The oil rally continues with Brent crude trading

Market Movers

• Euro-area HICP inflation for April is due for release and we expect a negative print of -0.1% y/y, slightly lower than in March when it was 0.0%. Core inflation should drop to 0.8% from 1.0% last, when it was supported by the early timing of Easter. The low core inflation also reflects headwind from the stronger euro, a lagged indirect impact from the low oil price and very subdued wage pressure.

• Euro-area GDP growth for Q1 is also due and we expect growth to come in at 0.3% q/q in line with the pace in H2 15. Private consumption has probably been the main driver of growth as suggested by the solid retail sales. We expect investments were supported by progress in construction, whereas financial market turmoil and global growth weakness should have added uncertainty. We also get data for the euro-area unemployment rate for March and we expect the declining tendency has continued.

• In the US, PCE prices for March are due and, in line with the CPI figures, we expect to see some reversion of the increases in the more volatile components. We expect PCE core rose 0.1% m/m in March implying a fall in the core inflation rate to 1.5% from 1.7%. That said, yesterday’s strong quarterly PCE figures suggest upside risks to this call.

• We and consensus expect unchanged rates from the Russian central bank today.

• Norwegian releases in focus, see Scandi Markets.

Selected Market News

Following a disappointing US Q1 GDP report and downward pressure on Treasury yields yesterday, broad-based USD weakness has continued overnight with notably USD/JPY edging lower still to now trade just above the 107 mark after the Bank of Japan’s inaction yesterday. The weaker greenback also led the People’s Bank of China (PBoC) to fix the USD/CNY midpoint as low as 6.4589, thus landing the largest daily increase since the CNY was de-pegged from the USD a decade ago. We note however, that this move should merely be regarded as deriving from the general USD weakness rather than as a change in PBoC policy as such.

Separately, talk is evolving of the Chinese authorities looking to bring forward a national financial work conference this year to intensify efforts to implement regulatory measures in order to curb financial risks. This could again put the ongoing deleveraging process in China in focus from a structural point of view but we maintain that the Chinese cyclical situation is set to improve, see China: A turn in construction, 5 April.

Equities in the red in both the US and Asian sessions with losses again concentrated in Japanese indices on JPY strength. The oil rally continues with Brent crude trading USD48/bl for the first time this year. Overnight, the GfK consumer confidence index dropped more than expected in a sign that the ‘Brexit’ risk is now feeding through to the average Briton and could weigh on UK activity down the road.

•   Download Full Daily FX Market Commentary