- Digesting overnight Japan wages, Australia and UK Retail Sales, German
Trade and Production, rest of data schedule very light, EIA short-term
energy outlook possibly the highlight, Fed speak likely to be 'hawkish';
auctions in Austria, Germany, Netherlands and US
- Japan Labor Cash Earnings: no redeeming features, solid proof that
monetary policy on its own effects little in the real economy without
fiscal and structural changes
- UK BRC Retail Sales: Easter timing effects and inflation significant
contributors to rebound, but also some relief that spending not falling
off a cliff
- Weather patterns increasingly adverse as early El Nino chatter mounts
- Reach for yield still the overarching element in era of financial
repression.... but gap risks accumulating
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** EVENTS PREVIEW **
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The day's schedule is a little thin on obvious market movers, with the data run limited to the overnight Jpaan Wages, UK BRC and Australian official Retail Sales, German Industrial Production and the US NFIB Small Business Optimism and JOLTS Job Openings. Given increasingly fevered chatter from OPEC and Non-OPEC sources & officials about extending the current production cut deal for "9 months or a year", the EIA's short-term energy outlook will perhaps garner more than usual attention particularly in respect of what it says about US domestic output and equally, global demand; this evening also sees the weekly API energy inventory statistics. Fed speak comes via the hawkishly leaning Kaplan and Rosengren, with Mester yesterday joining other speakers in arguing that the Fed needs to start the process of balance sheet reduction this year. On the govt bond auction front, Austria sells 10 & 30-yr, the Netherlands 5-yr and German holds a 'tiddler' auction of 30-yr CPI-linked Bunds. As such, markets may primarily be focussed more on their own internal positioning (im)balances and flow dynamics, the more so given an array of doubts about their short-term sustainability, and indeed concerns over low volumes and liquidity, notwithstanding the perennial cloud of this era of financial repression. The latter is well reflected in the four attached charts of two US High Yield Bond ETFs (IShares/Barclays SPDR), VIX and the JPM Emerging Bond Market spread, testifying to the ongoing and relentless reach for yield. Last but not least, it is worth noting that with some suggesting signs of an El Nino (heavily disputed by others), there are some rather nasty weather patterns emerging, with the UK seemingly headed for a drought after one of the driest winters on record, while Canada has seen torrential rain for much of early spre, of which the floods in Quebec are but the latest.
Of the overnight run of statistics, the sharp, Easter timing effect driven rebound to 5.6% y/y (vs March -1.0%) in the UK's BRC Like for Like Retail Sales measure offers some comfort that the slowdown in Q1 personal spending did not necessarily augur a period of protracted weakness. That said, this measure is not inflation adjusted, and the 14.7% y/y jump in spending on auto fuel reported in the accompanying Barclaycard retail spending measure underlines this. Rather more worrying was the sharp drop in he REC Employment survey, which noted a step drop in the pool of available labour, as EU nationals are said to be unwilling to take up positions in the UK, due to Brexit related uncertainties on their residential rights. The run of Asian data was not very encouraging, with no redeeming features in Japan's Labour Cash Earnings report, that saw all wages measures in negative territory, despite a 2.4% y/y rise in Employment, thus confirming that there is no sign of even a modicum of upward momentum in wages, despite the BoJ's policy measures, thus offering yet further evidence that unconventional monetary policy gets little traction in the real economy, without fiscal and structural reforms and incentives, outside of boosting asset prices. Australia's Retail Sales also managed to disappoint with a 0.1% m/m fall, and only managing to eke out a marginal Q1 inflation adjusted gain of 0.1% q/q. It is also worth noting that while the US Treasury review of how it might alter Dodd-Frank laws will be delayed, in part due to a shortage of staff, and will be published in stages, but the first element will be a key review of capital requirements.
from Marc ostwald
