European Outlook: Asian stock markets were mostly down, with ASX and Nikkei selling off as risk aversion continues to dominate. This also saw Eurozone spreads widening again, although French election jitters at least seem to have eased, which is helping French bond spreads to come in again. Today’s calendar should be bond friendly, with final March inflation data from Germany, France and Italy to confirm the marked deceleration already evident in the preliminary numbers. However, base effects from the later timing of Easter a largely to blame, so the underlying uptrend remains intact, even if core is still to low for Draghi’s liking.
US reports: The firm round of March U.S. trade price data followed mostly upward prior revisions, despite the expected March petroleum import price drop and a strong dollar, leaving a clear uptrend in U.S. trade prices since the oil price trough in February of 2016. Price strength remains skewed toward exports, as seen through most of 2016, after the opposite pattern temporarily emerged in January. The data signal modest upside risk for the remaining inflation reports for March. Import prices have mostly received a lift over the past year from oil prices, though we’re seeing an additional lift from recovering growth abroad and the inventory upturn, alongside OPEC production restraint.
German March HICP inflation was confirmed at 1.5% y/y, unchanged from the preliminary number and down from 2.2% y/y in February. Base effects from energy prices, but also the later timing of Easter are a key reason behind the drop back below the ECB’s 2% limit. The Easter effect meant holiday related prices including package holidays, flights and some services prices related to holidays pick up later this year compared to 2016, when Easter fell into March, so while the headline rate fell back in March this year, it is already set to pick up again in April. The underlying trend is also pointing higher and with rents picking up and the labour market very tight, the risk of a broader rise in prices including second round effects is also rising. No wonder then that Bundesbank President Weidmann continues to argue that the time to think about a phasing out of QE and a return to a neutral stance on rates has come.
Bank of Canada: The announcement, MPR and press conference provided the usual hefty helping of growth, inflation and risk projections/assessment. The BoC held rates steady at 0.50%, matching widespread expectations. Their outlook for growth and inflation was modestly upgraded but still laced with caution, as they remained “mindful of the significant uncertainties weighing on the outlook.” Despite the upbeat domestic data since January and a strengthening and broadening in global growth, the Bank was clear that “material excess capacity remains.” While the Bank did upgrade the growth and inflation outlook, uncertainty remains elevated and Poloz said the Bank is “neutral” in terms of rate cuts or hikes. The Governor said rates are “at the appropriate level given what we see.” Indeed, “The data speak, but the data have not been uniformly positive” but much better than they were for the past year. He reminded that we had a similar run of data last year, and it gave way to things flattening out last year. So “It is right for us to remain cautious.”
Main Macro Events Today
- Us Prelim UoM Consumer Sentiment – The preliminary April consumer sentiment index from the University of Michigan survey is on tap. Confidence is projected to have bounced to 97.5, after edging up to 96.9 in March from February’s 2.2 point drop to 96.3.
- Canada NHPI and Manufacturing Sales – The manufacturing survey should show a 1.0% drop in shipment values during February after the 0.6% gain in January. The new home price index is anticipated to rise 0.2% m/m in February after the 0.1% increase in January.
- US PPI and Unemployment Claims – Weekly initial jobless claims (expected at 245K) and March PPI (expected at 0.0%) are also on tap today.
- BOC Gov Poloz – BOC Gov Poloz will give a speech today in Ottawa along with Senior Deputy Governor Carolyn Wilkins.
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