With the Pacific G10 Macro Rates Team
Global Macro Overview
Another quiet week passed in financial markets. Risk assets underperformed as government bonds strengthened across the globe, but volatility remained subdued. Financial markets re-priced the probability of an introduction to negative rates in currencies where short term rates have reached 0%. Heads of Central Banks have been resisting the idea so far, leaning towards more ‘conventional’ measures like forward guidance, QE and Yield Curve Control.
US: CPI report for April came in at just 0.3% YoY with the largest MoM drop in core CPI in history of -0.4%. Jobless claims recorded another week of 1m+ increase with just under 3m additional claims last week. The Retail Sales report delivered more negative news for the US economy by registering -16.4% MoM drop in April vs. -12% expectations. In addition, Industrial production in April registered the largest drop in a century of -11.2% (-12% exp., -4.5% prev.). The Empire Manufacturing survey for May was better than expected at -48.5 (-60 exp., -78.2 prev.). On the upside, preliminary results of the Michigan Consumer sentiment survey for May came in at 73.7 (68 exp., 71.8 prev.) and remained significantly above the levels reached during the GFC.
Canada: No important data releases.
Eurozone: GDP dropped 2.2%, in Netherlands GDP dropped -1.7%
Norway: Q1 GDP in mainland dropped -2.1%.
Bankruptcies increased 15% on a year in April up from 12% in March. Machine tool orders dropped -48% on a year.
Q1 GDP release was better than expected, registering -2% contraction with Personal Consumption and CapEx most notable outperformers: the former was only -1.7% lower (-2.8% exp.) while the later was 1% lower (-2.6% exp.).
Australia: Employment dropped by almost 600k in line with expectations for 575k decline. However, the unemployment rate only increased to 6.2% as participation rate decreased to 63.5% from 66%. Consumer confidence did recover in May and now is significantly above the levels reached in the previous recession.
New Zealand: The RBNZ meeting was the highlight of the week. The announcement of the increased QE surprised the market; however the impact was reversed the day after with an increase in projected issuance. Card Spending dropped 48% MoM in April.
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