Daily Market Update: Risk appetite returns ... for now
Risk appetite returned to financial markets yesterday following the release of better than expected Chinese export data.
Chinese exports recorded their first year-on-year rise since February last year with an 11.5% gain last month. Overall, the recent incoming data from China has been generally better than expected with yesterday’s trade data adding to the better tone evident within the various PMI surveys. Risk appetite has been supported by rising oil prices. Yesterday saw a barrel of Brent crude trade within a whisker of $45, which compares with $27pb just 12 weeks ago. However, this morning the benchmark crude oil measure is back at $43.5pb following news last night that US oil stockpiles are continuing to rise. US oil inventories are currently at their highest level since 1930.
Global equity markets have seen plenty of price action over the last 24 hours. The Euro Stoxx index posted a 3.3% gain yesterday with the Italian FTSE MIB up over 4%. Wall Street’s S&P 500 was 1% higher at the closing bell with the positive investor sentiment evident in Asian markets overnight too. A weakening of the yen boosted Asian equities with the Nikkei 225 heading for its best week since February and up over 3% overnight. This morning European equities have taken a breather from their latest rally in early trading. There has also been plenty of price action on the currency markets over the last 24 hours. The dollar has gained against both the single currency and sterling. EUR/USD has fallen by over a cent to $1.125 since yesterday’s open. Sterling has fallen from $1.425 to $1.413 over the same time period. Meanwhile EUR/GBP is slightly lower this morning and is currently changing hands at 0.796p.
Despite the latest return of risk appetite, the IMF last night fired another warning shot on the health of the global economy. The Washington-based body warned that public finances across the world are deteriorating and threaten to undermine the global recovery. Once again the IMF called for advanced economies to embark upon fiscal policies that are supportive of growth. For the UK this included calling for an increase in capital spending.
While the incoming news from China has generally exceeded analysts’ expectations downside surprises were evident in the US yesterday. Retail sales figures unexpectedly fell in March with households cutting back on the purchase of cars and household goods. The Commerce Department said retail sales declined 0.3% last month, confounding economists' expectations for a 0.1% gain. They were unchanged in February. Given that consumer spending accounts for over two-thirds of US GDP, this does not bode well for Q1 GDP growth. Producer prices also fell unexpectedly last month. Both of these indicators suggest the Fed will tread carefully with its interest rate hiking expectations. The Fed’s policy-setting committee, the FOMC, will next meet on 26/27 April. The Fed’s Beige Book showed that the U.S. economy continued to expand from late-February to early April, boosting employment and delivering some upward pressure on wages and prices.
There are few economic releases in the Eurozone of interest today. The annual CPI inflation figure for March is expected to be confirmed at -0.1%. At midday we have the Bank of England’s policy announcement with no change in the current settings anticipated. Of more interest will be the release of the latest MPC minutes which will provide us with the committee’s latest thinking particularly around the risks associated with a Brexit. Inflation is also in focus in the US today. Financial markets are expecting to see the annual rate of CPI inflation edge up to 1.1% in March. Meanwhile the core-CPI measure, which strips out food and energy, is expected to remain unchanged at 2.3% y/y. Dennis Lockhart, president of the Federal Reserve Bank of Atlanta is also scheduled to speak this afternoon and he will field questions from the audience.