EMISSIONS: EU End-Of-Day Carbon Summary: EUAs Fall, UKAs Rise

• Slightly more constructive price action for USDJPY early Tuesday proved short lived, and the pair remains around 55 pips off the 142.76 session highs. Lower US yields for a second consecutive session appear to be providing a yen tailwind, with the support for major equity indices offsetting this sentiment.
• As such, the 142.00 handle has proved supportive both overnight and following the weaker-than-expected JOTS and consumer confidence in the US. However, technical conditions continue to highlight a dominant downtrend. Below here, 141.49 (Apr 23 low) would provide the first support before the market refocuses its attention on cycle lows at 139.89.
• The plethora of data this week and month-end could provide obstacles to short-term sentiment. The highlight on Wednesday will be US Q1 GDP, while other notable releases include US PCE, ADP and the MNI Chicago PMI.
• Domestically, the Bank of Japan is expected to keep its 0.5% policy interest rate unchanged Thursday. The BOJ’s growth downgrade, to be announced in its Outlook Report on May 1, will imply lower inflation and delay expectations for rate hikes, though officials are likely to stress that resolving tensions caused by U.S. trade policy could lead to more optimistic revisions in future, MNI understands.

The Conference Board consumer survey suggested rising near-term inflation expectations in April, alongside an uptick in interest rate expectations and weaker equities.

• It showed 1Y average expectations rising to 7.0%, up 1ppt from April for the highest since November 2022 (the Conference Board's survey only asks about 12-month ahead expectations). For comparison, the pre-pandemic decade average was 5.1%, so this may overstate the "actual" level of CPI expected. The median expectation was 6.0%, up 1.1ppt from March and likewise a post-Nov 2022 high.
• This was more or less in line with the 1Y UMichigan multi-decade high reading of 6.5% (up 1.5pp from Mar). That was less benign than the Conference Board's in relative terms (UMich 1Y inflation averaged 2.9% in the decade pre-pandemic).
• But clearly there has been a continued uptick in expectations, and we await the April data from the NY Fed's survey out on May 8.
• Higher inflation expectations may help explain why consumers see fewer interest rate cuts ahead. The differential between those seeing interest rates higher in 12 months (56.1%) minus lower (21.4%) was the highest (34.7pp) in 11 months (was 12.2pp at Sep 2024's 50 month low, coinciding with the Fed's 50bp cut to start the easing cycle). Note that this is still not a particularly high reading - as the chart below suggests, consumers rarely if ever see rates going lower as opposed to higher.
• In another gauge of sentiment, though potentially a contrarian one that tends to be more backward looking, the % seeing stocks higher vs lower in 12 months fell to -12.4pp, lowest since September 2022 (which proved to be the start of a prolonged rise in equities).

Comments from Bank of Greece Governor Stournaras, via BBG:

• “Markets are pricing in further reductions, but I believe that we should be cautious due to the very high uncertainty that prevails,”
• The deposit rate — currently 2.25% — is expected to be decreased to 2%, he said. That would mean just one more quarter-point move by the ECB, whereas investors are pricing two or three more of that size by year-end.

A little more cautious on the idea of cuts below 2% than some may have expected - Stournaras is one of the most dovish members of the Governing Council. There wass little material reaction in ECB-dated OIS rates to the comments - July implied rates have risen ~0.5bps. ECB-dated OIS continue to fully price a 25bp cut through June, with 13.5bps of sequential easing priced through July.

The latest MNI Policy Team sources piece, released this afternoon, explored the lively debate amongst the Governing Council ahead of the June decision.