Geo-political tensions and global trade concerns take center stage
Trade wars, geo-political tensions and NAFTA negotiations continue to hang over financial markets. However, some de-escalation of tariff threats last week, a co-ordinated missile strike on Syria over the weekend that US President Donald Trump described as “Mission Accomplished”, hopes of progress in NAFTA talks and even speculation that the US is considering negotiations to re-enter the Trans-Pacific Partnership (that President Trump withdrew the US from last year) should provide a more positive tone. The US published key figures today. March’s retail sales ended three successive months of contraction that looks set to leave first quarter consumer spending increasing at a paltry pace. However, we consider this to reflect a combination of technical (tax rebates), weather and seasonality issues. With consumer confidence elevated, the labour market tight and tax cuts set to lift household incomes, we expect consumer activity to quicken over the coming quarters and March’s figures provide the first tentative evidence of this. Today’s other release, business inventories, compounded strong gains over the past three months. First quarter GDP looks set to reflect a sharp rise in inventory, even as final domestic demand flags – the reverse of the final quarter of 2017.
The UK also sees March’s retail sales this week. With February’s output figures seemingly adversely affected by weather, we have lowered our expectations for first quarter GDP to 0.3%. However, we see some downside risk from March’s retail activity. Although the British Retail Consortium reported a rise in like-for-like sales (to 1.4% yoy from 0.6%), this does not account for Easter effects and we envisage downside risks to the consensus -0.6% estimate for total sales volumes this week. A significant miss could tip our expectations for an even weaker first quarter, although we would consider such weather-induced weakness to be temporary. We also see some downside risk to March’s 2.7% CPI inflation consensus estimate for March, also published this week.
Eurozone positive sovereign ratings momentum continues. Last week, Moody’s upgraded Spain from Baa2 to Baa1 with a stable outlook. Moody’s rating remains one notch below those of S&P and Fitch (A-). Moody’s review of Portugal debt is due on 20 April. A re-rating of its debt to investment grade is likely – Ba1 with positive outlook – which would mean a catch up with the other rating agencies. As was the case for Spain, some re-rating is already priced in the bond market.
The Monetary Authority of Singapore (MAS) released its first semiannual monetary policy statement this year with a change of policy direction from a previously neutral stance to a slightly positive slope of the S$ nominal effective exchange rate policy band. This decision was in line with consensus, as recent data has been quite supportive for the economy in general, with 2017 fourth quarter GDP remaining firm along with a broadening of growth drivers towards domestic demand. Both headline and core CPI have been accelerating with obvious tightening in the labour market. However taking into account the uncertainty in macroeconomic outcomes presented by ongoing trade tensions, the MAS will likely take a cautious approach to any further tightening from here. We see another small appreciation of the band likely for the October Review.
US: Retail sales (Monday), industrial production (Tuesday)
UK: Unemployment (Tuesday), CPI (Wednesday), retail sales (Thursday)
Major corporate earnings releases: Goldman Sachs, Bank of America, Morgan Stanley, American Express, Netflix, IBM, Procter & Gamble and Honeywell, Canadian Pacific Railway, Novartis, Heineken and Taiwan Semiconductor Manufacturing Co.
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