European Outlook: Global stock markets started to stabilize yesterday and Asian markets bounced back with materials and financial companies leading the way. The ASX 200 is up 1.30% and the Nikkei nearly 1.0%, while the Hang Seng gained 0.51% as investors see positives in Trump’s healthcare bill failure and speculate that he might also not be able to pass measures that are restrictive to global trade. U.S. and U.K. stock futures are also moving higher and Praet’s push back against musings on exit strategies and the role of the deposit rate, which effectively affirms the guidance on rates and the implicit easing bias, should help Eurozone markets. Against that background, Bund futures already started to fall into yesterday’s close and in after hour trade and are likely to shed some of Monday’s gains, while Praet’s comments should underpin peripherals. Today’s calendar is relatively quiet, with only Italian industrial sales and orders.
US: Yields were mixed on Monday in the aftermath of the ACA repeal shortfall sell-off on Wall Street, which righted itself after opening sharply lower with global stocks. Financials and infrastructure plays took an early hit in contrast to bond demand, but risk-off trades then found some equilibrium, leaving yields above lows. The Dallas Fed business activity index pulled back in March.
Fedspeak: Chicago Fed dove Evans: inflation looks well on the way to reaching its 2% objective, said the dovish voter from Madrid. He still worries that long-term inflation expectations, however, are running below that objective and that uncertainties remain high in the U.S. In fact, he warns that trend growth in the U.S. is going to remain lower than most would prefer and doesn’t expect core CPI to reach 2% until 2019. Overall this is about par for the course from the uber dove, who will no doubt still go along with a couple more hikes in 2017.
ECB’s Praet pushes back against deposit rate musings. In what sounds like a warning to other council members, including Nowotny who has speculated about the need to raise the deposit rate ahead of the end of asset purchases Praet said “any communication on the deposit facility rate is a signal on the monetary policy stance, and there should be no ambiguity on this”. He added that “you have to be very careful on the guidance that we have because all the signals that you may give on the short-term rates, will influence the whole risk free yield curve”. This might consider as a signal that the official guidance that rates are seen at current or lower levels well past the end of asset purchases remains in place.
BoE revs up stress tests ahead of Brexit. The Bank will subject the country’s biggest lenders to a stress test that assumes a deep economic slump and a sharp depreciation of the Pound as the bank prepares for the impact of the U.K.’s exit from the EU. The tests don’t name Brexit risks in particular in its 2017 health check scenarios, but it is clear that the uncertain impact of the U.K.’s withdrawal from the union is one of the factors the BoE will have in mind, as it warns that risks to financial stability will be influenced by the “orderliness” of that process.
Main Macro Events Today
- US Consumer Confidence – March consumer confidence is expected to drop to 114.0 after the 3.2-point jump to a cycle high of 114.8 in February, and well above the prior high of 103.8 in January 2015.
- Fedspeak – Fed Chair Yellen taking the spotlight today since she’ll be addressing the National Community Reinvestment Coalition’s annual conference and will speak on workforce development challenges in low income communities. The non-voting hawk George will give a keynote address on banking and the economy. Kaplan will hold a Q&A session. Governor Powell speaks on the history and structure of the Fed.
- BoC – BoC Governor Poloz speaks today on “Canada’s economic history.” His speech will be followed by a press conference.
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