The sell-off in US treasuries alleviated yesterday

Yesterday’s market action

With yesterday’s limited calendar there were few data-opportunities to capitalise on. The sell-off in US treasuries alleviated yesterday as we saw T-notes’ fall reverse in afternoon trade, retaking the 127 handle and previous resistance-turned-support at 127075. The bond sell-off also receded in the European market as we see the Bobl and the Bund return higher, alongside the longer dated papers. The lift in European credit continued this morning as we saw Italian data fuel a lift in the Italian 10YR. Bourses have also regained most of the losses posted in early trade yesterday with both the DAX and ESTOXX trading back at prices seen before yesterday morning’s sell-off. The S&P 500 also holds above the 2100 handle, climbing from the open of the cash market. Overnight we saw a continuation of the lift in US equity indices march higher into the close. The release of a -2000k API inventory number gives a negative slant to today’s DOE Crude inventories which, although expected at -500k barrels, could be one of the toughest to call headline prints of this number in recent weeks. The gasoline number, with gasoline prices increasing at the pumps, is likely to push supplies higher as consumers are using less due to higher prices. Gasoline prices have trended up over the past week so this is likely to be the lynchpin component of the reading.

Today’s View

This morning saw European growth readings from the continent; we saw a beat of analysts’ estimates from France and Italy with France posting an expansion at the fastest pace since 2013. Italy notably has broken a cycle of almost three years of stagnant growth as the economy expanded by the fastest rate in 4 years. We also saw the German growth rate dropped to 0.3% from 0.7%, below estimates of 0.5%. The beat on expectations in both Italy and France have seemingly capped the downside appetite to the EURUSD which, although dropped on the back of the German print, has found support around the pivot at 1.1214. We also had the UK print its claimant count, Jobless claims change and Average Weekly Earnings. Average weekly earnings rose by 1.9% on the quarter, beating the expected reading of 1.7%; this allowed the GBPUSD to regain the 1.57 handle for a short time ahead of the quarterly inflation report. We saw a move towards realism on the UK productivity crisis and the Bank seems keen to maintain rates at low rates for longer as optimism wains. Carney paid particular attention to new participants of the UK’s labour force who are less productive than their experienced counterparts. This, alongside rising oil prices, have been classed as the transitory factors which the majority of analysts were expecting from the Governor. Ahead this afternoon we have Retail sales from the US for the month of April. This is expected at print 0.20% on the monthly figure and 0.5% on the ex-autos MoM. Take care when looking at the Ex-auto and gas number as this will be heavily affected by the price of gasoline over the month of April. For next month’s Retail sales number the price rise in gasoline will affect sales in this area so should be watched carefully.