Markets expect US retail sales to have skyrocketed in March

KBC Market Research Desk KBC Bank

Markets

Powell’s speech yesterday didn’t contain much new information, repeating that the is at an inflection point but withrisks of a coronavirus flareup. The Fed chair doesn’t expect rate hikes before 2022 and in any case not until after the central bank began tapering the bond-buying program. His views were echoed by Fed vice chair Clarida and NY Fed President Williams. European stocks finished with small gains. WS closed mixed with tech underperforming as the IPO and subsequent price decline of a large cryptocurrency exchange took the shine off the first strong US (bank) earnings. The Nasdaq chart displayed a bearish engulfed (-0.99%). US Treasuries dipped with yields up 1.7-2.2 bps over the 5y-30y spectrum. German Bunds underperformed, possibly in reaction to a rare positive from the vaccine campaign. Pfizer’s announced it will forward 50mn vaccine doses from Q4 to Q2. German bond yields rose 2.8 bps (5-yr) to 3.4 bps (10-yr). The 10-yr yield escaped from the March slightly downward trend channel.The dollar remained in the defensive once more. USD/JPY finished sub 109, DXY found support at 91.6 (February interim high) to close at 91.69. Euro pairs ended the session near important technical crossroads: EUR/USD tested but stayed below important resistance situated near 1.199 (up from 1.195), EUR/GBP again tried but failed to conquer 0.87 and EUR/JPY remains near recent two-year highs north of 130.

Asian equity markets trade mixed. China underperforms (about -1%) after the PBOC effectively drained medium-term liquidity from the banking system. The Chinese yuan slightly loses ground (USD/CNY 6.54). The Russian ruble (USD/RUB 75.88) takes a hit after a strong relief rally yesterday. The US is said to impose sanctions against Russia over alleged elections meddling and the SolarWinds hack. Other FX moves remain limited. The yen and the dollar are among the better bid. Core bonds are upwardly oriented.

Markets expect US retail sales to have skyrocketed in March. Consensus for headline sales lies at 5.8% m/m and an even higher 6.4% or 7.2% for core measures (depending on the gauge). Several elements justify a strong reading, going from a rebound after a weather-impacted February, over the ongoing economic reopening to fiscal support from the pandemic paychecks that have been distributed over the course of March. Other US data include jobless claims and regional business confidence indicators (NY and Philadelphia). An ailing dollar might find support in the numbers, more so if accompanied by a risk-off setting (cf. Nasdaq engulfed and Asian price action). Risks to today’s base case are important though. A technical break in one of the euro pairs mentioned above could cause a chain reaction. In rate markets, we look for neckline support in the US 10-yr double top formation to remain intact and yesterday’s escape by the German 10-yr yield to be confirmed.

News Headlines

Headline Australian job growth beat consensus in March, rising by 70.7k vs 35k expected. Australian employment now fully recovered from the Covid-crash, being up 0.3% on a yearly basis. Details showed though that part-time jobs accounted for the rise (+91.5k) with the number of full-time jobs declining by 20.8k. The unemployment rate fell more than forecast, from 5.8% to 5.6% even with a bump in the participation rate (66.1% to 66.3%). Hours worked rose by 2.2% M/M to be up 1.2% on a yearly basis with hours per employee hitting the highest level since April 2019. AUD/USD yesterday broke a short-term deadlock by breaking the upper bound of the narrow 0.76-0.7650 trading range, but can’t build on that momentum despite today’s data. AUD/USD changes hands around 0.7710.

The South Korean central bank (BoK) kept its policy rate unchanged at 0.5% this morning. Targets for the central bank’s asset purchase program are unaltered as well (5-7 tn KRW). Governor Lee Ju-you acknowledged that growth has been slightly stronger than expected compared to the February forecasts, but has yet to solidify. Additionally, South Korea is at the start of a 4th Covid-wave, justifying to err on the side of caution. USD/KRW barely budges around 1115.

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KBC Market Research Desk

KBC Bank

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