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Inflation readings are in, and someone’s finally seeing some utility from inflation. Eurozone CPI printed at 6.9% for March, and investors joined in on the fun by weighing 69% odds the ECB hikes by only 25 bps.

Looks like J Pow wasn’t invited to the party. He’ll be in the office late with the rest of us weighing the week's economic releases before the Fed blackout period Saturday.

Let’s dive in.

Economy Heat Check

As of 4/19/2023 market close, unless otherwise stated.

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Briefings

• Meta and Disney eye more rounds of job cuts (CNBC, CNBC)

• Johnson & Johnson talc lawsuits decided by judge today (Reuters)

• Google reportedly launching its foldable phone in June (CNBC)

• Lululemon weighs sale of fitness business Mirror (BI)

• Opendoor to lay off 22% of its workforce (Reuters)

• China said to substantially reduce fine and charges on Ant Group (Reuters)

• McDonald's is changing the recipe for its most iconic burgers (CNBC)

Performance Review

Firm updates your bank may be less inclined to disclose.

• Morgan Stanley's CEO race heats up with wealth boss as one to watch (BBG)

• Morgan Stanley's profits plummeted as M&A bankers underperformed (EF)

• Apple, Goldman debut savings account with 4.15% annual yield (BBG)

• State Street, Schwab see deposits drop (WSJ)

• Schwab’s stabilization tested by rates rise (FT)

• JP Morgan banker told they didn’t log in for an entire day and lost PTO. Explained, “don’t worry, it shouldn’t affect your performance.” (Anon)

Expectations Reset

Cash Still King?

Fed Governor Michelle Bowman gave a nod to the possibility of a wholesale central bank digital currency recently, signaling its potential for the future settlement of financial transactions and international payments. Across the pond, BoE Deputy Governor Cunliffe was quick to hop on the digital bandwagon. But he spit some fire that’s completely revolutionary in every way: the creation of a "digital pound".

While the US hasn't quite caught up yet with a CBDC (central bank digital currency) of its own, the Biden administration and the Fed have been weighing the pros and cons since last year. Maybe Kamala is alive after all and we’re finally seeing some of that year-delayed Californian policy making magic at work.

UK Inflation

Inflation is coming down in the UK as much as football is coming home – #N/A. The latest UK inflation surprised again yesterday, remaining in the double digits. Sure it “eased” to 10.1% year-over-year for March 2023, down from 10.4% the month. But it’s still double digits – and above market expectations of 9.8%.

The rate remained above the 10% mark for the seventh consecutive period. We don’t see eye-to-eye with the Brits about much, but both the Fed and BoE are still bullish on a 2% inflation rate target. On a monthly basis, the CPI rose by 0.8% in March alone. That’s lower than the rise of 1.1% in March 2022, when the full-scale invasion of Ukraine drove up prices, but still a pacey monthly increase.

Eurozone Inflation

Eurozone inflation is falling and having too much fun in the process, falling to 6.9% year-over-year for March 2023. That’s a slight ease from last month’s 8.5%, but underlying readings still remain high. It’s also bad news for the ECB, who can’t take off for summer so early quite yet.

Persistently high core readings flag that energy costs have seeped into the broader economy and could make inflation difficult to control. Those core readings are why most ECB policymakers have said interest rates will continue to rise, despite 350 bps of hikes since last July.

The debate now is between a 25 and 50 bps increase at the May 4 meeting. For now, markets are leaning towards the smaller move. And by leaning, we mean they’re also EU CPI’ing it, currently seeing ~69% odds the ECB goes for a smaller increase.

The ECB's main worry is that services inflation, now at 5.1%, is becoming a key problem. Service prices are predominantly determined by labor costs. Plus, food inflation continues to rise. Those factors are just two that could potentially change spending behavior and pressure wage demands.

Still to Come: Global Flash PMIs

Macro folks finally had something to fanboy over besides oil this week with the wild ride that was economic releases. It all closes out tomorrow with Flash PMIs dropping for the US, Eurozone and APAC. That means we’ll finally get some direct data on how businesses are faring at the start of Q2.

The question on everyone's minds is whether March's surprising growth, led by the service sector, can remain in its fever high. It’ll still have the same obstacles like interest rate hikes and a struggling banking sector to overcome. So, sadly, that means you still have the fear-baiting “impending next Lehman” news to roll your eyes over as well.

Meme Bank

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