EEuropean markets saw a much more upbeat session yesterday, although the FTSE100 lagged somewhat on underperformance in the materials sector.
The upbeat session was somewhat helped by a fall in bond yields, which pulled real yields back into negative territory, with the rebound in bond prices leading some to bet that yields may well have reached a near-term high.
Given the direction the PPI is taking this seems a bit of a premature conclusion as German factory door prices hit a new record high of 30.9% yesterday in March. In recent months, these numbers have tended to be leading indicators for the CPI, so inflation seems to have more room to maneuver from this perspective.
Yesterday’s Fed Beige Book also pointed to a US economy beginning to feel the negative impact of rising prices, which could be an early indication that we may be seeing the first germs of potential demand destruction, although still with a persistent inflationary pressures was expected for a few more months. That aside, manufacturing activity was solid across all districts while office occupancy and retail activity increased, leaving a mixed picture.
U.S. markets had an overall more challenging session as the Nasdaq 100 was flattened by Netflix’s big subscriber drop on Tuesday, causing stocks to end the day 35% lower and raising concerns that other high-quality areas of the stock market were down Markets could suffer a similar fate if their earnings numbers fall short in the coming days. The Dow, on the other hand, ended the day significantly higher.
Today’s European Open is likely to be mixed as we gaze at comments from the Central Bank Holy Trinity, Fed Chair Jay Powell, ECB President Christine Lagarde and Bank of England Governor Andrew Bailey, all in Washington DC will speak.
Lagarde’s comments will come under scrutiny after Latvian ECB Governing Council member Martin Kazaks said yesterday that a rate hike in July is possible and that tightening measures need not wait for evidence of wage increases. Those comments contrasted with the tone of Lagarde’s ECB press conference earlier this month, so it will be remarkable if she doesn’t backtrack on them.
The final EU CPI for March is expected to be confirmed later in the morning at a record high of 7.5%, with the last flash CPI for April due late next week and could reach 8%.
Sterling traders will be looking to Bank of England Governor Andrew Bailey for clues to central banks’ intentions at their May meeting when some form of rate hike is expected, although the extent of a move remains uncertain, if by 25 basis points or 50 basis points. However, traders are advised to exercise caution over any comments from Bailey, as the Bank of England’s guidance has been about as reliable as a chocolate teapot on previous occasions.
US data due today includes weekly jobless claims, which are expected to fall to 177k from 185k, while the Philadelphia Fed’s latest April survey expects a decline to 21.7 from 27.4.
EUR USD – broke above the 1.0830 area yesterday, potentially opening the prospect of a move towards 1.0930. Below 1.0750, a move towards 1.0635 March 2020 low is targeted.
GBP/USD – saw a move back towards 1.3070 yesterday but needs to move above 1.3150 to stabilize and target a move towards 1.3300. A break below 1.2950 favors a move towards 1.2800.
EUR/GBP – squeezed back to 0.8336 yesterday before falling back. The bias remains for a move lower towards the 0.8200 area and the March lows while below 0.8330.
USD/JPY – hit a fresh 20-year high at 129.40 before falling back. We could slide back towards 125.80 in the short-term if profit-taking begins. Major support lies at the bottom near the 124.70/80 area but while above that trend is up, also towards 130.00 as 2002 peaks at 135.00.
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