Powell’s balanced commentary reassures investors ahead of the weekend
A week of volatility has seen many Asian stock markets rally towards the weekend, and cryptos calmer too following their recent panic, with investors seemingly comforted by Fed Chair Powell’s reiteration in an interview yesterday that the FOMC isn’t “actively considering” rate hikes in increments of 75bps. While he acknowledged that tightening will “include some pain”, cautioned that whether the Fed “can execute a soft landing or not…may depend on factors that we don’t control”, and made clear that the Committee had “a job to do on demand”, Powell balanced that with the assurance that “If things come in better than we expect, then we’re prepared to do less”.

Asian stock markets firmer towards the weekend despite pickup in Beijing Covid cases
So, with US stock markets having reversed most of their earlier losses towards yesterday’s close (the S&P500 ended the down just 0.1%), in the absence of significant economic news from the region today, most major indices have bounced. With the yen almost ½% weaker, the TOPIX closed up 1.9% to narrow the loss over the week to 2.7%]. The Hang Seng is up more than 2% on the back of a rally in tech. And while Beijing reported a slight pickup in new cases of Covid-19, but the municipal authorities downplayed speculation of imminent lockdown, China’s CSI300 closed up almost 1.0% on the day to be up 2.0% on the week – a rare weekly gain worldwide.

USTs and euro govvies reverse much of yesterday’s gains on firmer risk appetite
With the return of risk appetite, major govvies are reversing much of yesterday’s gains. UST yields are some 3-4bps higher across the curve (10Y yields at 2.88%). Bunds are roughly 2-5bps higher across the curve (10Y yields just shy of 0.89%). And Gilt yields up are some 5-6bps this morning, albeit with 10Y yields only back to 0.72%, still 10bps down from before yesterday morning’s release of weak UK GDP data and about 35bps down from Monday’s peak. In the Asia-Pacific, however, ACGBs initially opened significantly higher in the wake of yesterday’s moves in USTs, pushing yields to their lowest in a week, with 3Y yields ending the day down almost 8bps close to 2.81%.

Euro area IP data to confirm weak March but positive growth over Q1 as a whole
This morning will bring euro area industrial production figures for March. With supply-chain disruption persisting, and also a shortage of wind-generated energy production, the data from Germany, Spain and France disappointed, with Italian IP merely moving sideways that month. But a boost came from solid growth in Ireland and Greece. Overall, the national data would imply a decline in aggregate euro area industrial production of around 0.7%M/M. But given the growth in February and the profile of activity in Q4, that would still leave it up almost 1½%Q/Q in Q1. However, when excluding Ireland – whose data at the turn of the year were extremely volatile seemingly in part due to technical issues with seasonal adjustments – the quarterly increase in euro IP in Q1 would be only about 0.2%Q/Q.

Broad-based rise in French core CPI to 3-decade high; Spanish CPI revised down
There were no surprises from this morning’s final French CPI figures for April. French inflation on the EU-harmonised HICP rate aligned with the flash estimate, increasing 0.3ppt to 5.4%Y/Y. On the national measure, headline inflation also rose 0.3ppt to 4.8%Y/Y, the highest since the mid-1980s, on the back of higher services (up 0.7ppt to 3.0%Y/Y), food (up 0.9ppt to 3.8%Y/Y) and non-energy industrial goods inflation (up 0.5ppt to 2.6%Y/Y). Despite the government’s “price shield” caps on household bills and auto fuel discounts, energy inflation remained extremely elevated, albeit moderating slightly (down 2.7ppts to 26.5%Y/Y). So, reflecting the increasingly broad-based nature of inflation, the core CPI measure jumped 0.7ppt to 3.2%Y/Y, the highest since 1992.

Spanish HICP inflation in April was also unrevised from the preliminary estimate, which bucked the trend in the region with a drop of 1.5ppts to 8.3%Y/Y. Headline inflation on the national CPI measure was revised a touch lower, however, also to 8.3%Y/Y, on the back of a steeper drop in electricity prices (-26.9%M/M) reflecting the rapid pass-through of declines in wholesale markets and government interventions. But with underlying price pressures in similarly seemingly more broad based, Spanish core CPI inflation was confirmed to have risen 1ppt to 4.4%Y/Y, the highest since December 1995.

US focus today on consumer confidence and import prices
In the US, the preliminary University of Michigan consumer sentiment survey for May is due. Elevated prices of fuel and food, as well as the recent retreat in equities, suggest that the survey’s headline confidence index will have remained very subdued in early May. Indeed, having risen by more than 5pts in April, a drop of almost 2pts is expected today to mark the ninth month out of the past ten below the initial pandemic trough recorded in April 2020 and thus at the lowest levels in more than a decade. Attention will also be on the survey measures of inflation expectations, with the one-year ahead figure expected to tick higher to 5.5%Y/Y, but the 5-10-year measure likely still better anchored close to April’s 3.0%Y/Y. Following yesterday’s drop in April producer price inflation, US import and export price data should also report a decline, with the former benefiting from the stronger dollar as well as lower petroleum prices.