US slowdown ahead?
Today’s announcement that January US Pending Home Sales fell 4.7% points to an economic slowdown. It is triggered by the US Federal Reserve’s money-tightening strategy that is finally taking hold, but also by winter weather. Rising mortgage rates should depress consumer demand, making a strong rebound unlikely.
As a long Easter weekend approaches, risk sentiment is weak. Equities failed to maintain momentum from Tuesday’s upward bounce. Profit taking dragged tech and consumer shares, while defensive plays in utilities and telecoms outperformed as yield harvesting is driving investors. That did not spill into forex as high-yielding emerging market currencies were softer across the board. Even big gainers MXN and ZAR were flagging. EUR/USD came off highs as the USD clawed back gains. US Treasuries rallied (specifically in the middle of the curve). After Easter, risk appetite is likely to resume.
Eurozone economy solid
The European Central Bank says the Eurozone economy is healthy. Lending to non-financial corporations and households increased by 3% in February, a slight decrease from 3.30% in January and slightly higher than December’s 2.90%. February’s annualised growth of adjusted loans for households and non-financial companies were 2.90% and 3.10%. Inflation is down slightly, as M3 money supply decreased to 4.20% from 4.60% in January, suggesting a slowdown in overnight deposits for non-financial corporations. February’s consumer price index remains at 1.10% annualised, signalling a deceleration in retail sales and industrial activity. Economic confidence is falling slightly, in Germany -2.4, Italy -1.8, Spain -1.2, Netherlands -0.5 and France -0.4. Consumer confidence remains stable at 0.1.
EUR/USD’s slight weakness stems from yesterday’s disappointing US March consumer confidence data (127.7 compared to 130.8 in February. As Easter holidays approach, we expect the current level of 1.2385 (+3.11 this year) to decrease to the 1.2377 range.
