HomeContributorsFundamental AnalysisUK CPI Data Misses Expectations And Deflates BOE Hawks

UK CPI Data Misses Expectations And Deflates BOE Hawks

Notes/Observations

  • UK CPI misses expectations and hits a 1-year low; deflates some hawkish expectations of BOE but May hike still viewed but further hikes in question
  • Euro Zone March Final CPI revised lower from 1.4% to 1.3%; highlights recent cautious rhetoric from ECB officials

Asia:

  • Then US CIA Director Pompeo said to have met with North Korea leader Kim during visit to North Korea over Easter
  • China NDRC noted that the impact from US/China trade frictions on domestic macro economy was limited and manageable. Trade protectionism to weigh on some sectors exports but had various contingency plans and policy reserves to deal with trade frictions started by the US
  • Japan Mar Trade Balance beat expectations (ÂĄ797.3B v ÂĄ449Be) as imports decline for the 1st time since 2016

Europe:

  • PM May’s Brexit strategy said to face a renewed threat in House of Lords as a proposal to keep Britain in a customs union with the EU after leaving the bloc might pass by more than 50 votes
  • EU said to prepare up to 40 law amendments in event of hard Brexit. Measure would cover a wide range of areas and also give special powers to regulators
  • German Chancellor Merkel said to seek to strengthen role of economic ministers in EU

Americas:

  • Fed’s Bostic (FOMC voter, dove): Businesses are confused by direction of US trade policy; hearing about labor shortages everywhere
  • Fed’s Evans (non-voter, dove): can patiently react to incoming data; do not see outsized risk of inflation accelerating
  • Trump administration reportedly to implement new policy that speeds up approval process for allies to complete major arms deals
  • President Trump noted that Japan and South Korea would like US to go back into TPP. Trump did not like TPP deal for the US; bilateral trade deals were more efficient and profitable

Energy:

  • Weekly API Oil Inventories: Crude: -1.0M v +1.8M prior

Economic Data:

  • (EU) EU27 Mar New Car Registrations: -5.3% v +4.3% prior
  • (AT) Austria Mar CPI M/M: 0.6% v 0.3% prior; Y/Y: 1.9% v 1.8% prior
  • (CZ) Czech Feb Export Price Index Y/Y: -4.7% v -4.1% prior; Import Price Index Y/Y: -6.5% v -5.8% prior
  • (CZ) Czech Mar PPI Industrial M/M: 0.3% v 0.0%e; Y/Y: +0.1% v -0.2%e
  • (ZA) South Africa Mar CPI M/M: 0.4% v 0.6%e; Y/Y: 3.8% v 4.1%e
  • (ZA) South Africa Mar CPI Core M/M: % v 0.8%e; Y/Y: 4.1% v 4.2%e
  • (PL) Poland Mar Employment M/M: 0.1% v 0.1%e; Y/Y: 3.7% v 3.7%e
  • (PL) Poland Mar Average Gross Wages M/M: 6.2% v 6.1%e; Y/Y: 6.7% v 6.6%e
  • (IT) Italy Feb Industrial Orders M/M: -0.6% v -4.6% prior; Y/Y: 3.4% v 9.6% prior
  • (IT) Italy Feb Industrial Sales M/M: +0.5% v -2.9% prior; Y/Y: 3.4% v 5.3% prior
  • (UK) Mar CPI M/M: 0.1% v 0.3%e; Y/Y: 2.5% v 2.7%e (slowest annual pace in a year); CPI Core Y/Y: 2.3% v 2.5%e; CPIH Y/Y: 2.3% v 2.5%e
  • (UK) Mar RPI M/M: 0.1% v 0.3%e; Y/Y: 3.33.5%e, RPI-X (ex-mortgage interest payment) Y/Y: 3.4% v 3.6%e, Retail Price Index: 278.3 v 278.8e
  • (UK) Mar PPI Input M/M: -0.1% v +0.3%e; Y/Y: 4.2% v 4.3%e
  • (UK) Mar PPI Output M/M: 0.2% v 0.1%e; Y/Y: 2.4% v 2.3%e
  • (UK) Mar PPI Output Core M/M: 0.1% v 0.2%e; Y/Y: 2.2% v 2.2%e
  • (UK) Feb ONS House Price Index Y/Y: 4.4% v 4.7%e
  • (EU) Euro Zone Mar CPI M/M: 1.0% v 1.0%e; Y/Y (final): 1.3% v 1.4%e; CPI Core Y/Y (final): 1.0% v 1.0%e
  • (EU) Euro Zone Feb Construction Output M/M: -0.5% v -0.8% prior; Y/Y: % v 6.9% prior

