This week’s eco calendar contains plenty of data (US & EMU Q1 growth and price data, EMU and US confidence) and events (Fed policy decision on Wednesday, US Treasury selling more than $180 bln combined in 2, 5 and 10y bonds). The earnings season (especially in the US) will also reach peak momentum with several (tech) bellwethers reporting. Despite this promising outlook, today’s data failed to provide directional guidance. The German IFO business climate index still improved from 96.6 to 96.8, but markets had hoped for a bigger gain. German businesses grew more optimistic on their current situation but expectations unexpectedly eased from 100.3 to 99.5. Business climate improved further in the manufacturing sector to the highest since May 2018, but expectations are clouded as companies see growing bottlenecks for intermediate products. Sentiment in the services sector also lost some momentum. Still, the overall picture wasn’t that different from Friday’s German PMI. In the US, March orders for durable goods also missed expectations. Headline orders rose 0.5% M/M versus 2.3% expected. Similar story for core orders (non-defense ex aircraft 0.9% M/M versus 1.7% expected) and core capital goods shipments (+1.3%). Orders data are notoriously volatile and today’s report doesn’t change the broader narrative on a strong US rebound. Still it was a mild disappointment. US yields showed tentative signs of rebounding this morning with longer maturities rising up to 3 bp, but momentum dwindled after the data. US yields currently are ‘rising’ only 1 bp (10-y) or less. The Treasury will sell $60 bln 2-y notes and $61 bln 5-year bonds later today. German Bunds are also looking for direction with yields for all maturities currently declining less than 1 bp. 10-y intra EMU spreads trade mostly stable with Italy slightly underperforming (+ 2 bp) as the government of PM Draghi proposes a €235 bln plan, mainly financed from the EMU recovery fund to structurally improve the country’s economy. Still Italian debt will also continue to rise. European equities also gain marginally (0.25% Eurostoxx 50). US indices show a similar pattern after Friday’s strong performance, waiting key earnings releases later this week. Other parts of the reflation trade remain intact with the likes of copper and iron ore setting new cycle peak levels.
On the FX market, the dollar lost further ground in Asia this morning, but uninspiring German data and ditto equity performance gradually provided the US currency some relief going into the US session. EUR/USD returned below the 1.21 mark (currently 1.2077). USD/JPY tries to regain the 108 level. The downtrend in DXY trade-weighted dollar (90.45) remains in place. After a strong run last week, the EUR/GBP cross rate is also running into resistance. 0.8700/0.8731 resistance again proves being a tough hurdle.
A number of high-profile US companies including P&G, Coca-Cola and Whirlpool have brought to the attention that they will increase prices to offset rising input costs, particularly of commodities. Chipotle, an American chain of restaurants flagged rising labour costs as a potential risk to profit margins. Financial Times reported that for the roughly 25% of the companies in the S&P 500 that have reported Q1 earnings so far, the rise in commodity prices was one of the most-cited headwinds.
Belgian NBB business confidence jumped to the highest level in a decade. The headline series advanced from -1 to 4.4, crushing 1.8 expectations. Construction (from 0.8 to 6.4) rose in particular on expected demand, business services (0.3 to 7) on current activity and expected overall demand and manufacturing (-1 to 4.4) on domestic orders and to a lesser extent expected employment and demand. Trade (-10.3 to -13) declined because of poorer employment and order forecasts. This might be related to the tighter coronavirus restrictions introduced last month.