Capital good spending the US rises

• US core capital goods orders (non-defense capital goods excluding aircrafts), a closely watched proxy for business spending plans, increased 0.9% m/m last month, after falling 0.8% m/m in February, as bitterly cold temperatures gripped large parts of the US that month. Compared to a year ago core capital goods orders surged 10.4% y/y for March. Machinery, fabricated metal products, as well as computers and electronic products boosted core capital goods orders. But orders for electrical equipment, appliances and components contracted 1.5% m/m. Shipments of core capital goods were up 1.3% m/m, against February's 1.1% m/m drop. Orders for durable goods, a wider measure of items ranging from toasters to planes, rose 0.5% m/m in March after falling 0.9% m/m February. Orders for civilian aircraft tumbled 46.9% m/m, while orders for motor vehicles and parts went up 5.5% m/m in March after plunging 9.1% m/m in February. Unfilled durable goods orders rose in March for the third straight month. The data cements expectations that economic growth accelerated in the first quarter on the back of government aid and rebounding demand.

• The German Ifo institute said its business climate index was up to 96.8 in April from 96.6 in March, showing business morale improved only slightly as a third wave of Covid-19 infections and a semiconductor shortages in the automotive sector slowed a recovery in Europe's largest economy. Companies in Germany raised their assessment of the current business situation again, but they were less optimistic about the coming six months, the Ifo survey showed. The business climate in manufacturing improved further to reach its highest level in nearly three years, with industrial companies reporting full order books and busy factories. The business outlook however was less optimistic as 45% of companies reported bottlenecks in intermediate products, the highest reading since 1991.

• The European Central Bank board member Fabio Panetta said the central bank should not scale back its aggressive stimulus measures until the eurozone economy achieves its growth potential and inflation is back at 2%. The ECB, is set to decide in June the roadmap of its emergency bond purchases, with Panetta saying the ECB could and should keep credit cheap for a long time, even if borrowing costs around the world rise as a result of a rebounding US economy. The ECB officially targets an inflation rate "below but close to 2%" but market sources are saying it could narrow down that definition to 2% as part of an ongoing strategic review.

• India's RBI said in its monthly economic bulletin that economic activity has held up well against the recent spike in Covid-19 cases but the rise in infections risks additional restrictions and inflationary pressures. India's coronavirus infections hit a record peak for a fifth day on Monday of 353,991 new cases, with localized lockdowns in some states to contain the spread of the virus but stricter measures could disrupt supply chains and add to inflationary pressures. The central bank said policy makers know from experience that it is risky to withdraw stimulus too soon and that inflation is less sensitive to demand pressures than once feared, thus most central banks would lean towards growth in pandemic times.

Today’s Economic Data and Events

7:00 JP  BoJ Monetary Policy Statement                                  

7:00 JP  BoJ Outlook Report (YoY)                               

Tentative JP BoJ Press Conference                             

18:00 US CB Consumer Confidence (Apr) Forecast 112.1

Source: Bloomberg

Fixed income

• Action in the US Treasury market was dictated by auctions of 2yr and 5yr bonds overnight while the general anticipation of the FOMC later this week hangs on the market. Yields on the front end of the curve were slightly higher thanks to a lower bid-to-cover ratio on the 2yr auction; yields rose by 1bps to 0.1677%. On the 10yr, yields pulled back from a move up to as high as 1.60% and closed at 1.5667%, a gain of slightly less than 1bp.
• Yields were generally higher across major bond markets although the moves were contained to around 1bps of gains. The Bank of Japan meets today with no change in policy or yield targets expected.
• Emerging market bonds were generally quiet with yields up by 4bps in Turkish government 10yrs at 17.84% and a drop of around 3bps in South African 10yrs to 9.146%. India’s bonds have been treading water at around 6.03%.
• Abu Dhabi Ports has mandated banks for a USD 10yr bond issue at benchmark size.

FX

• FX markets were mixed overnight without a strong conviction to any of the pairs moves. The broad DXY index closed with a slightly lower bias but has recovered and gained in early trading today, up 0.14% at 90.938. EURUSD was marginally lower overnight, closing at 1.2086, a loss of less than 0.1%. USDJPY pushed back above the 108 level and is up 0.25% in early trade today ahead of the BoJ.
• GBPUSD rallied for a second day running, up 0.17% even as political criticism of prime minister Boris Johnson rises again.
• Commodity currencies were the outperformers though with strong gains across CAD (USDCAD down 0.63% to 1.2398), AUDUSD rising 0.79% to 0.78 and NZD up 0.5% at 0.7236.

Equities

• The S&P 500 hit a new record high yesterday as global equity markets enjoyed broad based positivity to start the week. It rose 0.2%, in contrast to the Dow Jones, which declined -0.2% yesterday. The NASDAQ was the biggest US gainer of the day, rising 0.9% despite falls in Tesla, and the tech-heavy index also closed at a record high, putting the March dip behind it.
• European equity markets also started the week on the front foot, as the composite STOXX 600 gained 0.3%. The UK’s FTSE 100 was one of the bigger gainers, closing up 0.4% on the back of bullish growth projections. The CAC gained 0.3% and the DAX 0.1%.
• Within the region, the DFM gained 0.7% yesterday and the Tadawul 0.9%. In Egypt however the EGX 30 lost -0.7%. In Turkey, the Borsa 100 gained 2.1% but remains down -2.4% w/w.

Commodities

• Oil prices fell to start the week and ahead of the OPEC+ ministerial meeting on Wednesday. Brent futures closed down 0.7% at 65.65/b, WTI was off by 0.4% at USD 61.91/b while Murban sank 1.7% to USD 62.89/b.
• The OPEC+ joint technical committee has projected oil demand growth of around 6m b/d this year, higher than its last estimate of 5.6m b/d. That comes even as demand risks are rising in key emerging markets. The ministerial monitoring committee, which can advise on production policy, will meet today with a likely indication of whether OPEC+ will return the full 2m b/d it had been planning between May and July.

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