US headline CPI at lowest level since the mid 1950's but core data offers no obvious fuel for the deflationists.


MAJOR HEADLINES – PREVIOUS SESSION

  • New Zealand Mar. Retail Sales out at -0.4% and +0.5% Ex-Autos vs. +0.5%/+0.1% expected, respectively

  • Japan Mar. Machine Orders fell -1.3% MoM and -22.2% YoY vs. -4.6%/-27.7% expected, respectively

  • Japan Apr. Domestic CGPI fell -3.8% YoY vs. -3.0% expected

  • Germany Q1 GDP fell -3.8% QoQ vs. -3.0% expected and -2.2% in Q4

  • Switzerland Mar. Retail Sales rose 1.2%

  • Norway Apr. Trade Balance out at +24.4B vs. 30.3B expected

  • Sweden Apr. AMV Unemployment Rate steady at 4.8% vs. 4.9% expected

  • EuroZone Apr. CPI rose 0.6% as expected and core CPI rose 1.8% vs. 1.6% expected

  • EuroZone Q1 GDP first estimate at -2.5% QoQ vs. -2.0% expected and -1.6% in Q4

  • Canada Mar. Manufacturing Shipments out at -2.7% vs. +1.0% expected

  • US Apr. Consumer Price Index out 0.0% MoM as expected and at -0.7% YoY vs. -0.6% expected

  • US Apr. Core CPI out at +0.3% MoM and +1.9% YoY vs. +0.1%/+1.8% expected, respectively

  • US May Empire Manufacturing out at -4.55 vs. -12 expected and -14.65 in Apr.

  • US Mar. Net Long-term TIC flows rose to 55.8B vs. 32.5B expected

  • US Apr. Industrial Production out at -0.5% MoM vs. -0.6% expected and -1.7% in Mar.

  • US Apr. Capacity Utilization out at 69.1% vs. 68.8% expected and 69.4% in Mar.


THEMES TO WATCH – UPCOMING SESSION

  • US May preliminary University of Michigan Confidence (1400)

  • UK BoE's Jenkinson to Speak (1600)

  • New Zealand Apr. Performance of Services Index (Sun 2230)

  • New Zealand Q1 Producer Prices - Inputs/Outputs (Sun 2245)

  • UK May Rightmove House Prices (Sun 2301)

  • Japan Apr. Consumer Confidence (Mon 0500)

  • Japan Apr. Nationwide Department Store Sales (Mon 0530)

Market Comment:

A sorry showing for European growth data sent risk into a tailspin again today after an attempt at a more optimistic close yesterday in the North American session. Germany was contracting at a near -7% annualized rate in the first quarter and almost -4% QoQ vs. -2.5% for the EuroZone as a whole. The lagging growth in Germany has been due to the collapse in international trade. EUR crosses soured on the news, with EURUSD, EURJPY and EURGBP all trading at new lows for the week by the early North American session. The outlook for the Euro remains negative, though we wonder if the commodity currencies might underperform the single currency if equity markets pick up further downside momentum.

An article in Bloomberg today about the Chinese job market underlines our worries about the short to medium-term prospects for China's growth, which has been one of the main drivers of the optimists' structurally bullish scenario on the world economy. The article makes clear the enormous challenges that China faces in attempting to re-engineer its economy as employment pressures mount. China has been snapping up commodities around the world to take advantage of low prices and to be ready for the next surge in growth, not to mention avoid accumulating more US dollars. The Shanghai Composite is up about 45% this year and well over 50% from the October lows. This week has seen a hanging man/doji pattern on the weekly candlesticks with a close right on the 200-week moving average. Hmmm...is the China story about to take a breather in coming weeks? If so, look out below for AUD especially.

The US CPI data was not surprisingly the lowest since the mid-1950's again due to the whiplash in energy prices since last summer, while the core data showed a surprisingly large uptick for the month. Once we get to the September/October time frame, the comparisons will begin to get a bit more interesting for both the headline and the core, where falling energy price effects will have . As we pontificated on yesterday, the core CPI may be showing higher readings than it ought to be due to falling natural gas price's (that is not a typo) effects on the bizarre OER portion of the core calculation.

The Empire Manufacturing number was a positive surprise - but still shows that things were marginally worse in April than in Mar (remember that a less negative number for these surveys means that things are even worse this month, just that the worsening has slowed - only a positive number for this survey means that things are actually getting better). Our assumption is that any uptick in the manufacturing surveys in the coming few months are likely a result of a restocking cycle due to depleted inventories rather than a sign that we should be expecting imminent recovery. The PMI's may even move into outright positive territory for a couple of months. But end-use demand is simply too low with increasing joblessness and tight credit to expect a sustainable resurgence.

Chart: EURJPY

EURJPY continues to look heavy, though it is still in a rather interesting and constricting range as defined by the falling 200-day moving average and the rising trendline. Note the tactical resistance at the upper edge of the Ichimoku shadow.

EURJPY