Market movers today
Today’s main event is the FOMC meeting tonight; however, the Fed has stated that it is on hold, so we expect it to keep the target range unchanged at 2.25-2.50%.
Moreover, we get the ISM manufacturing in the US and UK. We still expect US manufacturing to have peaked and to move slightly lower before stabilising (still above 50). Based on a weighted average of the regional PMIs, we expect numbers to come in at 55.0 (currently 55.3).
It is a TARGET holiday in Europe today, which means European fixed income markets are closed.
Selected market news
The price of Brent crude rose briefly above USD73/bbl on the news of a military coup attempt in Venezuela led by opposition leader Guaido and backed by the US. Later, API was said to report that US crude stocks rose 6.8mb last week, which helped reverse sentiment in the oil market. The oil market is clearly concerned about the ramifications for Venezuela’s oil production and exports of a further deterioration of the situation. Venezuela is currently producing 800-900k/b – down about 50% from a year ago.
South Korea’s exports dropped 2% y/y in April, which is less than the 8.2% y/y drop seen in March and also less than the consensus expectation of a 5.9% y/y decline. In the bigger picture, this development gives some rise to the notion that Chinese economic activity is slowly picking up further supporting Chinese external demand.
Euro area Q1 GDP growth rose to 0.4% from 0.2% in Q4. Recent improvement in industrial production data has already signalled a pick-up compared to the gloomy H2 18 growth momentum in contrast to PMIs, although the overall growth pace remains below potential.
German HICP was 2.1% in April. The so-called ‘Easter effect’ took service price inflation from 1.2% in March to 2.1% in April. The strong German inflation outcome supports our call for a marked pick-up in euro area core and headline inflation on Friday (1.2% and 1.8%, respectively).
The effective Fed funds rate rose to 2.45% on Monday (reported yesterday), which now leaves it only 5bp below the upper bound in the Fed’s 2.25%-2.50% target range. We do not expect the Fed to make a 5bp ‘adjustment cut’ of its interest on excess reserves (IOER) at the meeting tonight, but the Fed will likely discuss what to do at upcoming meetings if the upward pressure on Fed funds does not ease over the coming months.
