US yields have taken a step back this week causing a weaker USD. Some profit taking might also play a role for the USD following a few very strong months. In Europe, bunds moved sideways. Equities have continued to edge higher on a global scale and US markets hit new highs.
We got minutes from both Fed and ECB this week, none of which provided much news. Overall, the FOMC minutes confirmed our view that the Fed bought time at its March meeting, as the policy makers think it is too early to change rhetoric amid the pandemic. At the March meeting, ECB had a slightly optimistic tone on the economic outlook and came with some hawkish comments to the PEPP implementation. The market impact was insignificant in the short term, but we think it will take a significant worsening of the risk appetite for ECB to step up purchases. As such it is in our view, right now more likely that ECB will have to end PEPP rather than extend it.
The IMF revised up slightly their global GDP growth forecast to 6.0 % (from 5.5 %) for 2021 and 4.4 % (from 4.2 %) for 2022, mainly reflecting faster recovery in advanced economies, and especially in the US. We think the IMF is still too conservative on the outlook for both the US and for China. The fund was boosted by USD650billion at the G20 meeting in Rome. As a clear signal that the Trump era is in the past now, a pledge to fight trade protectionism was also revived.
In the Nordics, we are on the threshold of a strong recovery as the economies open up, and we have mostly updated our new outlook since January, as global and domestic outcomes have surprised to the upside. The exception is Norway, where new lockdowns have delayed the recovery. The Nordics are performing very well compared to the rest of Europe, see Nordic Outlook – At the doorstep of recovery.
On the COVID front, new cases have moved lower in Europe, but Easter adds uncertainty to the numbers. We continue to see April as the turning point in the crisis in the Northern Hemisphere when it comes to infections and deaths. However, for the EU we see a risk that the turning point is delayed into May, as vaccinations are much slower than in UK and the US.
Next week in the US we will look out for March CPI inflation and retail sales. We expect inflation will rise significantly, mainly due to base effects. Retail sales likely rose significantly boosted by the third stimulus check. We also have several Fed speakers on the wires. We expect they will remain reluctant to turn more hawkish until the normalisation is more underway.
In the euro area, the ZEW expectations have risen quite a lot in recent months, so a stabilization in the April print would be no surprise (also in light of the new restrictions). Final March HICP on Friday will give us some more clues on what lies behind the divergence in goods and service price inflation.
In China we get Q1 GDP next week. We are likely to see a growth rate of close to 20% y/y due to base effects related to the collapse in GDP in Q1 last year. However, q/q growth will likely show a moderation in growth as signalled by weaker PMI’s in recent months.