UPCOMING EVENTS:

• Monday: New
  Zealand Services PMI, Eurozone Industrial Production, US Retail Sales, US
  NAHB Housing Market Index, PBoC MLF.
• Tuesday: China
  Industrial Production and Retail Sales, UK Labour Market report, Eurozone
  ZEW, Canada CPI, US Housing Starts and Building Permits, US Industrial
  Production.
• Wednesday: New
  Zealand CPI, UK CPI.
• Thursday:
  Australia Labour Market report, US Jobless Claims.
• Friday: Japan
  CPI, UK Retail Sales.

Monday

The PBoC is expected to keep the MLF rate
unchanged at 2.50%. The recent “activity” data has been pretty good with the
latest PMIs
coming in strong. The CPI
figures though missed expectations by a big margin as the deflationary threat
remains present. The PBoC Governor Pan stated that they still have
sufficient room for monetary policy, so adjustments to the policy rates
cannot be ruled out.

The US Retail Sales M/M is expected at
0.3% vs. 0.6% prior, while the Retail Sales ex-Autos M/M figure is seen at 0.4%
vs. 0.3% prior. Retail Sales are notoriously volatile, but the underlying
trend shows stable spending and given the resilience in the labour market
and the recent pickup in economic activity we can expect it to continue. If we
get a miss, the market should fade the reaction as the trend set by the third
consecutive hot US CPI is unlikely to change by the Retail Sales data.

Tuesday

The UK Unemployment Rate is expected to
remain unchanged at 3.9% and there is no consensus at the time of writing for
the other figures. The focus will be mainly on wage growth metrics but
unless we get some big surprises, the market’s pricing is unlikely to change
much as market participants will be looking for the UK CPI report the next
day.

There is no consensus for the Canadian CPI
readings at the time of writing but as always, the attention will be on the
underlying inflation measures as that’s what the BoC is most concerned about.
The central bank at its latest
monetary policy meeting removed a line in
the statement where it previously noted its concern about the inflation
outlook. This was interpreted as a dovish move as it followed weak labour
market and inflation
reports. The market sees the BoC cutting rates in June, but the central bank
will need the disinflationary trend to continue to deliver on expectations.

Wednesday

The New Zealand CPI Y/Y is expected at
4.1% vs. 4.7%, while the Q/Q measure is seen at 0.7% vs. 0.5% prior. The RBNZ
at its latest
monetary policy meeting dropped the
tightening bias and stated that the OCR will need to remain at a restrictive
level for a sustained period of time. The
central bank expects to normalise policy only in 2025 while the market sees the
first rate cut in August. Unless we get big surprises, the data is unlikely
to change the market’s pricing much.

The UK CPI Y/Y is expected at 3.1% vs.
3.4% prior, while the M/M measure is seen at 0.0.4% vs. 0.6% prior. The Core
CPI Y/Y is expected at 4.3% vs. 4.5% prior. The BoE is very concerned
about the Services Inflation rate which stands at an uncomfortable 6.1% level,
so that will be the most important data point. There’s basically a 50/50
chance for a rate cut in June and it’s unlikely that the BoE will deliver on
expectations unless we get some notable easing in the inflation rates
(especially services inflation) in the next couple of months or the labour
market cracks in the meantime.

Thursday

The Australian Labour Market report is
expected to show 15.5K jobs added in March vs. 116.5K in
February and the Unemployment Rate to tick
higher to 3.9% vs. 3.7% prior. Unless there are big surprises, the data is
unlikely to change much for the market with the first rate cut expected in
November.

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. This is because disinflation to
the Fed’s target is more likely with a weakening labour market. A resilient
labour market though could make the achievement of the target more difficult.
Initial Claims keep on hovering around cycle lows, while Continuing Claims
remain firm around the 1800K level. There is no consensus at the time of
writing although the prior
week saw Initial Claims at 211K vs. 215K
expected and Continuing Claims at 1817K vs. 1800 expected.

Friday

The Japanese Core CPI Y/Y is expected at
2.6% vs. 2.8% prior with no consensus of the other measures. The BoJ continues
to support the status quo while mentioning that another rate hike will depend
on the data. The timing for such a move remains uncertain though with July
and October being on the table, although the latter is the most probable one.
Nevertheless, if we start to see inflation trending upwards, the BoJ will
likely move already in July.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

US President Joe Biden told Israeli prime minister Benjamin Netanyahu during a call today that the US will oppose any Israeli direct counterattack against Iran, according to an Axios report that cited a ’senior White House official.‘

Two things:

1) If the US doesn’t want a war, this makes sense. Aside from oil prices, I can see plenty of reasons that Biden wouldn’t want this war now.

