European Outlook: Stock markets mostly headed south in Asia overnight, with China’s CSI 300 outperforming, and managing a slight gain. The DAX managed to close slightly higher yesterday and the U.S. also consolidated modest gains, but the FTSE 100 closed down as Sterling strengthened and U.S. and UK. stock futures are also in the red after the losses on most Asian markets on the last trading day of the quarter. Markets continue to lack clear direction with corporate earnings and economic data underpinning optimism about the outlook for the second quarter, while politics remain a negative. The local calendar today as German jobless data, as well as Eurozone inflation data, with the latter expected to fall much more than originally expected, after German and Spanish numbers yesterday indicated that the later timing of Easter this year means prices for package holiday haven’t gone up yet, which is distorting the annual rate. The U.K. has house price data as well as the final reading of Q4 GDP. German retail sales and French consumer spending are also on the slate.
U.S. reports: revealed an upside surprise for GDP led by service consumption and a small 3k initial claims drop in the last week of March to 258k that largely sustained last week’s pop, leaving good news for the economy on net. For GDP, we still project 1.6% growth in Q1 before a stronger growth path in the 3%-area through Q2 and Q3. For claims, the path remains tight despite the rise over the past two weeks, and we would discount some volatility given this year’s late Easter, and the tight NSA claims readings of just 228k after a 225k BLS survey week reading, versus last year’s comparable readings of 231k and 236k in what was then the week of Good Friday.
Fed’s Kaplan reiterated 3 hikes is a good base case for this year. The hawkish Fed voter is participating in a Q&A session on monetary policy and the economy and at the U.S. Chamber of Commerce, so the comments are rather wide ranging. He also said that rising confidence hasn’t translated into increased activity so far. The U.S.-Mexico relationship has led to a net increase in U.S. jobs. The weaker pound is helping act as a shock absorber for the U.K. economy. SF Fed’s Williams was mum on the economy and policy outlook in his prepared remarks as part of a panel discussion at a community event yesterday. Cleveland Fed hawk Mester supports further rate hikes, though not at each meeting, citing the sound U.S. economic expansion with the weak Q1 as largely transitory given residual seasonality in the data. She expects unemployment to remain below 5% for 2-years and reiterates her backing for beginning to trim bond holdings this year.
Main Macro Events Today
- Eurozone HICP – Eurozone inflation is seen coming in below expectations and could fall to just around 1.8%, below the ECB’s definition of price stability as below but close to 2%.
- UK GDP – Q4 GDP expected to be reaffirmed at 0.7% q/q and 2.0% y/y growth.
- US Personal Income – February personal income should post a 0.4% gain, with consumption edging up 0.2%, the same as in January. The Chicago PMI surged to 56.5 in March versus February’s 57.4.
- Canadian GDP – January GDP is expected to expand 0.3% m/m after the 0.3% gain in December.
- Fedspeak – The dovish dissenter Kashkari will take Q&A at a banking conference. NY Fed’s Dudley will be in Bloomberg, while MPC Member Haldane Speaks is going to speak at the Federal Reserve Bank of San Francisco.
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