Markets
Europe was still enjoying a four-day Easter weekend yesterday. The US had less time off with both equity and bond markets again fully open. The absence of other important economic data allowed Friday’s payrolls release to linger on. That March report was overall slightly stronger than expected, ending a streak of disappointing data earlier that week. After shooting higher by almost 15 bps during a holiday-shortened session end last week, Treasury yields added another 1.7-3 bps across the curve under lower-than-usual volumes. The dollar gained against most of the majors. The trade-weighted index advanced from 102.09 to 102.57. EUR/USD swapped 1.09 for a close at 1.0859. The Japanese yen ended last vs comparable peers. USD/JPY added one and a half big figure to 133.61. Aside from higher core bond yields, the currency suffered from Bank of Japan governor Ueda at his inaugural news conference sticking to YCC and negative interest rates for now. An intraday improvement on Wall Street didn’t help either. The likes of the Nasdaq gapped 1.35% lower at the open in a catch-up move with Friday’s US yield surge (equity markets did close on Good Friday). Stocks eventually finished flat to slightly higher (DJI +0.3%).
Asian-Pacific markets draw comfort from WS’s intraday recovery. Stocks in Korea and Japan outperform, China lags behind. News revolves around the Bank of Korea’s policy decision (cfr. infra) as well as Chinese inflation numbers. PPI inflation declined by the expected 2.5% y/y but CPI (0.7% y/y) missed a 1% consensus. The yuan trades stable around 6.88 USD/CNY with a generally better-offered dollar containing the damage for the Chinese currency. EUR/USD ekes out a gain to trade in the high 1.08 area. US cash yields shed a few bps but Bund yields are set for a gap higher in a catch-up move with Friday and to a lesser extent Monday. Trading for the remainder of the day will be technically and sentiment driven. With the exception of the IMF’s updated World Economic Outlook, the calendar eyes meagre today. That changes starting tomorrow, with US CPI numbers and the Fed meeting minutes due. US retail sales and U. of Michigan consumer confidence are scheduled for release on Friday, together with the (unofficial) start of the Q1 earnings season. Quotes from IMF/World Bank spring meetings will hit the screens all week. Support in the US 10y yield at the 3.30% area survived but it’ll take a return at least above 3.50% for the immediate downside alert to be called off. The 2y yield tries to take out the 4% barrier. The technical picture in the German 10y looks less dramatic. First resistance here is located at 2.40%. In case equity sentiment holds up, EUR/USD should soon finds its way back above 1.09. The 1.0973 April high serves as the first meaningful resistance.
News Headlines
The Bank of Korea kept its policy rate as expected unchanged at 3.5% for a second meeting running. The decision was unanimous. The Board keeps a hawkish bias when it comes to further rate increases while adding that the restrictive policy stance will be maintained for a considerable time with an emphasis on ensuring price stability. It is forecast that inflation will continue to be above the 2% target level for a considerable time although it is projected to continue to slow, and uncertainties surrounding the policy decision are also judged to be high with increasing risks to the financial sector in major countries. Consumer price inflation for this year is expected to be consistent with the February forecast of 3.5%. Meanwhile, it is judged that core inflation is likely to be somewhat higher than the February forecast of 3% for this year, considering its slow pace of decline recently.
The NY Fed yesterday released its March Survey of Consumer Expectations. It showed that inflation expectations increased at the short-term (1y; 4.7% from 4.2%; first increase since October) and medium-term (3y; 2.8% from 2.7%) horizons, but decreased slightly at the longer-term horizon (5y; 2.5% from 2.6%). Especially expectations for the cost of college education increased. Median one-year-ahead expected earnings growth remained unchanged at 3% in March with median expected growth in household income up 0.1 ppt to 3.3%. The mean perceived probability of losing one’s job in the next 12 months decreased by 0.4 percentage point to 11.4%. Perceptions of credit access compared to a year ago deteriorated in March, with the share of households reporting it is harder to obtain credit than one year ago rising and reaching a series high.
