Trading with point and figure

eurusd
data from 10th April

10xbrz8.gif
 
- Digesting solid German Q1 GDP, awaiting US CPI, Retail Sales and Michigan
Sentiment; G7 meeting, Fed, ECB and Riksbank speakers and weekend
NRW state election also on tap; China credit squeeze also on radar

- Germany NRW election: CDU potentially headed for surprise win, perhaps
also signalling potential for CDU/FDP govt after Federal elections?

- US CPI: PPI and Import prices imply upside risks, though energy unlikely
to have same impact on CPI; March talk of more protracted inflation dip
rather premature

- US Retail Sales: Autos and Gasoline not expected to reprise drag seen in
February & March, core measure seen posting another solid gain

- Charts: China 5/10 yr spread, WTI, Iron Ore, Copper, Nickel, Fed rate
probabilities

..........................................................................

********************
** EVENTS PREVIEW **
********************

Major G7 statistics dominate the day's schedule in the shape of the just published German Q1 GDP, while the afternoon has US CPI and Retail Sales, along with Indian CPI and Industrial Production. In event terms, there are Fed, ECB and Riksbank speakers, and the weekend sees Germany's most populous state North Rhine Westphalia hold elections, with polls hinting at a possible upset, with the CDU recovering from a major drubbing in 2012 (SPD 39%, CDU 26%) and potentially winning the state from the SPD (latest poll neck and neck on 32%, FDP on 13%) which would have Merkel seemingly set fair for September's Federal elections, and perhaps even usher in a CDU/FDP govt. The latest Federal poll has the CDU/CSU on 37%, SPD on 27%, FDP & Greens on 8%, AfD on 10%, and Die Linke on 7%. Otherwise the focus is on China, with the China govt bond yield curve briefly inverting today in the 5/10 yr sector, despite a net CNY 50 Bln injection of funds by the PBoC via its medium-term lending facility, which underlines that the PBOC's intention is to put a squeeze on leveraged positions and the shadow banking sector, it does not want to aggressively tighten policy. As for German Q1 GDP, the as expected 0.6% q/q 1.7% y/y was most impressive for the fact that it was broad based, with the Federal Statistics saying it was led by equipment and construction investment, strong personal and government consumption, with a healthy contribution from exports, without providing any statistical details, which will be published on 23 May in the final version.

** U.S.A. - April CPI / Retail Sales **
- It is debatable which one of today's key monthly indicators will weigh more heavily in terms of market sensitivity, given that both Import Prices and PPI turned out much higher than expected, but then again the Fed has also emphasized that it sees the weak Q1 Personal Consumption data as transitory, which will make markets very sensitive to any miss relative to forecasts on Retail Sales. Much was made of the CPI dip and even more of the PCE deflator drops in March, with much chatter about a renewed dip in inflation likely being prompt for the Fed to take a dovish turn, the more so given the setback in energy prices. The pick-up in PPI was broad based with the core ex-Food, Energy & Trade measure posting a 0.8% m/m rise, and thus more than reversing the March drop, which as elsewhere looks to have been in part due to Easter timing effects, as well as sharp drop in energy prices. It also clearly points to upside risks for today's CPI, where both headline and core are projected to rise 0.2% m/m, which would see headline dip to 2.3% from 2.4% y/y, and core unchanged at 2.0%, i.e. above and at the Fed's target. Retail Sales are forecast to rebound 0.6% m/m after a lower than expected -0.2% m/m in March & February, with Auto Sales providing a boost, the core 'control group measure' is forecast to rise 0.4% m/m following on from March's 0.6%, per se offering some support for the idea that the Q1 dip in Personal Consumption was 'transitory' even if the question of whether a substantive rebound can be achieved without a pick-up in Auto Sales remains a concern. Eminently in Fed policy terms, a June hike remains fully discounted, thus the question in terms of market reaction is how much an overall stronger than expected outturn might steepen the rate trajectory, and vice versa. In contrast to the soaring Conference Board's Consumer Confidence measure, Michigan Sentiment has been in a tight range since December, and today's provisional reading for May is seen little changed at 97.0.


from Marc Ostwald
 
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