A Day Ahead View in US and Global Markets by Mike Dolan
With anxiety over the Middle East still brewing in the background, the intense North American retail reading for March has underscored the sheer strength of the economic expansion in that country and is weighing down the dollar around the world.
Against Tuesday’s news of a shaky march for China’s economy and a surprising rise in British unemployment during the month, the exceptional US performance stands out once again and has catapulted the dollar to new highs for the year.
China’s annual GDP growth of 5.3% in the first quarter exceeded expectations, but manufacturing and retail growth in March missed forecasts, new home prices fell at the fastest pace in eight years, and real estate investment fell by almost 17% year-on-year.
And although Wall St’s stock indexes were hurt again on Monday by a combination of the interest rate implications of such rapid growth, heightened geopolitical tensions and a tepid outlook for the earnings season, the dollar is gaining. strength.
Helped by lowered rate cut expectations from the Federal Reserve, while pressure mounts on other central banks to ease them first, the main dollar index hit a five-month high on Tuesday and has now gained 4% in just six months. weeks.
The euro, China’s offshore yuan and the British pound hit their weakest levels against the dollar since November, while the Japanese yen slid to a new 34-year low of 154.60 to the dollar. Currency volatility gauges hit their highest level in more than two months.
Monday’s news of a surprising increase in US retail sales in March caused economists to revise upward their US economic growth estimates for the first quarter to just under 3% annualized. Morgan Stanley raised its first-quarter gross domestic product growth estimate to 2.7% from 2.4% and against a standing consensus forecast of 2.1%. The Atlanta Fed’s real-time ‘GDPNow’ estimate is at 2.8%.
The numbers reinforced the “no landing” economic scenario touted by many investors and once again caught the attention of those responsible for the Fed and interest rate markets, once again disturbing.
“The worst thing to do is act urgently when urgency is not necessary,” said San Francisco Fed chief Mary Daly, one of 19 U.S. central bankers who set monetary policy.
Fed futures now don’t forecast a first rate cut this year until September.
With the International Monetary Fund’s spring meeting underway in Washington this week, Fed Chairman Jerome Powell is expected to speak on Tuesday – as are European Central Bank chief Christine Lagarde and the governor of the Bank of England , Andrew Bailey.
The IMF will also release its updated World Economic Outlook later on Tuesday and markets will be watching its forecasts for US growth for this year and next.
Meanwhile, US industrial production and housing construction in March are the next big numbers in the data diary.
The result is a restless US Treasury market, where 10-year Treasury yields hit 4.66% on Monday for the first time since November and maintained those gains today. Treasury volatility indicators reached the highest level since January 5th.
With the start of the US corporate earnings season in the first quarter, stock market volatility is also increasing again. The VIX “fear index” also reached its highest level of the year on Tuesday, at 19.56 – coincidentally the average of the last 35 years since the index’s inception.
While Goldman Sachs’ beat on Monday lifted its shares and contrasted with a choppy start to the season for big banks, the aggregate annual profit growth estimate for S&P500 companies fell to 2.7% in the first quarter, from up to 5% at the beginning of the year. the month and more than 7% at the beginning of the year.
Bank of America and Morgan Stanley are among the big names reporting this Tuesday.
The combination of worries about rates, profits and geopolitics caused the S&P500 to lose more than 1% again on Monday to its lowest level in nearly two months, although futures were more stable before today’s bell. . The Russell 2000 of small-cap stocks is down 1.4% and is now negative year-to-date.
Stocks in Asia and Europe also fell more than 1% on Tuesday.
With tensions in the Middle East at a boil, US crude oil prices have held steady at around $85 per barrel. Gold prices fell further from Friday’s all-time high.
Top daily items that could guide US markets later this Tuesday:
* US Corporate Profits: Bank of America, Morgan Stanley, Bank of New York Mellon, Northern Trust, PNC, Omnicom, Johnson & Johnson, UnitedHealth, United Airlines, JB Hunt
* German Chancellor Olaf Scholz meets with Chinese President Xi Jinping and Premier Li Qiang in Beijing
* March US industrial production, housing starts/permits. March Consumer Price Inflation in Canada
* International Monetary Fund releases World Economic Outlook
* Federal Reserve Chairman Jerome Powell, Fed Vice Chairman Philip Jefferson, New York Fed President John Williams and Richmond Fed Chief Thomas Barkin speak; European Central Bank President Christine Lagarde, ECB lawmaker and head of the Bundesbank Joachim Nagel, ECB lawmaker and head of the Bank of Finland Olli Rehn all speak; Bank of England Governor Andrew Bailey and the BoE’s next deputy governor for monetary policy, Clare Lombardelli, speak.
* US Treasury sells 12-month bonds
(Reporting by Mike Dolan, Editing by Ros Russell; mike.dolan@thomsonreuters.com)