2) Could this be a smokescreen? Things like this don’t ‚leak‘ out of the White House. This would be some of the most-highly classified information on the planet. So was it leaked to pressure Israel? To lower expectations of the US actually getting involved? Or is it a fake to get Iran to let its guard down?

The answer to that might have to do with what was said behind closed doors when Iran briefed the US, Italy and a number of other countries before its response.

Iran could told have told diplomats an approximation of what it was going to do and could have said no one was likely to get injured. It may have also launched several ballistic missiles into very sensitive regions to prove that it could. Reports (if they’re true) said Iran hit close to an Israeli military base and near a port on the far side of the country. The message there could be to say: We missed on purpose but could hit you wherever we want. Maybe Iran was looking for an opportunity to show Israel that its defenses weren’t iron clad? Perhaps all the forewarning and easy-to-shoot down drones were performative and a gift to Israel to show the people at home the strength of its defense.

Iran obviously thinks that’s how it will be taken, that’s why this tweet was so clear. If it has the desired effect, you could argue this is the most-important tweet ever sent.

The timing, clarity and wide reach of made it abundantly clear that Iran doesn’t want a war.

So Iran doesn’t want a war. We can also take the White House at face value that it also doesn’t want a war.

The frightening miscalculation here would be if Netanyahu does want or a war, or feels that he must respond to this. And if he must and the US is sincere, then is there some kind of further face-saving move that he could do without US support and without provoking Iran further? Will he try to walk that dangerous line?

Or maybe he thinks now is the right time to deal with Israel’s arch enemy forever?

It’s a dangerous 24 hours ahead.

This article was written by Adam Button at www.forexlive.com.

(Update: Israel says the strike caused ’slight damage‘ to a military base)

Iran’s IRGC says it has „successfully hit important military targets“ of Israeli army and „destroyed them“, according to Iranian press. The Iranian government’s newspaper also said that Tehran successfully targeted Israel’s most important military base in Nagev using Kheibar missile.

That could just be propaganda for domestic purposes.

The latest generation of Kheibar missiles accelerate to Mach 5 at impact, so they would be very difficult to intercept. It wasn’t previously known if Iran had the capability to launch those missiles the 2000km to Israel, though last May Iran claimed it could have a 2000km range.

Several videos do seem to show fast-moving objects hitting near Nagev.

It seems there is a ’secret‘ US military base in Nagev as well.

This article was written by Adam Button at www.forexlive.com.

Here is a tweet showing what appears to be two fast-moving ballistic missiles landing.

It’s getting very difficult to imagine that Israel/US won’t respond however an Al Jazeera report, citing Israeli security sources, they succeeded in intercepting 99% of the Iranian response.

One report says strikes did hit the Ilan and Asaf Ramon International Airport or nearby. Another says that rockets hit the port of Haifa.

I would be careful with all of these reports, even the videos. These are times that are ripe for disinformation.

Here is a statement from The Islamic Revolutionary Guard Corps:

„Iran attacked important Israeli military installations after more than 10 days of silence and disregard by international organizations, especially the UN Security Council, which did not condemn the aggression and criminality of the Zionist regime in the attack on the consular section of the Iranian embassy in Damascus.

America is responsible for the evil actions of the Zionist regime, and if this child-killing regime is not curbed in the region, it must accept its consequences.“

This article was written by Adam Button at www.forexlive.com.

On Israel TV, a senior Israeli official was cited as saying there will be a ’significant response‘.

It don’t think it was ever realistic to think that Israeli would let it end here. So now we wait for the response, and then the response to the response, etc.

If you want a silver lining here, at least he didn’t say ‚this is war‘.

Meanwhile, Israel plans to request an urgent meeting of the UN Security Council, the Israeli permanent representative to the organization told Russian’s Sputnik.

This article was written by Adam Button at www.forexlive.com.

