Starting with currencies, the DXY dollar index lifted above its Thursday high while EUR-USD concurrently ebbed under 1.2100 from yesterday’s two-month high at 1.2150. The 10-year U.S. T-note yield, which remains a fixation for forex markets, continued to orbit around 1.650% — remaining up by over 10 bp on the lows that were seen last week.
The dollar also posted gains versus the likes of the pound and Australian and New Zealand dollars, though outperformance in the Canadian dollar and yen weighed on USD-CAD and USD-JPY lower.
USD-CAD edged out a fresh three-year low at 1.2266 in what is the pair’s 10th month of decline out of the last 13 months, being a strong correlate of oil prices, which although coming off the six-week highs that were seen yesterday, still remain up by over 5% from the lows that were seen last week — and by 226% from year-ago levels.
Yesterday’s Market
A cautious sentiment returned in global asset markets after the S&P 500 and Nasdaq hit new records yesterday. Inflation fears reared up again Thursday to send Treasury yields higher, in a bear steepening trade as the long end underperformed.
The 10-year yield cheapened over 6 bps to 1.686% before easing back to 1.634% at the close. The bond rose to 2.35% before dropping back to 2.30%. The 2-year edged up to 0.172%, though dipped back to 0.164%.
U.S. equity futures racked up losses of over 0.5%, despite Amazon reporting an earnings beat, while European and Asian stock markets declined.
As Reuters highlighted, just over half of S&P 500 companies have divulged their quarterly earnings, with 87% having beaten expectations, the highest level in recent years.
Bear Alert: But, rising input prices and, in the U.S., a planned rise in taxes, juxtaposed to lofty valuations, seems to have been be curtailing upside momentum on Wall Street lately, even while the main indices have been scraping out new highs. In data, April PMI data out of China was mixed.
Eurozone Q1 GDP data contracted 0.6% q/q, contrasting sharply with the stellar 6.4% expansion the U.S. economy saw. Eurozone April HICP inflation lifted to 1.6% y/y by an expected base effect. Ex-energy, the annual rate in fact eased to 0.8% y/y from 1.0% y/y.
Those were back near 14-month highs for the 10s and 30s. Dip buying and front running of month-end helped contain and offset the selling. Wall Street was choppy early on but recovered into the green by the close.
The S&P 500 and NASDAQ tested new records, but only the former held on to the fresh peak, rising 0.68% to 4211. The Dow was 0.7% higher at 34,060, while the NASDAQ closed with a 0.22% gain at 14,082.
Today’s Market
Inflation will remain in the spotlight with many price indicators on today’s calendar. Headlining will be the March personal income and consumption release that will include the Fed’s favorite inflation gauge, the PCE deflator.
We’re projecting a 0.5% rise on the month, from February’s 0.2% gain, with the core rate increasing 0.3% from 0.1%. Meanwhile, we expect a hefty 21.2% jump in income from -7.1% previously, with consumption popping 3,8% from -1.0%, given what we saw in the GDP report.
Key Market Movers
- U.S. calendar includes personal income, Q1 ECI, Michigan consumer sentiment
- Canada data calendar has monthly GDP – expected to rise 0.5% in Feb
- Dollar up on Thr’s lows vs most currencies, though USD-CAD hit new 3-yr low
- Core EGBs supported, U.S. Treasuries underperformed, stocks traded mixed
- Eurozone HICP inflation lifted to 1.6% y/y, as expected; core just 0.8% y/y
- Eurozone Q1 GDP contracted 0.6% q/q, France GDP unexpectedly rose
- Eurozone Mar jobless unexpectedly dropped to 8.1%, below 8.3% median
- China Apr Markit/Caixin PMI stronger than expected but official PMIs dipped
- Japan Apr manufacturing PMI headline came in at highest levels in 3 years
Two rounds of fiscal stimulus and the distribution of vaccines during Q1 should provide a sharp lift to income and consumption. Q1 ECI is seen rising 0.6% from 0.7% q/q and 2.3% versus 2.5% y/y.
The final University of Michigan consumer sentiment index is forecast at 87.0 from the preliminary 86.5. The April Chicago PMI likely dipped to a still lofty 65.0 from 66.3.
Stocks to Watch
The earnings calendar will feature reports from Exxon Mobil, Chevron, AbbVie, AstraZeneca, Charter communications, Illinois Tool, Colgate-Palmolive, AON, Johnson Controls, L3Harris, Weyerhaeuser, Clorox, W.W. Grainger, Imperial Oil, and Cboe Global Markets.
