The US equity market reacted negatively to the Beige Book

Market movers today

• Today, we have a very light data calendar. In the UK we get retail sales numbers for March, where consensus is for a slight pickup, but the series is very volatile.

• In the US, we get the Philly Fed index for April and it will be interesting to see whether it points to a similar decrease in the ISM as the Empire Manufacturing Index released earlier this week. Market consensus is for a decline from 22.3 to 21.0.

• German Chancellor Angela Merkel and French President Emmanuel Macron will hold talks in Berlin today on EU reforms and trade conflicts with the US, a week before each travels to Washington for talks with US President Trump.

• The bank lending survey in Norway is due out.

Selected market news

The US Beige Book showed that the outlook for the US economy remained solid and that all 12 regions continued to report job growth. However, the report also said that 'outlooks remained positive, but contacts in various sectors including manufacturing, agriculture and transportation expressed concern about the newly imposed and/or proposed tariffs'. The Fed mentioned specifically that steel prices and building materials could rise on the tariffs.

The tariff concerns were repeated by New York Fed President Dudley later in the evening when he said that the US cannot win a trade-way and that it would be a 'terrible outcome'.

Commodity markets took the agenda as the market focused on oil stock data and the impact of sanctions on Russia. The CRB index rose to the highest level since October 2015 and oil reached the highest level since December 2014 as Brent oil rose to USD74 a barrel. The oil market took its lead from a bullish stock and demand report from the US Energy Information Agency. Especially, the demand figures were strong, pointing to a very strong 'driving season' this year in the US.  

Nickel was particularly in focus as prices rose more than 10% The market is worried that fresh sanctions on Russia will hit Norilsk Nickel, the second largest producer in the world. The metal market is already concerned about the sanctions against Russian aluminium producer Rusal, the largest aluminium producer outside China. Aluminium prices have jumped more than 25% over the past 10 trading sessions. The higher metal prices underline that sanctions and tariffs do have an impact on prices and inflation. The inflation market was also reacting to the higher commodity prices and 10-year US breakevens are now at the highest level since August 2014. 

The US equity market reacted negatively to the Beige Book and the market closed with Dow Jones down marginally whereas S&P500 and Nasdaq closed the day with small gains. Commodity producers were the big winners. The risk sentiment has improved overnight and Asian markets are all positive this morning.

Download The Full Daily FX Market Commentary