Good morning. Here’s what you need to know.
Ukraine escalates. Over the weekend, armed pro-Russian separatist forces occupied some government buildings and police stations in eastern Ukrainian cities, prompting an emergency meeting of the U.N. Security Council on Sunday night and threats of an anti-terrorism response from Ukrainian authorities. The separatists were given a deadline of 9 a.m. local time to surrender which expired this morning without a resolution to the standoff. Russia’s MICEX stock index is trading about 1.4% below Friday’s closing levels, and the Russian ruble is sliding against the U.S. dollar as well. “It is very clear that Europe and the U.S. agree that Russia is fueling the current unrest, and in that sense at the very least a further wave of sanctions are very likely this week,” says Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ. “German Finance Minister Schaeuble stated that there were ‘many signs’ that Russia was fanning the trouble. This in our mind remains by far the most likely source for turning financial market sentiment firmly into risk-off mode. The markets have been incredibly ambivalent to a situation that could turn suddenly.”
Retail sales.The main focus today will be monthly U.S. retail sales data, due out at 8:30 AM ET. Economists predict total sales advanced 0.8% in March after rising only 0.3% in February. Excluding autos, sales are expected to have risen 0.5%. Excluding autos and gas, sales are expected to have risen 0.6%. “It looks like some of the improvement in the March auto sales data was related to the weather becoming more seasonal during the month after an extended period of unusually harsh winter weather, and we believe other categories of retail sales will benefit from the return to more normal weather in March,” say economists at JPMorgan. “Retail sales at gasoline stations will likely be a soft spot of the March report because a decline in gasoline prices during the month (seasonally adjusted) should weigh on the nominal sales data.”
Draghi warns the euro. The euro is trading near $US1.38, down 0.4% against the U.S. dollar to begin the week, following comments over the weekend from European Central Bank President Mario Draghi, who warned that a further rise in the euro could prompt additional monetary easing measures at IMF meetings in Washington, D.C. “The strengthening of the exchange rate requires further monetary stimulus,” he said. “That’s an important dimension for our price stability.” Still, additional measures aren’t imminent. “Whatever the ECB is going to do is at least a month and a half away,” says Marc Chandler, global head of currency strategy at Brown Brothers Harriman. “Although officials play down the significance of any one CPI report, the preliminary April reading, due out at the end of the month, is understood to be critical. The ECB is counting on the Easter effect being unwound in April, which will boost CPI from 0.5%, the lowest level in more than four years. This was thought to be necessary to give Draghi and others time to build a consensus for action in June, when the staff unveils new inflation forecasts (it has consistently erred in seeing more inflation that actually has materialised).”
Citi earnings. Citi reports earnings results for the quarter ended March 31 this morning before the opening bell. Analysts expect the bank to report earnings of $US1.14 per share on revenues of $US19.37 billion. “The banks kicked off their own earnings season with JPMorgan Chase and Wells Fargo reporting last Friday,” says Leigh Drogen, CEO and founder of Estimize, a platform that crowdsources earnings estimates. “Wells Fargo posted better earnings than expected but JPMorgan disappointed investors, missing targets on both EPS and revenue. A few weeks ago, Citigroup failed a Federal Reserve stress test and had its capital plan to increase dividends and buy back more shares of company stock rejected. Since failing the stress test ,the earnings expectations on the Estimize.com platform have plummeted.”
Markets are quiet. S&P 500 and U.S. Treasury note futures are little changed from Friday’s levels this morning. The U.S. dollar is up slightly against the Japanese yen. “Global monetary policy settings could hardly be friendlier for risk assets, and yet here we are, yet again, with a nervy feel to start the week,” says Kit Juckes, a global strategist at Société Générale. “With 10-year Treasury yields testing 2014 lows, and while expectations of further easing in Japan and Europe are intact, investors ‘should be’ looking for value in local-currency EM debt, in higher-yielding equities, or in higher-yielding currencies. But a combination of the Ukrainian crisis and a broad equity market correction led by tech stocks is souring the mood.”
Coming up this week. Market participants will have plenty to digest. In addition to today’s retail sales release, we get U.S. consumer price index and industrial production data on Tuesday and Wednesday, respectively. Federal Reserve chairman Janet Yellen speaks twice this week — on Tuesday and on Wednesday — and the Fed releases its regular “Beige Book” publication on Wednesday as well. China reports first-quarter GDP figures on Wednesday, and the final reading of March euro zone consumer price index data will be released on Thursday. And all week, first-quarter earnings reporting season will be hitting full swing in the U.S.
China buys copper mine. Commodity behemoth Glencore Xstrata is selling its Las Bambas Peruvian copper mine to a consortium led by MMG Ltd., a unit of state-controlled China Minmetals Corp, in an all-cash deal worth at least $US5.8 billion. The deal marks one of China’s biggest mining acquisitions in recent years.
Italian prices. Italy’s consumer price index rose 0.3% year over year in March, in line with estimates but down from February’s 0.4% pace. The number is one of many inflation readings that have decelerated or surprised to the downside recently in the euro zone, like those in France and Spain.
Euro zone industrial production. Euro zone industrial output growth unexpectedly stalled in March, falling short of the consensus forecast for a 0.2% expansion. Year over year, output was up 1.7%.
Business inventories. The U.S. Census Bureau releases monthly business inventories data at 10 AM ET. Economists predict inventories rose 0.5% in February after expanding by 0.4% in January. “It’s unclear whether the build in manufacturing stockpiles in February was desired,” say economists at UBS. “The acceleration may have partly reflected inclement weather, which could have disrupted goods from being sold.”