Sample Category Title

Markets:

Global core bonds are losing ground today with US Treasuries underperforming German Bunds. Risk sentiment remains fragile as investors are digesting more and more signals of a growth slowdown. Both US Treasuries and German Bunds set fresh peaks overnight. With the European markets opening, calm cautiously returned to markets, giving core bonds a downward bias at the start of the day. Confidence indicators for the eurozone disappointed in March while inflation data printed below, but close to expectations. German Bunds temporarily bounced back. Klaas Knot, governor of the Dutch central bank, warned the ECB for ‘tiering’, the idea to soften negative interest rates on financial institutions tabled by president Draghi yesterday. The German yield curve is moving higher with changes up to +1.4 bps (10-yr). US Treasuries declined throughout EU dealings, erasing overnight gains. This week’s jobless claims printed according to expectations while the Q42018 GDP result was downwardly revised to 2.2%. US Treasuries continued to lose ground, shrugging off some of the overbought conditions. Disappointing pending home sales couldn’t provide support. The US yield curve is edging higher with changes varying between +1.5 bps (30-yr) to +4.3 bps (5-yr). Peripheral spreads over the German 10-yr yield are mixed with Italy (+3 bps) and Spain (+3 bps) underperforming.

EUR/USD continued trading with a negative intraday bias today. The pattern was quite similar to previous days. The pair traded without a clear direction during the morning session in Europe. The dollar captured a better bid as US traders joined. Again we didn’t see much high profile news to explain the intraday swings. EC confidence was weak, but this was no surprise anymore after last week’s EMU PMI’s. German inflation was close to expectations. US Q4 GDP was slightly downwardly revised (from 2.3% Q/Qa to 2.2%) but jobless claims remained very low (211K). The latter might have been a slightly USD positive, but we assume that technical factors/end of quarter positioning were more important as a factor for USD trading. Interest rate differentials rewidened in favour of the dollar. EUR/USD is trading in the 1.1225 area. The 1.1187/1.12 support area is coming on the radar. USD/JPY also rebounded and is trading in the 110.65 area. We don’t draw firm conclusions and await the key US data next week.

Sterling gained modest ground as the UK parliament failed to approve any of the alternative Brexit options. Investors are awaiting the next potential step in the Brexit sage/drama. Headlines suggested that another debate/vote on May’s Brexit deal might take place on Friday. However, the process is highly conditional and there is no indication at all that the plan will have a majority in Parliament this time. We consider current sterling price action as erratic trading in an environment with little to no political (and economic) visibility. EUR/GBP is trading in the 0.8575 area. Cable dropped below the 1.31 handle, partially on USD strength.

News Headlines:

M3 money supply in the EMU stepped up the pace from last month’s 3.8% YoY to 4.3% YoY in February, beating 3.9% market estimates. The annual growth rate of loans to the private sector increased to 3.2%. Among the private borrowers, the annual growth rate of loans to non-financial corporations increased to 3.7% YoY (up from 3.4% in January) but with large differences intra-EMU (Germany, France +6% while Italy, Spain was flat or contracted).

IMF’s Lagarde urged the euro zone to build an EMU wide bank deposit insurance system to “unlock the full potential of the banking union”. A common deposit insurance is the last missing element of such a banking union, which already includes single supervisory and resolution scheme. But many (northern) countries are opposed given the asymmetric distribution of risk across the zone.

USDJPY recovery threat eyes the 111.15/29 resistance zone. On the upside, resistance comes in at 111.00 level. Above this level will turn attention to the 111.50 level. Further out, we expect a possible move towards the 112.00 level. A cut through here will open the door for more gain towards the 112.30. Its daily RSI is bullish and pointing higher suggesting further upside pressure. On the downside, support comes in at the 110.00 level where a break will target the 109.50 level. Below that level will turn focus to the 109.00 level and then lower towards the 108.50 level. On the whole, USDJPY faces further upside pressure on more recovery.

Q4 GDP growth was downwardly revised to 2.2%. The revised release showed the U.S. economy continued to create income at a solid pace. But, we expect corporate profit growth will slow meaningfully going forward.

Revised Data Continue to Show Deceleration in the Economy

Revised data this morning showed that real GDP grew at an annualized rate of 2.2% in Q4-2018, down from the initial estimate of 2.6% (top chart). Almost all major categories contributed to this downward revision—with the one notable exception being net exports.

