Domestic Demand Picks Up in China

The Chinese economy grew by 2.2% in the first three months of the year and is 4.5% higher than a year ago. This is stronger than the 4% forecast. Last year, the economy grew by only 3% against a government target of 5.5%. The 5.0% target for 2023 is less ambitious. Given lifted pandemic restrictions and recovering global trade, achieving and exceeding it is relatively easy.

Sunset Market Commentary

Sterling outperformed slightly in FX space with EUR/GBP extending yesterday’s rather strange slide. The pair currently changes hands around 0.8815 from an open at 0.8830. Gains for cable are bigger (1.2435 from 1.2375) with dollar fatigue adding to the picture. EUR/USD rose from around 1.0920 to an intraday high at 1.0980.

Canada: Inflation Takes Another Step in the Right Direction in March

Inflation continued to move in the right direction in March, supporting the Bank of Canada's stand pat rate decision last week. As outlined in our recent forecast, we expect core inflation to continue to decelerate below 3% y/y in the second half of the year, as does the Bank of Canada.

EUR/USD – Euro Slips as Eurozone Inflation Slides

Eurozone inflation numbers were unchanged in the final estimate. Headline inflation dropped to 6.9% in March, down sharply from 8.5% a month earlier. The not-so-good news is that core CPI, which is a more reliable gauge of inflation trends, inched higher to 5.7% in March, up from 5.6% in February.  The main reason for the drop in the headline figure was a sharp decrease in energy costs, which are not included in the core rate.

Stalled European Recovery

Eurostat reported that retail sales fell by 0.8% in February, after the same increase in the previous month. On a yearly basis, sales are down by 3%. The retail sales index has been downward since November 2021, breaking the long-term upward trend that began around ten years ago.

Focus on US CPI

The highlight of today will be US CPI for March. We look for 0.4% m/m on the core CPI, in line with consensus. It is a decline from 0.5% m/m in February but still too high for the Fed with respect to reaching the 2% target. Hence, we believe it would seal another hike on 3 May barring any new bad news on the banking front.

Barring a Downside Surprise, Today’s CPI in Any Case Should Support Yields

Barring a downside surprise, today’s CPI in any case should support yields, especially at the front end of the curve. The $32bn 10y auction tonight might be interesting for the long(er) end. First resistance in the 10y yield is located at 3.50%, followed by 3.64%.

Crypto Market Takes Profits

Bitcoin hit a 10-month high above $30,500 on Tuesday. However, two attempts by the bulls to build a sustained rally were not supported by the market. On Wednesday morning, the price dropped below $30K, losing 0.4% over the past 24 hours.

What to Expect from US Inflation

The currency market has moved little over the past week, waiting for significant drivers. The Easter lull is likely to end today, as inflation data and the Fed’s March meeting minutes are expected to be released.

US March CPI: Glass Half Something

For the inflation optimists out there, the March CPI report delivered good news with total prices rising by the smallest amount in nine months and hints that core services inflation is starting to moderate. However, for the inflation pessimists, the latest CPI report shows the recent underlying trend in price growth remains far too high, with the core CPI increasing at more than a 5% annualized pace the past three months.