Well that April pause didn’t last long. The Reserve Bank of Australia surprised us all with a 25 bps rate hike to 3.85%. Governor Lowe said “Inflation in Australia has passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range…Given the importance of returning inflation to target within a reasonable time frame, the board judged that a further increase in interest rates was warranted today.” I read a clever line from some economist that said the RBA is now playing Recession Roulette. I guess we can say that about the Federal Reserve too. You can see in the chart below the immediate reaction in the Aussie$ higher. The 2 yr yield jumped in kind by 21 bps to 3.26% while the curve flattened with the 10 yr yield up by 9 bps to 3.44%. The ASX closed down by almost 1% while most of the Asian stock markets were in the green.
Aussie$ intraday
Ahead of the ECB meeting on Thursday, April CPI rose 7% y/o/y, one tenth more than expected and up from 6.9% in March. The core rate was higher by 5.6% y/o/y as forecasted and down one tenth from the month before. The prices of non-energy industrial goods was up by 6.2% y/o/y vs 6.6% in March while services inflation continues to accelerate, up by 5.2% y/o/y. Worries over economic growth has expectations that the ECB will hike by 25 bps on Thursday, rather than 50 bps, taking its deposit rate to 3.25%, and thus remaining well below headline inflation. Bond yields are higher by 6-8 bps across the European region in response. Christine Lagarde continues to have to clean up the monetary mess that Mario Draghi left her with.
As seen in the US, European services is well outpacing manufacturing. Today S&P Global gave us their final manufacturing PMI read and it was well under 50 at 45.8, up a touch from the initial read but down from 47.3 in March and its the 10th straight month below 50. The final UK manufacturing PMI was also less than 50 at 47.8.
Benefiting from the China reopening, Hong Kong’s Q1 GDP surprised to the upside with a 5.3% q/o/q increase, above the estimate of 3%. Private spending led the way, jumping by 12.5% and helped by tourism.
Following on with the China reopening, my friends at the China Beige Book said yesterday that “China’s Beige Book’s new data offer the first evidence of a truly robust 2023 recovery. The economy fired on most cylinders in April, as indicators not only gained over Covid depressed levels of a year ago but also bettered last month.” Travel is really rebounding in particular. Yesterday Inside Asian Gaming reported that April Macau revenue totaled $1.82b which compares to $1.58b in March which at the time was the best since January 2020. China Daily today has a story today titled “China’s outbound tourism booms during May Day holiday.” And it went on to say “Data from Chinese travel agency Trip.com Group (a stock we own) shows that by early April, mainland outbound travel bookings for this holiday had multiplied by 18 times y/o/y.”
More on China travel, in today’s Marriott earnings release they said “The lifting of travel restrictions throughout Asia Pacific, particularly in Greater China, significantly boosted first quarter demand in the region.” I remain positive on the Chinese consumer, their craving for travel and their desire to live life again after 3 yrs of essential lock up.
Here’s what Marriott said about elsewhere, “In the US and Canada, we saw solid demand across the leisure and group segments in the quarter, while business transient demand continued to improve…While the global economic picture is uncertain, demand remains strong, and we are not seeing signs of a slowdown. With the faster than expected recovery in international markets and continued solid booking trends globally to date in the second quarter, we are raising our RevPAR guidance for the full year.”
Avis said this on their business, “Our first quarter demand was strong, with our international inbound and commercial customers continuing their improved growth. This culminated with the most rental transactions in our first quarter history.”
On the negative side, Lending Tree is getting smacked today as they lowered guidance with “continued headwinds in Home, a pressured revenue environment for Consumer and, to a lesser extent, Insurance.” If you’re not familiar with the company, according to them, LendingTree is one of the nation’s largest, most experienced online financial platforms…LendingTree provides consumers with access to the best offers on loans, credit cards, insurance and more through its network of over 600 financial partners.” I’ll be listening to their earnings call today to see what more we can glean on the consumer.
Dupont, a company whose chemicals go into a lot of stuff, said today in their earnings release “Lower volume resulted from decreased consumer electronics spending and channel inventory destocking, along with softness in construction end-markets, partially offset by continued strength in areas such as water, auto adhesives and in industrial end-markets such as aerospace and healthcare.” By the way, they saw organic sales fall by 3% with volumes down by 7% partly offset by a 4% rise in prices.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.