US inflation takes centre stage

Market movers today

Today much focus will be on the March US inflation print and the market reaction to it. It is expected to rise to 2.5% from 1.7% (see below).

In the UK the February GDP figures will be released, which will probably show positive growth but activity is overall subdued due to the lockdown. It looks much brighter now, though, with the gradual reopening.

In Germany, we get the ZEW expectations for April, which have likely stabilised after new restrictions and a few very strong readings in prior months.

Early Wednesday morning, we expect the Reserve Bank of New Zealand to keep its policy rate unchanged at 0.3% in its monetary policy statement.

The 60 second overview

Inflation to take centre stage. Markets are waiting for the March US inflation number and the reaction will be an important signal of how much of the rise in inflation is already priced by markets. The expected increase in inflation is mostly driven by the rise in oil prices as base effects will lift the annual increase (oil prices collapsed in March and April last year due to the outbreak of COVID-19). The question is how much the rise in oil prices feeds into core inflation as well. Consensus looks for a lift to core inflation (excludes food and energy) from 1.3% y/y in February to 1.5% y/y in March.

China, not a currency manipulator. The next US Treasury report on FX manipulation is due Thursday and US media report that Janet Yellen will not label China a currency manipulator.

Chinese credit growth eases further. Yesterday's money and credit data showed further signs of policy tightening and economic growth weakening as both M1 growth and credit growth declined again in March, see The China Letter - Credit growth eases further, tensions over Taiwan grows, 12 April 2021.

Biden is calling for USD50bn support for the semi-conductor industry. In a meeting with tech CEO's Biden reiterated his call to fund research and manufacturing of microchips pointing to China and semiconductor shortages this year.

Equities: The week kicked off with broadly flat indices in the US and a small decline in EuroStoxx. Asian stocks are clearly higher this morning in a catch-up move after the weak close yesterday. US futures point to another uneventful session though with markets around unchanged.

FI: European yields ended higher yesterday by around 1bp in the 10y segment. The PEPP weekly figures showed that ECB net purchases was EUR17.1bn last week, which is EUR4.3bn per day and the highest since the March 2021 meeting.

FX: EUR/USD was trading below 1.19 during European trading but ended above 1.19 on a day without much on the agenda. EUR/NOK was more or less unchanged despite weak GDP data while EUR/SEK rose back above the 10.20 mark.

Credit: Though CDS indices widened slightly yesterday (Xover (high yield) closing 3bp wider and Main ½bp wider), both high-yield and investment grade bonds ended unchanged to marginally tighter.

Nordic macro and markets

Swedish PES unemployment rate dropped to 4.0% in March from 4.4% in February. It is the lowest reading since February last year.