A 9.8% surge in US retail sales in March, and a post pandemic low of 576k in weekly jobless claims, propelled US markets to fresh record highs yesterday, while at the same time bond markets saw yields fall sharply, with the US 10 year sliding over 7bps to a one month low.
Markets in Europe also got caught up in the exuberance with the EurStoxx50, and the Stoxx600 posting new record highs.
The slide in yields was particularly puzzling given that for the past three months yields have been rising due to concerns about higher prices and a strong economic recovery, both of which we are currently seeing. That can only mean one of two things, either that the recovery is in the price, or that markets think this could be as good as it gets.
The latter point doesn’t seem all that likely from a data point of view, given that the April payrolls could well be even stronger than March’s 916k, in which case what we are seeing here is a temporary leg lower before yields start rising again.
Of course, there could have been a third reason and it’s no more complicated than the market was already positioned for such an outcome and thus had nowhere else to go but in the opposite direction, a classic case of buy the rumour and sell the fact. Time will tell whether that assumption is correct, but for now the US dollar continues to look a little on the soft side.
Markets in Asia appear to be ending the week on a largely positive note with the main focus on this morning’s Q1 China GDP numbers which showed the economy expanded by 18.3% year on year, and 0.6% on a quarterly basis.
This looks set to translate into a positive European open, with all eyes on the FTSE100 and whether it can crack above the 7,000 level.
These are fairly decent numbers; however, they need to be put into the context of the contraction in the Chinese economy a year ago when the country was locked down through February, and March. Despite this caveat it is still an impressive performance, with the Chinese consumer looking particularly strong.
There was some consternation earlier this year when Chinese authorities set out their 2021 GDP target at around 6%, with some arguing that it was a little too optimistic. If anything given the challenges faced by the global economy, relative to China’s strong rebound, one could argue it’s a little on the conservative side, especially in view of the strength of some of the recent data so far this year, and the absence of a second wave in China.
Retail sales have finally started to show signs of gaining traction, with Monday’s March trade numbers showing that internal demand was picking up. We’ve already seen from the January and February numbers that there has been a slow and steady recovery in sentiment in what has been a cautious recovery for Chinese consumers.
Today’s March retail sales showed an increase of 34.2% year on year; well above expectations, however, it needs to be remembered that a year ago the same numbers fell -15.7% in the aftermath of the February lockdown of the entire economy. As a result, this morning’s numbers have shown an enormous skew. Even so they are still pretty decent. Industrial production was also strong for the same reason, rising 14.1%.
The only other data of note today is the final EU CPI numbers for March which are expected to show that headline inflation jumped to 1.3%, while core prices remained steady at 0.9%.
EURUSD – continues to look supported above the 1.1930 area, and while above the risk is for a move through 1.2000, and possible even higher towards 1.2150. Below 1.1930 opens up the 1.1860 area and the lows this week.
GBPUSD – four days of gains this week but while below the 1.3830 area the risk remains for a move back to the recent lows at 1.3670. We need to move through the 1.3830 area to signal the potential for a base and a move back towards 1.4000.
EURGBP – while below the 0.8730 area the bias remains towards the downside. We still have decent support above the 0.8620 area. A move below 0.8620 and the 0.8600 area retargets 0.8540.
USDJPY – has continued to slide back, honing in on the 108.20 level, with the potential for further weakness on a break below 108.00. As long as we hold above 108.20 the uptrend from the January lows remains intact.
FTSE100 is expected to open 7 points higher at 6,990.
DAX is expected to open 30 points higher at 15,285.
CAC40 is expected to open 3 points higher at 6,237.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70.5% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Recommended Content
Editors’ Picks
EUR/USD steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, with the Greenback shedding some pips. Fed Chair Jerome Powell set to speak ahead of the weekly close.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.