Trading with point and figure

dax into the open

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from Marc Ostwald


- Digesting upbeat Fed Beige Book and soft Australia labour data, awaiting
UK Retail Sales, US weekly jobless claims and Philly Fed survey;
Merkel/Macron EU reform summit, raft of Fed speakers, IMF / World Bank
meetings; plenty of govt bond auctions and corporate earnings

- UK Retail Sales: relatively sharp fall expected, but likely to be
dismissed as weather effect, and worse than forecast outturn unlikely to
shift May BoE rate hike expectations

- Energy led break higher in CRB index having little impact on long-term
market inflation expectations

- Charts: US C&I loans; CRB Index, WTI future (long-term), LME Aluminium
Prices vs Stocks, LME Nickel, US 5 and 10 yr TIPS breakeven inflation

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

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

Outside of digesting an upbeat and robust Fed Beige Book (outside of trade tariff concerns), Australia's overnight labour data (soft, though quite possibly seasonal) ahead of UK Retail Sales, the day's statistical schedule is rather modest with Polish business activity data (Industrial production and Construction), and this afternoon's US weekly Jobless Claims and the Philly Fed Manufacturing survey the only other items of any note. A busier day in event terms as the IMF/World Bank Spring meetings gets into full gear, Merkel and Macron meet to discuss Eurozone & EU reforms, Fed's Mester (hawk) & Brainard speak and Quarles reprises his semi-annual testimony on banking supervision, while Bank Indonesia is seen holding its key policy rate. A busier day in terms of govt bond auctions, with multi-tranche sales in France & Spain, UK 10-yr and US 5-yr TIPS, while the highlights of the corporate earnings run are likely to be ABB, Novartis and Sky in Europe, while 'across the pond' Bank of New York Mellon, Mattel and Philip Morris will be in the spotlight. It will be also interesting to note whether the break higher on the CRB Commodity Price Index, lead above all by oil and energy prices, but also the sanctions related spike in some industrial metals prices (Nickel now joining in on the Aluminium 'party'), feeds through into market inflation expectations, as represented by breakeven inflation rates, the evidence from US 5 and 10 yr TIPS breakeven rates suggests this has been very limited ..... for the time being.


** U.K. - March Retail Sales **
- Today's Retail Sales follows on from what has to be termed a big 'miss' on CPI, which was dragged lower by the fact that there was no March budget cigarette/tobacco excise duty hike, prompting a sharp drop in the Food, Booze & Tobacco sub-index (yr/yr sliding to 3.5% y/y from 5.8%), while the bad weather pushed down clothing & footwear prices (2.5% y/y from Feb 3.9%), and a likely transient, but surprisingly large fall in Fuel Prices (-1.3% m/m 0.3% y/y from Feb 0.8% y/y). The latter looks to be factored into forecasts of a headline -0.6% m/m and ex-Petrol -0.4% m/m, but Clothing could get a boost from the price fall (given that the official data are volume not value measures), despite other anecdotal evidence (BRC, Barclaycard & Visa spending/sales measures) suggesting sales were subdued. However the absence of a significant shift in immediate BoE rate probabilities in response to CPI and indeed the modest miss in headline Earnings, today's sales numbers would have to be much worse than expected to impinge in any significant way on the well discounted May BOE rate hike. Such an outcome would more than likely be dismissed as weather and Easter timing related.

** U.S.A. - April Philly Fed Manufacturing / Initial Claims **
- As with Monday's NY Fed Manufacturing survey, the projected modest dip to 21.0 from March's 22.3, the direction is of less importance than the fact that the index remains at historically high levels. While the NY Fed survey saw a significant drop in its Orders and Outlook components, this may not be reprised in the Phllly region, which has a disproportionately high number of energy sector, which as the Beige Book noted saw 'a pickup in activity'. Initial Claims are seen little changed at 230K, modestly above the 216K 43-yr low posted at the end of March, but confirming that the labour market remains very tight.
 
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