan Consumer Sentiment.

Wednesday

The RBNZ is expected to cut the OCR by 25 bps. As a reminder, the RBNZ cut interest rates by 50 bps as expected at the last meeting, but (now ex) Governor Orr sounded less dovish than expected as the central bank wanted to slow the pace of easing as they approach their estimated neutral rate around 3.00%. The market was already expecting a rate cut but following the worse than expected tariffs announcement by Trump, traders are now seeing 93 bps of easing by year-end and even 22% probability of a 50 bps cut at the upcoming meeting.

Wednesday is also the day when the higher reciprocal tariffs will go into effect at 12:01 am EDT. The baseline 10% tariffs went into effect on Saturday but it’s the higher ones that caused the havoc. The market focus won’t be on the economic data, it will be on potential deals ahead of the deadline. That’s the only positive caveat that we got from last week’s announcement (although understandably ignored) and it’s also curious that China said that their additional tariffs will go into effect on April 10, just a day later.

Thursday

The US CPI Y/Y is expected at 2.6% vs. 2.8% prior, while the M/M figure is seen at 0.1% vs. 0.2% prior. The Core CPI Y/Y is expected at 3.0% vs. 3.1% prior, while the M/M reading is seen at 0.3% vs. 0.2% prior.

Fed Chair Powell spoke on Friday, and he said that they “don’t need to be in a hurry” to cut rates, so the central bank will remain on the sidelines for now. He also added that their “obligation is to keep long-term inflation expectations well anchored” which suggests that they are in fact constrained now.

The problem is if they cut now, then inflation has real potential to increase again with a very high risk of expectations de-anchoring. On the other hand, if they don’t cut and let the economic pain increase, then a hard landing would be almost certain and, in that case, they will cut very aggressively. They are basically screwed. The only way out of this is if we get positive deals before the Trump’s deadline on April 9.

The US Jobless Claims continue to be one of the most important releases to follow every week as it’s a timelier indicator on the state of the labour market.

Initial Claims remain inside the 200K-260K range created since 2022, while Continuing Claims made a new cycle high last week.

This week Initial Claims are expected at 223K vs. 219K prior, while Continuing Claims are seen at 1880K vs. 1903K prior.

Friday

The US PPI Y/Y is expected at 3.3% vs. 3.2% prior, while the M/M measure is seen at 0.2% vs. 0.0% prior. The Core PPI Y/Y is expected at 3.6% vs. 3.4% prior, while the M/M figure is seen at 0.3% vs. -0.1% prior. Again, the data is unlikely to matter much for now as it’s all backward-looking stuff, but higher numbers on the CPI and PPI might weigh more on the markets at the margin.

The University of Michigan Consumer Sentiment is expected at 54.7 vs. 57.0 prior. Compared to the Conference Board consumer confidence, which is more biased towards the labour market, the consumer sentiment survey is more weighted towards consumers’ finances. In fact, analysts believe that it’s a better predictor of consumer spending than the consumer confidence report, which is also why the expectations index in the survey is included in the Leading Economic Index (LEI).

This is generally more market-moving at turning points in the cycles or when we have big deviations from the expected numbers. The sentiment has been dropping fast in the past months due to the Trump's trade war. The biggest concern has been the rise in inflation expectations, particularly the long-term ones, which continue to surge to new highs with every release.