Market movers today
Focus this week continues to be on political risks. The situation regarding North Korea (see below) as well as the first round of the French presidential elections on Sunday will be key drivers. It looks to be a close race among the leading candidates in the first round, while the probability of t he National Front ‘s Marine Le Pen winning a second round is st ill put at only around 25% by betting companies, see Reuters.
There are no big movers on the agenda today but US housing starts and US manufacturing product ion are due out . The main releases for the rest of the week will be Euro Flash PMI on Friday and the US Philadelphia Fed index on Thursday.
Selected market news
Geopolitical risks have moved to the fore recently with especially tensions around North Korea heating up. The US has stepped up its pressure on the regime in Pyongyang and sent a clear signal it wants the missile tests by North Korea to stop. The US has urged China to act to put more pressure on the North Korean leader Kim Jong-un in order to end the missile programme, while being clear that the US will act alone if China refrains from this. The US military strike in Syria has been highlighted by leading members of the US administ ration as a sign t hat US President Trump does not st and back from taking difficult decisions. China’s response so far has been mainly that only diplomacy can solve North Korea tensions – a message t hat was repeat ed by China’s foreign minister WangYi last night . At the same time, it is not clear how much influence China has on North Korea. According to Chinese sources, North Korea did not respond to a request from China to meet earlier this month, see Bloomberg.
It is not uncommon for risk factors to move to the top of the financial market’s agenda when the reflation theme loses some tailwind. See Strategy: Risk factors move to the fore as business cycle peaks, 7 April 2017. As we have argued recently, the global reflat ion theme is set to lose steam as we see signs of the business cycle slowing and global inflation peaking in Q1. More evidence of a cyclical peak in the US was seen in the Empire business confidence index yesterday, which fell for the second month in a row to the lowest level since November.
Stock markets have been a bit on retreat over the past week but saw a decent rebound yesterday. We expect the bull market in stocks to take a pause in coming months. Bond yields have continued to move lower on a flight -to-safety bid and loss of steam in the reflat ion theme.
China data released yesterday surprised on the upside: Q1 GDP rose 6.9% y/y and indust rial product ion increased to 7.6% y/y in March from 6.0% y/y in February. However, leading indicators as well as global metal prices point to a slowdown in momentum. Iron ore prices have cont inued to decline recent ly, now touching the lowest level since November 2016.
