Written Commentary
US airstrikes on Iran prompt another reality check for AI investment euphoria, keep focus on Persian Gulf; US Personal Income/PCE and ECB April minutes top events run, busy run of political and economic news to digest overnight.
- U.S.A.: housing price ‘quirk’ and energy prices to pace increases in PCE deflators, as many Fed speakers’ rhetoric shifts to hawkish stance
- Australia: strong Q1 CapEx all about AI related investment, highlight lopsided economy profile, provide boost to Q1 GDP, though offset by hefty reliance on imports
- U.K.: array of surveys and auto output underline increasing headwinds from domestic political crisis and energy/supply chain pressures
- Market price action to Persian Gulf news underlines skew in reaction Function
EVENTS PREVIEW
Reports of US air strikes near Bandar Abbas are a reminder (if any was needed) that the current ceasefire is very fragile, and that the US and Iran remain very far apart in reaching any sort of framework deal, let alone a long-term and sustainable peace agreement. Market reaction to the latest escalation has been instructive, with the rally in oil prices and equity markets setback rather modest by comparison to the risk rally, oil sell-off in the earlier part of the week – call it wilful blindness or wishful seeing, but it does underline where the balance of risks lie.
While the statistical focus will be on US Personal Income and PCE deflators, there is a broad spectrum of other items to consider. The Bank of Korea held rates as expected but signalled a hawkish shift that implies a rate hike in coming months, while revising its 2026 GDP forecast sharply lower, and CPI forecasts for 2026 and 2027 higher. China’s PBOC renewed its call for banks to increase lending, but as the run of credit aggregate data over the past 2 years attests, both consumer and business demand for credit remains very weak due to a very persistent lack of confidence. Any increase in June Loans will likely only follow typical quarterly seasonal patterns, which see a surge in the final month as banks window dress their loan books to ostensibly meet targets by utilising a variety of tricks. Australia’s Q1 CapEx was much stronger at 6.5% q/q than expected, wholly due to a further surge in Data Centre Buildings and Equipment investment, but offset by drops in residential and other commercial construction to leave Building CapEx overall down 3.8% q/q. It will help to boost next week’s Q1 GDP, though the fact that much of the data centre equipment is imported means there will be an offset from Net Exports. While the focus remains on the Persian Gulf, the EU faces increasing tensions with both China on trade (as per the latest tariff moves) and with Russia in miliary terms with a good deal of chatter in Central Europe and the Baltics about a potential invasion of Lithuania, as well as the comments overnight from Russia’s SVR foreign intelligence service chief accusing the EU of preparing for a large scale conflict in the East. Meanwhile in the UK, the headwinds for the economy from the domestic political crisis, energy price pressures and supply chain disruptions are becoming more evident, with reports overnight showing a drop in UK auto output and drops in Food makers and Services confidence.
** U.S.A. – Personal Income, PCE, Q1 revised GDP **
The initial revision to Q1 GDP is forecast to show an insignificant upward revision to 2.1% from 2.0%, on the back of stronger residential construction. But the focal point will be the PCE deflators as Warsh takes the helm of the Fed. As was evident in CPI, headline PCE will see pressure from gasoline and to a lesser extent food prices with a 0.5% m/m rise pushing up the y/y 0.3 ppts to 3.8%. Meanwhile, the core deflator will also see the same upward pressure from housing as the October government shutdown related anomaly is ironed out with a 0.3% m/m rise, edging up the y/y rate to 3.3%. But regardless of the outcome and any rationalizations to explain away the shift higher in the PCE deflators, the mood music on the FOMC about the Fed policy outlook continues to take a decisively shift hawkish, with vice Chair Jefferson joining the array of regional Fed presidents highlighting the potential need for a rate hike, Chicago Fed’s Goolsbee noting that services inflation has been a lot more persistent than he had anticipated.
To view the full report and to sign up for daily market commentary please email admisi@admisi.com
Disclaimer:
This material is provided for information purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. The views expressed reflect market conditions and publicly available information as of the date of writing and may change without notice. No representation or warranty is made as to the accuracy or completeness of the information. Past performance is not indicative of future results. Readers should consider their own circumstances and, where appropriate, seek independent financial advice.
This material is provided for information purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. The views expressed reflect market conditions and publicly available information as of the date of writing and may change without notice. No representation or warranty is made as to the accuracy or completeness of the information. Past performance is not indicative of future results. Readers should consider their own circumstances and, where appropriate, seek independent financial advice.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
