Syz the moment

PCE deflator rose to 2.7% in March from 2.5% in Feb vs 2.6% expected. Core PCE, the Fed's preferred measure of underlying price pressures, remained at 2.8%, compared with an anticipated fall to 2.7%. First full rate cut is now priced for November. Note that we now have CPI, PPI and PCE inflation RISING for 2 straight months. Source: HolgerZ, Bloomberg

Source chart: Bloomberg

The Bank of Japan kept its policy rate unchanged Friday after its monetary policy meeting, holding its benchmark policy rate at 0%-0.1%. This is in line with expectations from economists polled by Reuters. While the move was expected, this comes after Tokyo’s April inflation came in lower than expected, with the core inflation rate at 1.6% compared to expectations of 2.2% from Reuters. The BOJ also said it will continue to conduct bond purchases. However, they dropped a reference to buying roughly the same amount of bonds as previously. No comment was made by the BOJ on the yen, which has steadily weakened since the BOJ ended its negative interest rate policy last month and abolished its yield curve control policy. The currency broke through the 156 mark against the U.S. dollar Friday after the decision, most recently trading at 156.11. Separately, the central bank also released its second-quarter outlook for Japan’s economy, raising its outlook for inflation in fiscal 2024. The BOJ now expects inflation between 2.5% and 3% for fiscal 2024, up from 2.2% to 2.5% in its January forecast. Inflation is then predicted to decelerate to “around 2%” in fiscal 2025 and 2026, the bank added. The BOJ also downgraded gross domestic product growth forecasts for fiscal 2024 to a range of 0.7% to 1%, down from January’s prediction of 1%-1.2% growth. Think of this as another small step in what the BoJ sees as a relatively long policy normalization journey. As mentioned by Mohamed El Erian, the length of this journey, both on a standalone basis and relative to the US, helps explain the weak Yen. Source: Bloomberg, CNBC

Speaking in Bern this morning, Jordan said: “We will therefore monitor the ongoing development of inflation closely and adjust our monetary policy again if necessary.” and also cautioned there’s “no guarantee” that the current favorable consumer-price outlook will hold.

Source: Bloomberg

To put this in perspective, 4 months ago there was a ~3% chance of no rate cuts in 2024. The base case has gone from 6 rate cuts to 1 rate cut this year. There is just a 31% chance of 2 or more interest rate cuts this year. In other words, there is a higher chance of NO cuts than 2 OR MORE cuts. Could it be the fastest shift in Fed expectations of all time? Source: The Kobeissi Letter

"Japan is experiencing increasing inflation expectations alongside a continuous devaluation of the yen, exhibiting an almost perfectly negative correlation. This reflects the dilemma of an economy burdened by excessive debt, necessitating continuous accommodative monetary policies in the face of structural inflationary pressures. While this might be more pronounced in Japan, this trend is reflective of a global fiat debasement phenomenon". Source: Crescat Capital, Tavi Costa

Since 2022, China has bought a record ~290 tonnes of gold. Last year alone, China acquired more than 225 tonnes of the metal. China's central bank increased its gold holdings for 17 straight months. In 2022 and 2023, world central banks bought 1081 and 1037 tonnes of gold, respectively. Prior to 2022, there was never a year in history with 1,000+ tonnes of central bank gold purchases. Source: The Kobeissi Letter, BofA

Source: Bloomberg Intelligence, Markets & Mayhem