Fixed Income Issuance:

  • (IN) India sold total INR150B vs. INR150B indicated in 3-month, 6-month and 12-month bills
  • (DK) Denmark sold total DKK2.18B in 2023 and 2027 bonds
  • (IT) Italy Debt Agency (Tesoro) bond exchange results: Sold €2.0B in Nov 2021 BTP in switch; bought €2.0B via 5 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 +0.1% at 381.2, FTSE +0.8% at 7286, DAX +0.1% at 12601, CAC-40 +0.4% at 5374, IBEX-35 +0.2% at 9823, FTSE MIB +0.1% at 23675, SMI +0.7% at 8883, S&P 500 Futures +0.2%]
  • Market Focal Points/Key Themes: European Indices trade higher once again with notable strength in the FTSE 100 as weaker inflation data lifted the index. European Indices track US futures higher on the back of positive earnings out of the US and Europe, with shares of Danone rising after Q1 results and LFL sales which came ahead of estimates. In other earnings related moves, Vopak, Telford Homes and Barco trade higher, while Heineken and Remy Cointreau among some of the names moving lower. Continental shares fell after cutting outlook currency valuation effects. In the M&A space, Direct Energie trades over 30% higher after Total acquired a majority stake for €1.4B; Shares of Intu trade lower after Hammerson recommends withdrawal of its $5B offer. Looking ahead, notable earners include Textron, Morgan Stanley and Abbot Labs.

Movers

  • Consumer Discretionary [Heineken [HEIA.NL] -2.1% (Earnings)]
  • Consumer Staples [ Danone [BN.FR] +3.0% (Earnings)]
  • Industrials [Getlink [GET.FR] +0.7% (Earnings), Continental [CON.DE] -3.3% (Cuts Margin outlook)]
  • Utilities [ Direct Energie [DIREN.FR] +30.3% (Total acquires majority stake)]
  • Technology [ ASML [ASML.NL] -1.2% (Earnings) ]
  • Real Estate [ Vopak [VPK.NL] +4.1% (Earnings), Intu [INTU.UK] -4.5%, Hammerson [HMSO.UK] +2.2% (hammerson recommends withdrawal of offer for INTU), Telford [TEF.UK] +2.8% (Earnings)]

Speakers

  • EU’s Tusk stated that saw positive momentum in Brexit talks adding that the UK must help resolve the Irish border issue. EU economy was back at pre-crisis level and that strengthening of EU banking union was a priority. Reiterated call for permanent exemption from US metal tariffs
  • EU Trade Chief Malmstrom reiterated the view of seeking an unconditional waiver on US metal tariffs; move by US seen as pure protectionism
  • Italy President Mattarella to meet with Senate Speaker Casellati (**Note: reports circulated that Italy Senate Speaker Casellati could be selected by President Mattarella for an exploratory mandate aimed at building a parliamentary majority for the next govt)
  • Hungary Central Bank Dep Gov Nagy: Needed to increase lending in economy and target a 12% annual pace
  • Japan Chief Cabinet Sec Suga: Will explain to Parliament why Fin Min Aso needs to attend G20; need to fulfill responsibility as next-year G20 host (**Note: Japan Diet Committee would not approve request for FIn Min Aso to attend G-20 meeting)