• University of Michigan consumer sentiment 77.9 vs 79.0 estimate
• Reports of 30-50 missiles launched from Lebanon at Israel
• Sen Rubio: „Barring some last-minute development, Iran is going to attack Israel“
• Fed’s Bostic: Inflation will keep easing but slower than we would like
• Fed’s Daly: There is absolutely no urgency to adjust policy rate
• KC Fed President Schmid: Current stance of US monetary policy is appropriate
• Fed’s Schmid Q&A: We’re at a bumpy stage now with inflation
• Chicago Fed Pres. Goolsbee: US is in an environment of „cross currents“
• WSJ Timiraos: Core PCE probably rose 0.27% in March according to forecasters
• Feds Collins: Inflation will come down even with a healthy labor market,but will take time
• US military deployed a missile ship with advanced defense capabilities near Israel
• US import prices for March rose 0.4% versus 0.3% expected

Markets:

• Gold down $30 to $2342
• WTI crude oil up 52-cents to $85.54
• US 10-year yields down 6.3 bps to 4.51%
• S&P 500 down 1.5%
• JPY leads, AUD lags

What has me rattled is the warning from Senator Marco Rubio about how Iran will attack Israel „barring some last minute development.“ During the first minutes of Russia’s war in Ukraine, Rubio was live-tweeting what Russia was doing and planned to do in extreme detail. This indicates that he’s privy to the highest levels of US intel and his comments certainly made the market nervous.

What had been moderate worry turned into full-scale fear in the equity market with the Nasdaq down 2%. The US dollar also climbed broadly and US 10-year yields slid.

However late in the day, Hezbollah launched a mild rocket attack against Israel and the market breathed something of a sigh of relief, thinking that maybe that was it. Still, the market is on edge and we will have to see what the weekend or next week brings.

Gold was caught up in the drama as it rose to a record high but as risk sentiment worsened a round of profit taking turned into a $100 drop, leaving a nasty reversal on the chart. Eyes will be on the ever-present buyers in China at the Monday open, to see if they buy the dip once again.

This article was written by Adam Button at www.forexlive.com.

The mood was poor to start the day but significantly darkened on credible talk of an imminent direct Iran attack on the US. The question is: Was the Hezbollah rocket attack it? Not many traders wanted to buy the dip late on anticipation that Iran will refrain from striking back too forcefully.

Geopolitics are tough to predict but here’s to a peaceful weekend.

Closing changes on the day:

• S&P 500 -1.5%
• Nasdaq Comp -1.6%
• DJIA -1.3%
• Russell 2000 -2.2%
• Toronto TSX Comp -1.1%

On the week:

• S&P 500 -1.6%
• Nasdaq Comp -0.5%
• DJIA -2.4%
• Russell 2000 -2.2%
• Toronto TSX Comp -1.6%

This article was written by Adam Button at www.forexlive.com.

• Labor market is strong, inflation is not falling as rapidly as last year
• With this week’s CPI report, it’s a good time to remind people the Fed is not data-point dependent
• I need to be fully confident inflation is coming down to 2% before considering a rate cut
• There’s a lot of work to do before we can be confident
• There’s too much discussion of how many rate cuts, rather than what we are trying to accomplish

The market is pricing in a 68% chance of a cut in July. We will need a turn lower in inflation data if that’s going to happen.

This article was written by Adam Button at www.forexlive.com.

„My expectation is sooner than later,“ Biden said when asked how imminent an attack by Iran on Israel was.

„We are devoted to the defense of Israel. We will support Israel, we will defend–help defend Israel and Iran will not succeed,“ he also said.

The market has priced out some of the worries but we won’t find out how much angst is in the market unless nothing happens on the weekend. So it goes with macro trading.

This article was written by Adam Button at www.forexlive.com.

The Australian dollar is nearing the February low of 0.6443 as it rests just 14 pips above. AUD/USD traded as high as 0.6644 on Tuesday but traded down sharply on the hot US CPI report and has continued lower today as the dollar breaks higher against a number of currencies.

Though much of the move is broad USD strength, the Australian dollar is particularly soft accounting to broader risk aversion. It’s not benefiting from higher metals prices and improving China growth prospects but those are notable themes to watch.

Ominously, both CAD and NZD are trading at the lowest levels since November. The commodity-driven trio tend to trade together so it may be a struggle for AUD to hold the Feb low. If it breaks, the November low was 0.6339 and the October low was 0.6270.

This article was written by Adam Button at www.forexlive.com.