European Outlook: The global stock market rally continued in Asia overnight. In the absence of further news from North Korea global jitters have abated somewhat and with Macron advancing as the favourite in the runoff to the final round of the election, the focus is turning to corporate earnings, the ECB meeting Thursday, and once again Trump’s tax package. The Nikkei remained underpinned by a weaker Yen, Chinese stocks stabilized, after yesterday’s sell off, while Australia and New Zealand were closed for a holiday. U.S. and U.K. stock futures are moving higher and Bund futures, which sold off sharply yesterday as save haven trades were being reversed, already started to stabilize later in the session. Eurozone spreads, which came in sharply yesterday as French and peripheral yields dropped, should also start to stabilize again, especially as more stability in France also means there is less need for Draghi’s insurance policy on rates and QE. Today’s calendar has business confidence data from France, the ECB’s bank lending survey, a German Schatz auction and U.K. borrowing numbers.
Fed’s Kashkari said bank regulations made ending too-big-to-fail worse by raising compliance costs on small and medium sized lenders. Kashkari is speaking at an investment conference at UCLA. And he noted big banks likely hate his call for a higher capital cushion. Dodd-Frank legislation was probably a net-positive for the system, but looking back on it, he added it wasn’t perfect and didn’t really address too-big-to-fail. He’s not real sure of the benefits of negative rates. While they may have helped spur people to invest and spend more, and save less, he’s simultaneously concerned that the psychological channel of negative rates may scare people. He didn’t really address monetary policy given his speech falls within the FOMC’s 10-day blackout period.
European markets continued to celebrate Macron’s victory in the first round of the French election during the European session yesterday. Frexit and Eurozone breakup concerns were being priced out, which triggered a broad rally on European stock markets. The FTSE 100 underperformed but still managed to gain more than 2%, and in the Eurozone, it is the Italian MIB rather than the French CAC 40, which is leading the way by rising nearly 4.5%. The revival of risk appetite saw Bund and Gilt yields spiking higher, while Eurozone peripheral yields dropped sharply and spreads came in. The German 10-year Bund yield is up 9.3 bp while the Gilt yield is up 4.1bp. By contrast the French 10-year is down -8.8 bp, the Italian down -4.5 bp, the Spanish down -5.4 bp and the Portuguese a whopping 14.9 bp. At the short end France clearly outperformed and the French yield curve steepened as the 2-year yield lost -11.2 bp . Macron still has to take on Le Pen in the second round of the contest on May 7, but he is tipped to beat the far right, EU critic by a wide margin.
Main Macro Events Today
- UK Public Borrowing – March’s Public borrowing data is also up today, and expected to go up to 1.5B from 1.1B last time.
- US Consumer Confidence – April consumer confidence is out today and should fall to 124.0 from 125.6 in March and 116.1 in February. Michigan Sentiment rose in its first release, climbing to 98.0 from 96.9 in March and 96.3 in March. However, the IBD/TIPP Poll for April declined to 51.7 from 55.3 in March.
- US New Home Sales – March new home sales data expected at 1.2% headline decline to a 585k pace from 592k in February and 558k in January. The other major housing reports were mixed with starts falling to 1.215 mln from 1.202 mln in February whereas existing home sales rose to 5.710 mln from 5.470 mln in February.
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