Sunset Market Commentary

Geopolitics as a market theme tend to have a limited shelf life but investors this time really took it to the next level. Except for some minor bourse losses in Asia, Iran’s retaliatory attacks against Israel didn’t trigger the slightest risk aversion in Europe, quite the contrary. The EuroStoxx50 adds 1.5% and Wall Street rises 0.5-1%. Core bonds slipped. Yields gapped higher at the open with gains boosted by exceptionally strong US retail sales.

UK Inflation Report Could Shift Market's Focus Away from Geopolitics

At the last Bank of England meeting, which is still relatively fresh in the market’s mind, the Committee maintained its balanced approach. The UK economy is navigating through rough waters with the upcoming general elections expected to add further fuel to the fire. Interestingly, the UK appears to exhibit signs both from the US and euro area economies.

China's Q1 GDP Growth Next on Asian Calendar

China remains a major trade partner for advanced economies such as the US and Europe, especially in the manufacturing sector, where its global dominance in terms of production and value added surpasses its peers by a large margin. Therefore, although the West has toughened its stance against Beijing’s trade practices in industrial areas, demand from China will remain vital for global markets.

Mixed Signals Indicate China Still Muddling Through

Chinese data releases overnight were a mixed bag. On the positive side GDP for Q1 surprised to the upside showing an increase in growth from 5.2% to 5.3% (consensus 4.8%). This puts the government on track for its 5% growth target and still leaves upside risk to our forecast of 4.5% for this year.

Hard to Justify a Cut

A stronger-than-expected retail sales data from the US cemented the idea that the US economy remains too strong for the Federal Reserve (Fed) to cut the rates in summer. Retail sales jumped 0.7% in March on a monthly basis, more than 4% on a yearly basis, the 3 and 6-month bill auctions were weak, and Atlanta Fed’s GDPNow forecast rebounded to 2.8%. Not bad.

WS Risk-Off Spilled Over to Asia

Yesterday’s WS risk-off spilled over to Asia this morning with regional indices losing up to 2.0%. Chinese data published this morning (cf infra) don’t help to improve sentiment. Still US Treasuries struggle to avoid further losses (+1 bp). The dollar outperforms (EUR/USD 1.0615, USD/JPY 134.35).

GBP/USD Dips After Weak Employment Data

The British pound dropped 0.30% after today’s UK employment report but has recovered most of these losses. In the European session, GBP/USD is trading at 1.2452, up 0.05%.

Currency War and Geopolitical Risk are Deadly Concoctions for Risk Assets

The odds have inched higher for a currency war scenario where the Chinese yuan may be weakened further to drive export growth due to its latest decelerating growth trend in China’s retail sales and persistent weak housing prices.

Sunset Market Commentary

European stock opened around 1.5% weaker this morning, catching up with losses inflicted on WS’s benchmark indices last night and Asian bourses this morning by Israel’s lingering treat to strike back against Iran. The EuroStoxx 50 tested the 50d moving average at the start (4910), but avoided a technical drop at first.

NZ First Impressions: Consumers Price Index, Q1 2024

The March quarter inflation result was above the RBNZ’s last published forecast for a 0.4% rise. However, the RBNZ’s forecast was finalised back in February (before the release of the monthly price data), and in its April policy review the RBNZ signalled they were already braced for a higher result.