The broad weakness in the retail environment at the end of last year caused consumer spending to increase only 2.5%, down from the initial 2.8% estimate, with the weakness concentrated in goods consumption. Fixed investment also saw smaller increases than initially reported in both the nonresidential and residential components of spending. But, a smaller increase in imports resulted in a more modest drag from net exports than previously reported.

In general, today's GDP release continues to show that the rate of economic growth in the United States has downshifted a bit over the past few quarters. Our current forecast looks for further deceleration in the first quarter, but we then look for a modest rebound starting in Q2.

Gross Domestic Income & Corporate Profits

As usual, the first estimate of GDP—Q4 GDP was initially released a month ago—did not show the income side of the National Income and Product Accounts (NIPA). The revised data released today included the income side of the NIPA. Specifically, real gross domestic income (GDI) rose at an annualized rate of 1.7% in the fourth quarter—which came on the heels of a 4.6% jump in Q3—but kept its year-over-year growth rate at 2.7% (middle chart). On a nominal basis, GDI was up 5.0%, with growth driven by wages and salaries (up 4.6%), proprietors' income (nearly 6%) and dividends (6.5%). In general, the data show that the U.S. economy continued to create income at a solid rate in the fourth quarter of last year.

The data also included the first look at economy-wide corporate profits in the fourth quarter. On a pre-tax basis, corporate profits were up 7.4% on a year-ago basis in Q4, down modestly from roughly 10% growth in the third quarter. After tax, profits grew 14.3% (bottom chart). Corporations experienced strong profit growth in 2018, due in part to strong domestic growth, but largely due to decreased corporate tax rates. Indeed, after-tax profits rose at their fastest pace since 2010 while pre-tax profits only saw their fastest pace of growth since 2012. But, as we have noted previously, we look for profit growth to slow meaningfully going forward as the one-time boost to after-tax profits from changes to the corporate tax code fade and as the effects of economic deceleration filter through to the bottom line.

The deceleration in GDP growth this year will weigh on corporate profit growth, while increased labor costs pose a threat to margins. We look for corporate profits to continue to rise this year, albeit at a more moderate pace.

Daily Pivots: (S1) 1.1228; (P) 1.1257; (R1) 1.1273; More.....

Intraday bias in EUR/USD remains on the downside at this point. Fall from 1.1448 is in progress for 1.1176 low. Decisive break there will resume whole decline from 1.2555. On the upside, however, break of 1.1331 minor resistance will turn bias back to the upside for 1.1448 instead.

In the bigger picture, medium term outlooks is a bit mixed for now as there are conflicting signals. We'll turn neutral first. On the downside, decisive break of 61.8% retracement of 1.0339 (2016 low) to 1.2555 (2018 high) at 1.1186 will resume the whole down trend from 1.2555. Next target will be 1.0339 low. Nevertheless, break of 1.1569 resistance should confirm medium term bottoming. Stronger rebound should be seen back to 38.2% retracement of 1.2555 to 1.1176 at 1.1703. In that case, the structure of the rise from 1.1176 and reaction to 1.1703 fibonacci level will be watched for making an assessment on whether medium term trend has reversed, or rebound form 1.1176 is merely a correction.

Daily Pivots: (S1) 0.9914; (P) 0.9940; (R1) 0.9976; More.....

USD/CHF is staying in consolidation above 0.9879 temporary low and intraday bias remains neutral. As long as 1.0010 minor resistance holds, further decline is mildly in favor. On the downside, below 0.9879 will resume the fall from 1.0124 to 0.9716 key support. Nevertheless, break of 1.0010 will turn bias back to the upside for 1.0124/28 resistance zone.

In the bigger picture, focus is back on medium term trend line (now at 0.9846). Decisive break there will argue that whole rise from 0.9186 has completed. Further break of 0.9716 will confirm reversal and target next support level at 0.9541. Nevertheless, there is still a chance that price action from 1.0128 are forming a consolidative pattern with fall from 1.0124 as third leg. If this is the case, stronger support should be seen between 0.9716 and the trend line to contain downside.

Daily Pivots: (S1) 1.3152; (P) 1.3211; (R1) 1.3255; More....

Outlook in GBP/USD remains unchanged as it's bounded in range of 1.2960/3381. Intraday bias remains neutral at this point. As long as 1.2960 support holds, further rally remains in favor. On the upside, firm break of 1.3381 will resume the rebound from 1.2391 to 61.8% retracement of 1.4376 to 1.2391 at 1.3618 next. However, on the downside, decisive break of 1.2960 will indicate that rebound from 1.2391 has completed earlier than expected. Deeper fall would then be seen to 1.2773 support for confirmation.

