Dollar remains under pressure
There was some respite for US equity markets on Friday with the main indices chalking up gains of 1.5%-2.5%, while Asian equities have had a positive session overnight on the back of news that US imports of some electronic products (which mainly come from China) will be exempt from reciprocal tariffs (albeit perhaps only temporarily). US government 10-year yields retreated from an intra-day high of almost 4.60% to close at 4.50%, still an eye-watering 50bps increase on the week, and they have edged lower again overnight. After a torrid week, the dollar remains under pressure, trading at about $1.14 against the euro and north of $1.3150 against sterling. EURGBP, which rose by almost 2p last week, is trading at around £0.8650 this morning.
European equity markets ended lower on Friday, and shed almost 2% on the week, though they have opened in positive territory this morning. In European bond markets, German bonds were a notable outperformer last week, benefiting from a “flight to safety” amid the mayhem in markets, with yields flat to lower. Meanwhile UK yields followed US yields a good deal of the way higher, with 10-year yields up a substantial 35bps on the week.
Consumer confidence in the US plunged in April according to the latest University of Michigan survey, falling for a fourth consecutive month. Respondents’ assessment of current and future economic conditions deteriorated again this month, and year-ahead and longer-term inflation expectations both rose further, “amid growing worries about trade war developments.”
Looking to the week ahead, the ECB Governing Council will have a chance to consider recent economic and market developments at this Thursday’s meeting, though its monetary policy decision would seem a straightforward one. US tariffs on the EU are a ‘demand shock’ for the Euro area economy which along with the sharp appreciation of the euro and the likelihood of even more intense competition from China will dampen growth and inflation in the zone, making another 25bps cut in the deposit rate a near certainty this week.
In terms of economic data for the week, the latest labour market and CPI inflation reports in the UK are due tomorrow (Tuesday) and Wednesday respectively, while US retail sales and industrial production are both scheduled for Wednesday.