European Outlook: Asian stock markets moved higher, led by shares in Hong Kong, which rose to a 21 month high led by financials. Strong leads from the U.S. underpinned markets, although elsewhere gains were more muted and U.S. and FTSE 100 futures are heading south, indicating a correction from yesterday’s surge higher that saw the DAX climbing further above the 12700 mark and the FTSE 100 closing above 7300. European yields moved higher yesterday as investors flocked into stocks, with the Bund still outperforming Gilts, as Eurozone markets price in tapering and rate steps amid strong growth indicators and receding political risks. Mersch all but confirmed the expected change in guidance on Monday and Draghi will have a further chance to clarify the central bank’s stance at his speech to Dutch lawmakers today. In the U.K. the BoE starts its two day meeting, with expectations for an unchanged policy stance. The European data calendar has production data out of Italy and France as well as Norwegian inflation numbers and French trade.
FX Update: The dollar has traded modestly lower so far today, which some market narratives link with Trump’s firing of FBI Director Comey. USDJPY settled back under 114.00 after clocking a two-month peak at 114.33 yesterday. The high caps an impressive winning streak, with the pair having climbed in every session bar three over the last three weeks as it lifted out of the 108.12 six-month low posted on April 17. EURUSD settled in the upper 1.08s after logging a 12-day low yesterday at 1.0863. The narrow USD index is down by 0.2%, correcting some after logging a 19-day high yesterday. Oil prices have continued to see relatively steady price action, near $46.0 in the case of the WTI future, while most Asian stock markets have gained today following a flat session on Wall Street yesterday.
US reports: report revealed divergent surprises, with a disappointing flat figure for March wholesale sales after a 0.7% February increase, but a 0.2% inventory rise that beat the 0.1% drop in the advance indicators report, after a 0.3% February rise. Sales undershot inventories after beating inventories for three consecutive months, hence slowing the downtrend in the inventory-to-sales (I/S) ratio to leave a 1.28 ratio for a third consecutive month. Now a Q1 GDP growth boost expected to 0.9% from 0.7%, with a $7 bln boost in wholesale inventories that accompanies an $8 bln downward factory inventory revision, U.S. JOLTS showed March job openings rose 61k to 5,743k from a downwardly revised 5,682k (was 5,743k). But the job openings rate was steady at a solid 3.8%. Hirings rebounded 11k to 5,260, also from a downward revision to 5,249k (was 5,314k). The rate was flat at 3.6%. Quitters, a favorite stat of Chair Yellen, increased 80k to 3,116k from 3,036k, with the rate holding at 2.1%. Data aren’t new and will be taken in stride, though they continue to show a tight labor market.
Fedspeak: Fed hawk Rosengren warned that the jobless rate at 4.4% is below “natural full employment” estimates at 4.7% and a further drop below 4.0% “would likely be accompanied by higher inflation, overheating the economy and prompting higher rates.” Also, balance sheet shrinkage shouldn’t be disruptive, said the non-voting Fed president, in post speech Q&A. The market can absorb balance sheet shrinkage, if it’s done gradually. It should be highly tapered, and part of the intent is to let mortgage rates rise. The Fed is still discussing its portfolio strategy, it’s still pretty “speculative,” he admitted, but he hopes to normalize the balance sheet will begin relatively soon, repeating recent comments. He also said the Fed is likely to hit zero rates again in future recessions.
Main Macro Events Today
- ECB Speech – ECB President Draghi speaks at the Dutch House of Representatives, in Netherlands, about the impact of Monetary policy.
- US Imports and Exports & Budget Statement – April trade price data is out today and expected at 0.1% increase for exports with a matching 0.1% increase for imports. This would follow March data which had exports up 0.2% and imports down 0.2%. Oil prices rebounded in April after a dip in March which should help support the data. Also, April’s Treasury budget is out and will give a more complete view on the important tax season inflows and outflows.
- RBNZ Rate Statement & Press Conference – Reserve Bank of New Zealand meeting. No change in the 1.75% rate setting is anticipated, along with a statement that is consistent with steady rates through year-end.
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