In the bigger picture, medium term decline from 1.4376 (2018 high) should have completed at 1.2391. Rise from 1.2391 is now seen as the third leg of the corrective pattern from 1.1946 (2016 low). Further rise could be seen through 1.4376 in medium term. On the downside, though, break of 1.2773 support will dampen this view. Focus will be turned back to 1.2391 low and break will resume the fall from 1.4376 to 1.1946.

Daily Pivots: (S1) 110.26; (P) 110.48; (R1) 110.74; More...

USD/JPY's recovery from 109.71 resumes after brief retreat. But upside is limited below 110.95 minor resistance. Intraday bias remains neutral first. On the upside, break of 110.95 minor resistance will argue that the pull back from 112.13 has completed at 109.17. In this case, intraday bias will be turned back to the upside for retesting 112.13. On the downside, break of 109.71 will resume the decline from 112.13 to 38.2% retracement of 104.69 to 112.13 at 109.28. Break of 109.28 will target 61.8% retracement at 107.53 next.

In the bigger picture, while the rebound from 104.69 was strong, USD/JPY failed to sustain above 55 week EMA (now at 110.91), and was kept well below 114.54 resistance. Medium term outlook is turned mixed and we'll wait for the structure of the fall from 112.13 to unveil to make an assessment later. For now, more range trading is expected between 104.69 and 112.13 first.

Dollar rises broadly in early US session with help from rebound in treasury yields. 10-year yield is now trying to regain 2.4 handle. Poor Q4 GDP is ignored while traders could be hopeful on some progress in US-China trade talks in Beijing. The development drags down the Japanese to one of the weakest.

Nevertheless, Sterling is the worst performing one on Brexit impasse. There will be another debate in the parliament tomorrow. But there is no sign of finally approving the deal to push the Brexit date from April 12 to May 22. Euro is also among the weakest after poor Eurozone sentiments indicators and Germany CPI miss.

Technically, with today's decline, EUR/USD is heading to 1.1176 key support and break will resume medium term down trend. USD/JPY's rebound now turn focus to 110.95 minor resistance and bring will bring stronger rise back to 112.13 resistance. EUR/JPY breached 123.82 temporary low but there is no follow through selling yet. Though, more downside is mildly in favor in EUR/JPY.

In Europe, FTSE is currently up 0.90%. DAX is up 0.48%. CAC is up 0.34%. German 10-year yield is up 0.0131 at -0.065. Earlier in Asia, Nikkei dropped -1.61%. Hong Kong HSI rose 0.16%. China Shanghai SSE dropped -0.92%, lost 3000 handle. Singapore Strait Times rose 0.16%. Japan 10-year JGB yield dropped -0.0263 to -0.092, heading towards -0.1 handle.

US initial claims dropped to 211k, Q4 GDP revised down to 2.2% only

US initial jobless claims dropped -5k to 211k in the week ending March 23, below expectation of 220k. Four-week moving average of initial claims dropped 3.25k to 217.25k. Continuing claims rose 13k to 1.756M in the week ending March 16. Four-week moving average dropped -4.25k to 1.751M.

Q4 GDP growth was finalized at 2.2% annualized, revised down from 2.6% and missed expectation of 2.4%. That's sharply slower from Q3's 3.4%. Real GDP grew only 2.9% in 2018, up from 2.2% in 2017 but was below 3.0% handle.

Pending home sales dropped -1.0% mom in February versus expectation of 0.0% mom.

US Mnuchin look forward to productive meetings in China

US Treasury Secretary Steven Mnuchin said he's looking forward to "productive meetings" as he arrived in Beijing with Trade Representative Robert Lighthizer for another round of trade negotiations. Mnuchin told reporter that "ambassador Lighthizer and myself are pleased to be back here in Beijing, and we look forward to productive meetings."

Citing unnamed officials, Reuters reported that China's proposals went further than in the past, which created hope for an eventual trade deal. The discussions on forced technology transfer covered areas that were not touched before, in terms of both scope and specifics.

Meanwhile, the texts of agreements moved forward in all areas even though they're not where the US want to be. The areas are believed to include forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade.

Another official noted that some of the tariffs imposed since last year will stay even after a deal is made. And this will be an important issue to resolve, as an important part of the final deal. But for now, there is no clear timeline for completing the deal yet. And negotiations could drag on till June.

China pledges to quicken full market access on banking and finance

Chinese Premier Li Keqiang told business executives at the Boao forum that there is no trust deficit with the US and hoped that the trade talks could achieve results. Li also pledged that China must protect intellectual property or there is no hope for transformation in the country. He also sounded upbeat on the economy and said "changes" in March exceeded expectations.

