European Outlook: Bund and Gilt futures lost some of their earlier gains during the European PM session, as stock markets moved up from lows. Yields are also up from lows, but the Bund yield is still down -0.8 bp on the day and the Gilt down -1.2 bp as stock markets remain in negative territory. Risk aversion remains the main driving factor as trading slowed down ahead of the long Easter holiday weekend, with key European markets closed both today and next Monday. Eurozone spreads came in with France continuing to outperform as election jitters eased again. The Gilt curve flattened as the long end outperformed, while in Germany it was the short end that benefited most today, with the 2-year Schatz yield down -2.0 bp, while the 2-year Gilt was up 0.2 bp and the French up 1.0 bp.
US reports: revealed a lean round of March core PPI figures, alongside another super-tight claims reading of 234k, an April Michigan sentiment bounce to 98.0 that sits just below its 13-year high of 98.5 in January, and a bounce in the weekly Bloomberg Consumer Comfort index to 51.0 that also sits just below its 10-year high of 51.3 in mid-March. For March PPI, a 0.1% headline drop with a flat core price figure reflected an expected energy hit but a 0.1% service price decline. For claims, a 1k downtick leaves an April average of just 234k, versus higher prior averages of 251k in March, 241k in February, and 246k in January, leaving upside risk for our 190k April payroll estimate.
The Aussie was the biggest winner yesterday out of the main currencies, showing a 1.2% advance on the euro, which is the day’s loser, and a 0.7% gain versus the U.S. dollar and just over a 1% advance on the yen. The rebound was initially sparked in AUDUSD by Trump’s remarks on forex levels, coming with the Aussie ripe for an upward snap after a period of pronounced underperformance into a long weekend. AUDUSD clocked a nine-day peak at 0.7595. The pair has retraced about one third of declines seen from March highs. AUDUSD and AUDJPY, on the view that geopolitical tensions are likely to remain elevated in the weeks ahead (there are reports of satellite evidence showing that North Korea is preparing another nuclear test, and Japanese PM Abe said today that Pyongyang may have the capability to launch sarin nerve gas warheads).
Canada: Risk aversion remained the general trend on Thursday. Though some short covering into the long holiday weekend helped pare the losses in stocks, news that the U.S. dropped the massive and largest non-nuclear bomb (MOAB) on the caves in the Nangarhar Province of Afghanistan, targeting a “series of Islamic State caves,” extended the selloff. The S&P/TSX was the underperformer in North America, in part as energy weighed. Wall Street’s recovery was undone by the blast and prices resumed their downturn after a prior short covering bid was halted. Thin trading ahead of the long Easter weekend may have added to some of the markets’ moves too. There was little reaction to the manufacturing and home price data. Canada’s new housing price index grew 0.4% m/m in February after the 0.1% gain in January. Canada manufacturing dipped just 0.2% m/m in February after a revised 0.1% gain in January (was +0.6%). The decline in February was shallower than expected (median -0.9%) given the 2.4% plunge in export values.
Main Macro Events Today
- US Retail Sales – March retail sales data is out today and should reveal a flat headline (median unchanged) with a 0.3% ex-autos rate. This compares to February figures which had the headline up 0.1% and the ex-autos rate at 0.2%.
- US Business Inventories – February business inventory data should post a 0.3% increase for inventories, sales should also be up by 0.3%. This follows a 0.3% January inventory figure and 0.2% for shipments that month.
- US CPI – March CPI is out today and we expect to see a 0.0% headline from 0.1% with the core flat at 0.2%.
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