- Global macro data continue to disappoint - Korean GDP being today's exception.
- U.S. markets closed fla,t but with defensives down - Asian markets are higher.
- Enrico Letta appears set to become Italy's new prime minister.
- Focus today is on earnings reports and U..K GDP.
Data continued to disappoint
yesterday and point to a slowdown, or soft patch, in global growth. Following a drop in German IFO expectations (101.6 versus consensus 103.0) and a weak US durable goods order report (excl. aircraft and defence only rose 0.2% in March and February was revised down to -4.8%), global economic surprise indices are now at lowest levels since August last year.
Equity markets continue to react only modestly to incoming macro data, however, and the U.S. closed broadly flat while most Asian bourses are showing decent gains, following slightly better-than-expected South Korean GDP numbers. The earnings season continues with a range of important releases today.
While U.S. markets were flat on the day, there were interesting sector differences as defensives struggled yesterday. Remember, the rally in stocks has shown an unusual outperformance in defensives versus cyclicals during 2013, which was, however, partly reversed yesterday. S&P500 telecommunications lost 3% in yesterday’s session and health care 1.8%.
In Italy, Enrico Letta appears set to become the new prime minister, after being asked by President Napolitano to form a broad coalition government. We could see an end to two months of political stalemate given that Mr. Letta can form a cabinet that can win cross-party support. So far only Grillo’s Five Star movement is expected to be in opposition.
European peripheral credit gave back some of the recent strong gains led by 10Y spread widening in Italy (+8bp), Portugal (+6bp), Ireland (+5bp) and Spain (+3bp). Still, EUR/USD managed to stay above 1.30 and is trading higher thus morning.
Whether or not the historical balance sheet expansion of the BoJwill push Japanese investors looking for a yield pick-up overseas, has been an important market theme recently – but so far evidence is weak. The weekly Ministry of Finance data published overnight showed that Japanese investors net sold JPY863bn of foreign bonds and notes in the week ending April 19. This indicates that they have been net sellers ever since the last BoJ meeting. The USD/JPY isn't reacting much to these data and continues to trade just below 100.
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