Besides, Li said China is "quickening the full opening of market access for foreign investors in banking, securities and insurance sectors." Scope of foreign banks, bank and non-bank card payments will be "expanded sharply". Restrictions on securities and insurance brokers will also be removed. Li emphasized the measures will be "implemented this year in a relatively forceful way". In addition, China is drafting rules to relax the restrictions on foreign acquisitions of Chinese listed corporations.

EU Schinas: Apr 12 is the end date if no Brexit deal ratified this week

European Commission spokesman Margaritis Schinas warned again that "If the Withdrawal Agreement is not ratified by the end of this week, Article 50 will be extended to April 12 and it is now for the UK government to inform about how it sees the next steps." On the indicative votes, Schinas added, "we counted eight 'noes' last night, now we need a 'yes' on the way forward."

Prime Minister Theresa May is still meeting Conservative colleagues and Northern Ireland's Democratic Unionist Party to seek support on her Brexit deal. Meanwhile, May is believed to be still seeking to have another meaningful vote tomorrow. Her spokesman said "Tomorrow's motion will need to be compliant with both the Speaker's ruling and the EU council's decision on conditionality relating to exit on 22 May. Discussions are ongoing and we will look to table the motion as soon as possible today, in order to avoid asking for another extension and the requirement to undertake European parliament elections."

Hard-line Brexiteer Jacob Rees-Mogg extended his support to May and urged DUP to "come over to the deal". But DUP insisted they won't even abstain but just reject it. Another Brexiteer Boris Johnson told Evening Standard newspaper that "May's deal si dead".

British Chambers of Commerce Director General Adam Marshall criticized that the uncertainty of the "Brexit black hole" is generating "a growing list of business casualties and a litany of rising costs". He also urged MPs to do all to avoid no-deal Brexit. He said "messy and disorderly exit would not just be deeply irresponsible – it would be a flagrant dereliction of duty."

Eurozone economic sentiment dropped to 105.5, dragged by markedly lower industrial confidence

Eurozone Economic Sentiment Indicator (ESI) dropped to 105.5 in March, down from 106.2 and missed expectation of 105.9. EU28 ESI dropped -0.4 to 105.0. The deterioration of Eurozone ESI was resulted from "markedly lower confidence in industry". Industrial Confidence dropped to -1.7, down from -0.4 and missed expectation of -0.5. Services Confidence dropped to 11.3, down from 12.1 and missed expectation of 12.0. Consumer Confidence was finalized at -7.2, up from -7.4. Amongst the largest Eurozone economies, ESI rose markedly in Spain (+2.3), while it decreased sharply in Germany (−1.8) and the Netherlands (−1.3), and remained broadly unchanged in France (+0.2) and Italy (−0.2).

Eurozone Business Climate Indicator dropped to 0.53, down from 0.69 and missed expectation of 0.69. All the five components of the indicator worsened: while managers' views of the past production, their production expectations, and their assessments of both overall and export order books declined significantly, their appraisal of the stocks of finished products worsened only slightly.

Also released, Eurozone M3 money supply grew 4.3% yoy in February, above expectation of 3.9% yoy. German CPI slowed to 1.3% yoy in March, down from 1.5% yoy and missed expectation of 1.5% yoy.

New Zealand ANZ business confidence dropped, RBNZ cut sooner rather than later

New Zealand ANZ Business Confidence dropped to -38 in March, down from -30.9. Activity Outlook also dropped to 6.3, down from 10.5. ANZ noted that GDP growth has moderated but is still respectable. However, leading indicators are suggesting that the economy is "running out of steam quite rapidly".

In particular, export intentions dropped to levels lower than during the Asian Financial Crisis of 1998-9 and the Global Financial Crisis of 2008-9. Sharply lower export intentions despite a well-behaved exchange rate suggest global factors are a part of slowdown in momentum.

Overall, ANZ expects next move in RBNZ to be a cut, "with a growing risk that it is sooner rather than later."

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 110.26; (P) 110.48; (R1) 110.74; More...

USD/JPY's recovery from 109.71 resumes after brief retreat. But upside is limited below 110.95 minor resistance. Intraday bias remains neutral first. On the upside, break of 110.95 minor resistance will argue that the pull back from 112.13 has completed at 109.17. In this case, intraday bias will be turned back to the upside for retesting 112.13. On the downside, break of 109.71 will resume the decline from 112.13 to 38.2% retracement of 104.69 to 112.13 at 109.28. Break of 109.28 will target 61.8% retracement at 107.53 next.

