Eurozone services activity picked up in April

Eurozone PMI data came in higher than the preliminary readings for April. The services PMI rose to 53.3 last month from 52.9 in March and was the highest reading since May 2023. France saw the biggest improvement in services activity last month, while the services PMIs for Italy and Germany were both fractionally lower than in March, albeit still in expansion territory. The composite Eurozone PMI rose to 51.7 from 51.4 in March.

Richmond Fed president Barkin said yesterday that the strong US labour market gave policy makers time to gain confidence that inflation was moving back to target before they start to ease monetary policy. While Barkin expects inflation to continue to cool, he indicated that the risks to inflation were still on the upside, particularly from housing and services. New York Fed president Williams said separately that the Fed would cut rates “eventually” and that the timing depended on the “totality of the data”. In his view, supply and demand are becoming more balanced which should bring inflation sustainably lower over time.

The US senior loan officer survey showed that more banks tightened lending standards to businesses in Q1 2024, compared to Q4 2023. Lending standards have been gradually tightening since the Fed started raising rates in Q2 2022.

Today’s Economic Data and Events

8:30 Reserve Bank of Australia rate decision, forecast 4.35% (no change)

10:00 Germany factory orders (Mar) forecast 0.4% m/m

Fixed Income

• The 2y treasury yield rose slightly at the start of the week, up 1.4bp to 4.83% while the 10y yield declined -2bp to 4.487% on Monday. The 30y yield fell to 4.63% yesterday, the lowest level in several weeks, after news of a potential ceasefire in the middle east overnight, but ticked up this morning in Asian trade.
• Benchmark 10y yields declined across most major markets yesterday. 10y bund yields fell -2.7bp to 2.47% while France’s 10y yield declined -2.3bp to 2.95%.
• The RBA is expected to keep the cash rate on hold this morning at 4.35% with a hawkish bias as consumer prices remain sticky. Inflation came in higher than forecast in Q1 2024 and the job market remains tight.

FX

• The USD spot index closed a touch firmer on Monday as EUR, GBP and the commodity currencies gained against the greenback. The JPY declined 0.5% to 153.81 and is trading weaker this morning as of this writing despite comments from an official that the government doesn’t need to intervene if markets are orderly.

Equities

• US equity markets continued to rally on Monday with the Nasdaq100 and the S&P500 gaining over 1% respectively. The DJIA rose 0.5%.
• European markets also enjoyed a green day, with the Eurostoxx50 index up 0.7%, the CAC40 up 0.5% and the DAX up almost 1% on Monday. UK markets were closed for the May Day bank holiday.
• Local markets were mixed at the start of the week with the DFMGI up 0.3% while ADXGI and the Saudi Tadawul ASI were largely unchanged at close of trade on Monday.

Commodities

• Both Brent and WTI prices rose 0.5% on Monday to USD 83.33/b and USD 78.48/b respectively as a “risk on” tone returned to markets. Oil prices have risen further in Asian trading this morning after Bloomberg reported that Israel has rejected a ceasefire agreement in Gaza.