Currencies

  • USD began the session with a slight bid against the major pairs. The greenback aided by continued disappoint inflation data out of Europe
  • GBP/USD fell over 100 pips as March CPI data missed expectations with the YoY reading coming in at 2.5%. This was the lowest CPI reading in a year but still above the BOE inflation target of 2% for the 16th straight month. Algo trading initially sold the GBP currency in the aftermath of the data then real money flows kicked in. Expectations of a May BOE rate hike moved only marginally lower from 86% to around 80% but any additional hike doown the road was put into question. Pair below 1.42 just ahead of the NY morning.
  • EUR/USD softer by 0.2% as the March Final CPI data was revised lower to 1.3%. The data reinforced recent patience from ECB members on achieving the inflation target.
  • USD/JPY higher aided by prospects of reduced trade tensions and an easing in geo-political tensions. PresidentTrump to meet Japan PM Abe in Florida today. Yen also softer after reports that then US CIA Director Pompeo met with North Korea leader Kim during visit to North Korea over Easter
  • EUR/CHF edged closer towards the 1.2000 handle which is a level last tested back in Jan 2015 when the SNB abandon its floor in the cross.

Fixed Income

  • Bund Futures trade 8 ticks higher at 159.47 as Germany’s 10-year bond yield falls back below the 0.50% level. Upside targets 159.75, while a return lower targets the158.25 level.
  • Gilt futures trade at 122.73 higher by 62 ticks, extending its gains after softer than expected UK inflation data. Support continues stands at 121.25 then 120.85, with upside resistance at 123.35 then 123.85.
  • Wednesday’s liquidity report showed Tuesday’s excess liquidity fell to €1.857T from €1.868T prior. Use of the marginal lending facility increased from €133M to €170M.

Looking Ahead

  • (SA) Saudi Arabia Feb Oil production – JODI
  • 05:30 (DE) Germany to sell €3.0B in 0.05% Feb 2028 Bunds
  • 06:00 (PT) Portugal Mar PPI M/M: No est v 0.1% prior; Y/Y: No est v 1.4% prior
  • 06:45 (US) Daily Libor Fixing
  • 07:00 (RU) Russia to sell OFZ bonds
  • 07:00 (US) MBA Mortgage Applications w/e Apr 13th: No est v -1.9% prior
  • 07:00 (BR) Brazil Apr IGP-M Inflation (2nd Preview): 0.3%e v 0.6% prior
  • 07:00 (ZA) South Africa Feb Retail Sales M/M: 0.1%e v -1.6% prior; Y/Y: 3.0%e v 3.1% prior
  • 08:05 (UK) Baltic Dry Bulk Index – 08:30 (US) Fed’s Dudley (dove, FOMC voter) at community bank conference
  • 09:00 (RU) Russia Mar Unemployment Rate: 5.0%e v 5.0% prior; Real Wages Y/Y: 8.0%e v 9.7% prior; Real Disposable Income Y/Y: 3.1%e v 4.4% prior
  • 09:00 (RU) Russia Mar Real Retail Sales Y/Y: 2.1%e v 1.8% prior
  • 09:15 (UK) BOE FPC Brazier, Kohn and Taylor testify in Parliament
  • 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rate unchanged at 1.25%
  • 09:45 (UK) BOE to buy ÂŁ1.22B in in APF Gilt purchase operation (7-15-years)
  • 10:30 (US) Weekly DOE Crude Oil Inventories
  • 15:15 (US) Fed’s Dudley (dove, FOMC voter) on economic outlook
  • 16:15 (US) Fed’s Quarles (hawk, FOMC voter) in Washington DC
  • 17:00 (KR) South Korea Mar PPI Y/Y: No est v 1.3% prior
  • 17:30 (US) Trump-Abe press conference
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