Scrutiny on US retail sales and other data

OVERNIGHT

Asian equity markets rallied on hopes that global interest rates are nearing their peaks. Singapore’s central bank overnight was the latest to leave policy unchanged. Recent US data suggest the Fed may still opt to raise interest rates at the next meeting in May, but markets continue to anticipate rate cuts in the second half of the year. Yesterday’s US producer price inflation data were weaker than expected, while the weekly initial jobless claims figures suggest that previous announcements of layoffs in some sectors of the US economy may be starting to show up in the data.

THE DAY AHEAD

There are no major UK or Eurozone releases today, except for final French and Spanish inflation readings for March. The focus will be on the US with the minutes of the March Fed policy meeting, released earlier this week, revealing that officials now predict a ‘mild recession’ later this year following recent regional banking stresses. Today’s US retail sales and industrial production for March will be closely watched. The University of Michigan’s consumer sentiment survey for April will also be released.

US retail sales are expected to have declined in March for the second month in a row but that follows a very big rise in January. That gain means that retail sales are likely to have risen in Q1 but the fluctuations during the quarter make it difficult to gauge the underlying trend. However, it should be noted that consumer headwinds are still considerable in the US as they are elsewhere. Industrial production is forecast to be up 0.3% in March but continued weak trends in orders makes it difficult to argue that the factory sector has stabilised. For the University of Michigan consumer sentiment reading, we have pencilled in a small rise to 63.0 in April, slightly offsetting the fall in March partly related to concerns about the banking sector.

Elsewhere, there will be some focus on scheduled appearances from the BoE’s Tenreyro and the ECB’s Nagel. The Fed’s Waller will also discuss the economic outlook later today.

MARKETS

GBP/USD and EUR/USD continued to be supported by broad US dollar weakness, rising to above 1.25 and 1.10 respectively. Comments yesterday from BoE Chief Economist Pill that the UK may experience a ‘positive demand shock’ may have provided some support for sterling at the margin.