ON DECK FOR WEDNESDAY, APRIL 20
KEY POINTS:
- Signs of relief across asset classes
- French leaders’ debate this afternoon
- Canadian CPI set to rise again
- China’s banks leave LPRs unchanged as expected
- BoJ’s unlimited buying pledge shaken off by JGBs
- A positive macro spin on Netflix’s results
- Headline risk ahead of late week G20 FinMin/CB meeting
- More Fed-speak
There are a few signs of relief spreading across global financial markets this morning. The USD is broadly softer and among the gainers is the yen that for at least one day has halted its slide since early March. Sovereign bonds are richer across N.A. and Europe as 10-year yields drop by 5–7bps in the US, UK and across the Eurozone. Front-end yields are also generally richer, but mostly in the US and UK. Stocks are mixed with N.A. futures little changed but European cash markets up by between 0.4% (London) and over 1% elsewhere. Some of that is a European catch-up to the accelerated gains in the US after Europe shut yesterday afternoon.
The day’s main market event—at least in Europe—may be the French leaders’ debate at 3pmET ahead of Sunday’s final run-off between President Macron and Marine Le Pen. The main issue of global consequence concerns European unity versus the divisions and softened stance toward Putin that Le Pen would sow if she wins. Rather suspect Macron will go after her on Putin ties including her party’s financing…
There were few notable developments overnight after yesterday’s dull session that only offered up IMF updates to its six-month old forecasts that were last done in October. Not surprisingly, when you only bother to forecast once every six months—by committee at that—you’re going to have pretty big revisions!
China left its 1-year and 5-year Loan Prime Rates unchanged at 3.7% and 4.6% as expected. A cut had been expected before the PBOC unexpectedly left its 1-year Medium-Term Lending Facility Rate unchanged last week. When it didn’t, consensus became stale and cuts to the LPRs were largely out of the question.
The BoJ pledged to buy an unlimited amount of JGBs to enforce its 0.25% ceiling for the 0% 10 year yield target, but the intensified yield curve control efforts failed to influence the 10 year yield that held right below 0.25%. The signal is also that the BoJ isn’t terribly fussed by yen weakness to date.
Watch for any headline risks as G20 FinMins and CB heads arrive in Washington ahead of the meetings on Thursday and Friday. If Russia attends—as seems likely with Putin’s oil-cycling henchman FinMin Siluanov confirming his participation—then the US has said they will boycott the meeting which means western Europeans will argue with Russia and amongst themselves while China, India and Brazil stare at the floor or sleep. The war, covid, the yen’s plummet etc make for a variety of potential tape bombs.
The economist’s positive spin on Netflix’s earnings disappointment is that perhaps everyone is finding something else to do these days! Enter the great post-pandemic rotation toward rediscovering at least some aspects of life pre-2020. Fortunately, Netflix has only about a 0.4% weight in the S&P500 index and so on its own it should be flicked away like a pesky mosquito. Netflix is among many digital services that are raising prices to try and keep revenues afloat as volumes soften. The effects of price hikes on volumes will be important into Q2 as well. The various hiking services include Netflix, Amazon, Disney+, Sirius, Peloton, Crave etc as shown in the chart within the global week ahead.
Canada updates CPI which will matter to BoC watchers (8:30amET). My estimate is a bit higher than consensus for this one as I expect 1.2% m/m (consensus 0.9%) and 6.4% y/y (consensus 6.1%). Food and gasoline should see significant hikes in case there’s anyone out there who doesn’t eat or drive. The rotation toward Spring lines and folks returning to offices may have also driven clothing prices higher unless one’s general sensibilities resulted in tossing clothing at the same time as masks! A reopening effect is expected for some higher contact services and housing is expected to be a significant contributor again, although the main housing input only arrives in a separate release at the same time as CPI. See the Global Week Ahead here for further elaborations.
Endless Fed-speak will continue but relief is in sight with the blackout period commencing this Saturday ahead of the May 3rd – 4th FOMC meeting. Daly (10:30amET), Evans (11:30amET) and Bostic (1pmET) will speak ahead of the Fed’s Beige Book (2pmET) that has become of little consequence in the age of constant Fed-speak. Tesla reports in today’s after-market and his Twitter distractions may be further embellished. The only US release will be existing home sales that are likely to slip following softness in pending home sales (10amET).
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