13 April, 2016
European Outlook: Asian stock markets moved broadly higher, following on from gains on Wall Street yesterday amid a rebound in oil prices. The front end WTI Nymex future has moved off highs, but remains comfortably above USD 41 per barrel and with the USD strengthening Japanese markets were also supported by a weaker Yen. The EUR has fallen below 1.14 to the USD and U.S. and European stock futures are also higher, pointing to opening gains on European markets and ongoing pressure on core bond futures. Italian banks will remain in the spotlight, after yesterday’s disappointment over Italy’s bad bank plan led to a sell off in Italian bank stocks. The calendar has ECBspeak from Knot, Nowotny and Constancio and data includes final inflation readings from Spain and France
UK inflation data came in perkier than expected: Rising to a cycle high of 0.5% y/y in the March headline CPI rate, up from February’s 0.3% and above the median forecast for 0.4%. Core CPI jumped to 1.5% y/y from 1.2% previously. Airfares and clothing drove the index higher, offsetting weakness in food and petrol prices. The impact of sterling weakness is likely to have started having some impact. From March 2015 to March this year the GBP lost over 3% versus the dollar and against the euro (a better proxy of the trade-weighted value of sterling) over 9%. Cable traded as high as 1.4330 following the news, but USD strength overnight sees the pair at 1.4245 currently.
Fedspeak, Harker & Williams: Harker warned that it’s possible there will still be 3 hikes this year, depending on GDP numbers. He doesn’t see much slack in the labor market and doesn’t want to see the Fed running much above the 2% target inflation rate. Harker warns that if energy prices rebound more quickly, it is possible that the Fed will have to be more aggressive on rates. Later, Williams said that the he wasn’t that concerned about a hard landing for China, with the U.S. economy doing “quite well,” though the Fed must take into account what happens abroad. He also commented that the worst-kept secret is the Fed’s plan to raise rates, as the Fed is trying to telegraph the path of U.S. rates so the rest of the world can better prepare. Meanwhile, he’s not seeing big capital flight from emerging economies as the Fed talks about rate hikes.
Italy defends bank rescue plan: As investors mark their disappointment by selling off bank stocks, with even Intesa SanPaolo, Unicredit and Ubi Banca, closing down between 4 and 5% Tuesday. There concerns that the plan, which is based on a EUR 5 bln bad bank fund, is not ambitious enough to clear up Italy’s financial system and help mitigate losses from the large number of non performing loans in Italy’s banks. Bank of Italy’s Rossi said in an interview with La Repubblica that the new fund aims to resolve banking sector problems and Padoan told Sole that the ECB views the fund favourably.
Main Macro Events Today
US Retail Sales March retail sales are expected to show a flat headline (median 0.1%) with a 0.3% (median 0.4%) ex-autos increase when the data is released on Wednesday. Retail sales declined in both January and February with the January headline down 0.4% and February down 0.1%. We expect some downside risk to the release from depressed chain store sales and vehicle sales declines.
US (PPI) March PPI is out later today and should post a 0.2% (median 0.3%) increase with the core up 0.1% (median 0.1%). This follows a -0.2% headline and unchanged core rate in February. Oil prices have begun to rebound and this showed up in today’s March trade price index where import prices managed to improve 0.2% after a long run of declines.
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