Stocks under pressure again
US equities closed (marginally) lower for the first day in three yesterday, while Asian markets were softer overnight after Nvidia revealed the US has imposed curbs on its exports of chips to China. European stocks have also opened lower this morning, off around 1%. US and UK bond yields continued to retrace some of last week’s steep increase, while the dollar was slightly firmer on the day though it has more than given up these gains overnight. The euro is trading just shy of $1.14 against the US currency this morning, having fallen below the $1.13 level for a time yesterday, and sterling is trading close to $1.33. EURGBP is a touch firmer at around £0.8570.
In government bond markets, US 10-year yields nudged lower yesterday and at around 4.30% are down some 30bps from recent highs of 4.60%. Equivalent UK and German yields ended marginally lower and marginally higher respectively, though both are edging down at the start of play today. Meanwhile, in terms of latest central bank rate expectations, the market is pricing in about 85bps worth of cuts from the ECB by the end of the year, including a 25bps reduction tomorrow, and much the same for the Bank of England, with a quarter-point cut at its next meeting in early May fully priced in now following softer than expected UK CPI inflation data released earlier this morning. About 85bps is also priced in for the Fed, though it is expected to stay on hold again at next month’s meeting.
The annual rate of inflation in the UK eased for a second month running in March, falling to 2.6% (a touch lower than the consensus forecast) from 2.8% in February. Core inflation also eased, to 3.4% from 3.5%, while encouragingly for the BoE, services inflation fell last month albeit still remaining elevated at 4.7% (from 5% in February).
China’s economy expanded again in the first quarter of the year according to data published overnight, although the pace of growth eased from the final quarter of last year. GDP rose by 1.2% on the quarter, after increasing by 1.6% in Q4, with the annual rate of growth remaining at 5.4%. Obviously, tariffs imposed by the US will hit China’s exports and lower growth over the coming months.
For the day ahead, economic data due include retail sales and industrial production for March in the US, which together with earlier months’ data will give an idea on how the economy fared in Q1, while a final reading for March CPI inflation is due in the Euro area (the flash estimate showed inflation running at 2.2%, close to the ECB’s target of 2%). Also today, after the close of European business, Fed Chair Powell speaks to the Economic Club of Chicago.