European inflation data in focus today

• The unemployment rate in the UK slipped in the three months to March to 4.8% from 4.9% previously, as employment rose by 84k.  April data suggest that the employment figures continued to improve as the economy reopened, with both vacancies and employment rising last month.
• Ahead of today’s April CPI release, Bank of England governor Andrew Bailey said inflation will rise in the next couple of months, but that any acceleration will likely be temporary.  Higher energy prices and the gradual reopening of the economy are expected to push inflation to 1.5% y/y in April from 0.7% y/y in March.
• Eurozone GDP contracted -0.6% q/q and -1.8% y/y in Q1 21, in line with consensus forecasts and unchanged from Q4 2020. GDP remains around -5.5% below its pre-pandemic level, but the acceleration in the rollout of Covid-19 vaccines in recent weeks suggests the economy is on track for a recovery in Q2 21.  
• US housing starts fell -9.5% m/m in April, well below consensus estimates for a -2.0% decline. Higher raw materials costs (especially lumber) as well as supply chain constraints may be partly responsible for the weak data last month. Backlogs increased and applications for new building permits increased 0.3% m/m.  
• Hotel occupancy in Dubai slipped to 59.4% in April from 60.5% in March according to data from STR Global.  However, revenue per available room (RevPAR) increased slightly m/m to USD 92.8.  Because of the low annual base – the UAE was in lockdown last April with borders effectively shut to visitors – both hotel occupancy and RevPAR were sharply higher y/y in April 2021, and the y/y growth figures will likely remain high through Q3 21.

Today’s Economic Data and Events

10:00 UK CPI (April) forecast 0.6% m/m and 1.5% y/y

13:00 EZ CPI (April) forecast 0.6% m/m and 1.6% y/y

22:00 US FOMC April meeting minutes

Fixed Income

• Treasury markets were generally quiet overnight with yields holding to a narrow range. Yields on 2yr USTs fell to just shy of 0.1491% while 10yr UST yields were off by 1bp to 1.6369%. Data flow has been reasonably quiet so far this week, not providing much of a catalyst for a move in USTs in either direction.
• Emerging market bonds closed mixed overnight. Turkish and South African bonds rallied with yields on their 10yr government bonds lower by around 4bps while Indian 10yr yields are holding to a level below 6%, if they did edge up slightly overnight.
• Fitch affirmed Oman’s sovereign rating at ‘BB-‘ with a negative outlook.  

FX

• FX markets witnessed another day of heavy dollar selling with the greenback declining across the board among major peers. The DXY index pushed through the resistance level of 90 and is now hovering around 89.8.
• EURUSD was the major gainer, rising by nearly 0.6% to 1.2222 with a test of the February high of 1.2243 the next potential target. Language from Fed policymakers remains highly accommodative, weighing on the USD and giving room for other currencies to rally even if the yield differentials still vastly favour US assets.
• GBP also managed to record a healthy gain, up 0.4% to 1.4189, benefitting from an improvement in the labour market with unemployment falling to 4.8% in the three months to March.   

Equities

• Equity markets were fairly mixed yesterday, but the mood was generally fairly positive save in the US and parts of Europe. Asian indices performed especially strongly, as the Nikkei rose 2.1% - although it is trading down once again this morning (-0.4% at the time of writing) and remains -5.7% down m/m as the authorities there contend with a renewed rise in coronavirus cases. In India, where there is an even greater pandemic crisis happening, both the NIFTY and the SENSEX gained 1.2% yesterday, and both indices are now up m/m (5.2% and 4.7% respectively). The Shanghai Composite gained 0.3% yesterday while South Korea’s KOSPI closed up 1.2%.
• In the US by contrast, all three major indices lost ground despite some positive earning results in the retail space. The NASDAQ, Dow Jones and S&P 500 lost -0.6%, -0.8% and -0.9% respectively.
• There was relatively little movement in Europe, with equity indices edging only slightly up or down compared to the previous day. The Composite STOXX 600 % and the UK’s FTSE 100 gained 0.2%, while Germany’s DAX lost -0.1% and France’s CAC -0.2%.
• Within the region the DFM gained 1.2%, the ADX 0.8% and the Tadawul 0.3%.

Commodities

• Oil prices rallied early in the session with Brent breaking above USD 70/b but then slipped over the course of the rest of the day. Brent settled lower by 1.1% to USD 68.71/b while WTI fell by 1.2% at USD 65.49/b and Murban settled down 0.74% at USD 67.50/b.
• The API reported a small build in US crude inventories of around 620k bbl which is weighing on near term sentiment. Official EIA data will be released later this evening.
• Adding to the downward pressure, negotiations between parties to the JCPOA are ongoing with the potential for a deal to be announced imminently. Were a deal to be reached we would expect Iran to be able to restore oil production considerably by the end of the year.

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