Originally published by RIvkin Securities
The euro declined -0.85% against the US dollar on Thursday following disappointing German inflation data. German inflation month-on-month for March rose +0.2%, less than the prior reading of +0.6% and forecasts of +0.4%. Year-on-year prices rose +1.6%, down from +2.2% previously and estimates for +1.8%. ECB officials were quick to point out that the continued need for stimulus through until the end of 2017 ahead of the Eurozone inflation reading on Friday with prices forecast to rise at the slower rate of +1.8% compared with 2% prior and the core measure at +0.8% vs +0.9% prior.
That should provide some relief to Mario Draghi following a growing chorus of economists calling for the ECB to withdraw from stimulus earlier than forecast. European yields were little changed while equity benchmarks rose led by gains in the Euro STOXX 600 rising +0.51% as did the DAX, up +0.44%.
Across the Atlantic US fourth quarter GDP rose at a +2.1% annualised rate, faster than the +2.0% anticipated as consumer spending, which makes up around two-thirds of the economy, which continues to underpin the seven year expansion. The dollar index gained +0.52% weighing on spot gold which fell -0.73% and US treasury yields rose with the two and ten-year yields gaining +1 and +3.5 basis points respectively. Equity markets also closed higher, both the S&P 500 and Nasdaq 100 up +0.29% and +0.17% respectively.
The US dollar was also supported by comments from Federal Reserve of New York President William Dudley who noted that while considerable uncertainty remained regarding fiscal policy the risks for growth and inflation are beginning to gradually shift upwards. Tonight the focus will be on the personal consumption expenditure index (MoM Feb), the Fed’s preferred measure of inflation, due out at 11:30pm AEDT.
The yen is also weaker this morning, down -0.76% against the greenback which should provide some support to Japanese equity markets today. Investors will also focus in on Japanese inflation data due out at 10:30am AEDT. The Bank of Japan’s preferred measure which excludes fresh food rose +0.1% in January supported by higher energy prices and forecasts are for an increase to +0.2%. The second chart below shows the Japanese government 10-year bond yield which has remained within a narrow trading range over the past four months, sitting just above the BOJ’s target of around 0%. The general consensus is that this is unsustainable and the BOJ will need to raise this target due to pressures from rising yields globally. While BOJ officials have so far rejected this, a continued rise in prices would give them the ammunition required to raise this target modestly.
Locally the S&P/ASX 200 rose +22.71 points or +0.39% on Thursday and we look set for a stronger open again this morning with ASX SPI200 futures up +9 points in overnight trading.
Data releases:
· Japanese Jobless Rate (MoM Feb) 10:30am AEDT
· Japanese CPI Ex-Fresh Food (YoY Feb) 10:30am AEDT
· Chinese Manufactuirng & Non-manufacturing PMI (MoM Mar) 12:00pm AEDT
· German Retail Sales (MoM & YoY Feb) 5:00pm AEDT
· German Unemployment (MoM Mar) 6:55pm AEDT
· UK GDP (QoQ & YoY Q4) 7:30pm AEDT
· Euro-zone CPI (YoY Mar) 8:00pm AEDT
· US PCE (MoM & YoY Feb) 11:30pm AEDT
Chart 1 – EUR/USD
Chart 2 – Japanese Government 10-year Yield
Source: Rivkin, RivkinTrader