European Outlook: Asian stock markets are mostly lower, disappointing earnings reports out of Japan underpinned the correction from the two-week rally and investors are holding back ahead of the Golden Holiday. The ASX is a notable outperformer and clinging on to marginal gains. U.K. stock futures are moving higher but U.S. futures are heading south. After pushing stock indices to new highs investors need further impetus to drive the rally further and are likely to remain cautious ahead of the long weekend in Europe. Yields headed south yesterday, especially in the Eurozone, after Draghi did his best to assure markets that nothing has changed and that should help to cushion the impact of the likely jump in HICP inflation today. Today’s bumper data already includes Spanish GDP, UK Preliminary GDP and CPI Flash Estimate. U.S. calendar includes Q1 GDP, Q1 ECI, Chicago PMI and consumer sentiment.
U.S. reports revealed largely expected durable orders figures for March, but with lean inventory data that combined with a downside surprise for advance trade in goods, with weakness in both exports and imports, to trim our Q1 GDP growth estimate to 1.1% from 1.2%. The advance indicators report also revealed weak wholesale inventory data, though with an upside retail inventory surprise that left a slightly stronger inventory path on net. We also saw a 14k pop in initial claims to 257k in the Easter week, though claims remain tight overall despite holiday-related volatility over the past month, leaving an average thus far in April of a lean 244k. Pending home sales fell 0.8% as expected in March after a 5.5% February pop, and the Bloomberg comfort index rose to a sturdy 50.8. More generally, the durables, trade, and claims data have sustained their firming pattern that implies a pick-up in 2017 growth beyond the disappointing outlook for tomorrow’s Q1 GDP report, which appears to reflect the odd recent pattern of Q1 seasonal weakness.
Japan’s data dump revealed tepid inflation and mixed growth figures. Hence, nothing surprising from the CPI, retail sales, employment, consumption, and industrial production reports. The yen is little changed relative to the New York close, with USDJPY at 111.30. The core CPI measure (excludes fresh food but not energy) grew at a 0.2% y/y pace in March, matching the 0.2% pace in February and remaining well below the BoJ’s 2% target. The employment backdrop remains strong, with the unemployment rate at 2.8% in March, matching February’s 2.8%. But wages and income growth are weak, holding back consumption. Granted, retail sales surged 2.1% y/y in March after the 0.2% gain in February. But month comparable sales were a rather anemic 0.2% in March after the 0.3% gain in February. And household spending contracted 1.3% y/y in March after the 3.8% tumble in February. Industrial production fell 2.1% m/m in March (preliminary) after a 3.2% gain in February. Yet the measure grew at a 3.3% y/y pace in March after the 4.7% y/y gain in February, continuing the run of strong y/y gains (3.1% to 4.7%) seen since November. Unfortunately, Japan’s pick-up in industrial production is due to external demand, as the domestic demand backdrop remains rather weak.
Main Macro Events Today
- US Advance GDP & UoM Consumer – The Advance Q1 GDP report should be one of the more interesting releases. Growth is expected to slow to a 1.3% pace from Q4’s 2.1% pace, and continuing the trend over the last several years of measurable erosion in Q1.More timely data includes Chicago PMI and the final April print on consumer sentiment which is expected unchanged at 98.
- UK Prelim GDP – The UK data schedule picks up, highlighted by the preliminary Q1 GDP estimate where growth expected to slow to 0.4% q/q from 0.7%.
- EU CPI – April Eurozone CPI expected at 1.8% y/y, up from 1.5% last month.
- Canadian GDP – Canada awaits the first look at February GDP, expected to reveal 0.1% reading after the 0.6% surge in January.
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