In the bigger picture, while the rebound from 104.69 was strong, USD/JPY failed to sustain above 55 week EMA (now at 110.91), and was kept well below 114.54 resistance. Medium term outlook is turned mixed and we'll wait for the structure of the fall from 112.13 to unveil to make an assessment later. For now, more range trading is expected between 104.69 and 112.13 first.

Economic Indicators Update

• US GDP – Q4 revised lower from 2.6% to 2.2%
• Trade Concessions – Foreign tech to gain better access
• Brexit – Much Ado About Nothing
• Oil – Trump wants OPEC to increase flow of oil
• Gold – rises on safe-haven flows

USD

The US economy lost more momentum than expected in the fourth quarter.  The final GDP reading grew at a 2.2% annualized rate, lower than the first revision of 2.6% and below the economists’ forecast of 2.3%.  The largest part of the economy is consumer spending and that grew at a slower pace of 2.5%, missing expectations by a tenth of a percentage point.

The labor market remains the brightest part of the US economy.  Jobless claims showed the number of workers filing new applications for unemployment fell more than expected.

The US economy outlook should not change much following this morning’s releases.  Expectations have already started to grow for the Fed to cut more than 25 basis points by the end of the year.  Global growth concerns are hurting the US economy and right now the markets focus is still about seeing a trade deal get done between the two largest economies.

Brexit

The comedy that is Brexit, failed to deliver anything of substance after a wrath of indicative votes tried to show Parliament break a deadlock on the path forward.  PM May also offered her resignation to get her Brexit deal passed through, but the math showed it still would not be enough to get her deal pushed through.  Yesterday, Boris Johnson offered his support to the PM, but today he sings a different tune and says her deal is dead.  The key for May remains winning over DUP support and right now she does not have it.

Trade Concessions

According to the Wall Street Journal, China’s latest offering in trade talks is to pilot foreign technology companies to own data centers.  Intellectual property theft, greater access to Chinese markets and enforcement are all key roadblocks that need to be addressed for the US to sign off on their end of the trade agreement.

Today, Vice Premier Liu He will host a new round of negotiations with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.  This is a pivotal step that could help bring discussions closer to seeing a final meeting between Presidents Xi and Trump.  Expectations are probably low that we will see both sides agree upon enforcement with this round of talks.  The base case still remains a framework agreement signed by the end of May.

S&P 500 futures rose towards the morning’s high following the China’s cloud concession to foreign technology firms.

Oil

West Texas Intermediate crude continues to respect the $60 a barrel level following yesterday’s bearish EIA inventory report.  The build of 2.8 million barrels prevented crude from continue its recent rally.  The next catalyst for oil is likely to be an update on the trade front.

President Trump tweeted that it is very important for OPEC to increase the flow of oil and voiced concerns about world markets being fragile and that oil is getting too high.  His comments took oil to fresh session lows.

Gold

Gold prices are softer on the day as the dollar rallies and bond volatility eases this morning.  The precious metal appears to be in a wait and see mode on both the bond story and trade war update.  If the dollar continues to catch a bid, gold could see a test of the recent range low of $1,280 a troy ounce.

Entering into US session, Sterling is currently the weakest one for today. The indicative votes in the UK House of Commons yesterday indicated again what the MPs didn't want, but not what they want regarding Brexit. Prime Minister is believed to be continuously working on support for her deal. But such a deal is dead if Northern Ireland's DUP doesn't switch than rejection stance. And, EU's Schinas reminded British government again that if the deal is not ratified this week, Article 50 will only be extended to April 12, not May 22.

Staying in the currency markets, Euro is the second weakest for now. Eurozone economic sentiment deteriorated in March, as dragged down by markedly lower industrial confidence. German CPI also missed expectation and slowed to 1.3% yoy. Swiss Franc is the third weakest. Meanwhile, Australian, Zealand, US Dollar and Yen are the stronger ones. The greenback is shrugs off downward revision in Q4 GDP growth to just 2.2% annualized.

In Europe, currently:

• FTSE is up 0.41%.
• DAX is up 0.25%.
• CAC is up 0.11%.
• German 10-year yield is up 0.006 at -0.072.

Earlier in Asian:

• Nikkei dropped -1.61%.
• Hong Kong HSI rose 0.16%.
• China Shanghai SSE dropped -0.92%, lost 3000 handle.
• Singapore Strait Times rose 0.16%.
• Japan 10-year JGB yield dropped -0.0263 to -0.092, heading towards -0.1 handle.