Good morning. Here’s what you need to know.
China slowing. Chinese GDP growth slowed to 7.4% year over year in the first quarter of 2014 from 7.7%, but bested consensus estimates for a slowdown to a 7.3% rate. Fixed asset investment growth unexpectedly slowed to 17.6% year over year in March from 17.9%. Industrial production also missed estimates, rising only 8.8% year over year in March. Retail sales, however, rose faster than expected, accelerating to a 12.2% year over year growth rate in March from 11.8%. “Q1 was weak; Q2 will likely be weaker,” say Lan Shen, Li Wei, and Stephen Green, economists at Standard Chartered. “Stimulus measures so far have been insufficient to stop the short-term slide.”
Euro zone prices. The euro zone consumer price index was up 0.5% from a year earlier in March, matching February’s pace of price increases. Excluding food and energy prices, however, the index was up only 0.7% year over year. Economists expected this “core” index to be up 0.8% from a year earlier, matching February’s pace as well.
U.K. employment. The quarter-on-quarter change in U.K. employment unexpectedly surged to 239,000 in February from 105,000 the month before. Economists expected a decrease to 90,000. The unemployment rate tumbled to 6.9% in March from 7.2% in February. “Pressure on the Bank of England to tighten monetary policy will undoubtedly grow on the back of these numbers, although I expect we will hear from the move dovish members of the MPC that it is a broad range of measures being taken into consideration, not just the unemployment rate,” says Neil Jones, head of European hedge fund sales at Mizuho. “Sterling understandably trading up to near its highs of the year and post-crisis.”
Yellen speaks again. Janet Yellen will give her first speech on monetary policy as chairwoman of the Federal Reserve today to the Economic Club of New York at 12:15 PM ET. “Additionally the Q&A could be more direct coming from economists and market participants than just reporters,” says Richard Cochinos, a currency strategist at Citi. “Her last speech, ‘What the Federal Reserve Is Doing to Promote a Stronger Job Market,’ sets the baseline of continued easy policy from the Fed. The risk (and likely direction in my view) is this is either discounted or completely ignored by the bond market. Given the U.S. economy has shown clear signs of improvement in both labour and activity from the last Fed meeting, the risks remain that the Q&A discussion focuses on the improvements in the U.S. economy and participants questions push Yellen more towards the center.”
Markets in rally mode. U.S. stock futures are rallying following yesterday’s sell-off, and Treasury note futures are lower as yields edge higher. The U.S. dollar is up against the Japanese yen, indicative of a more supportive backdrop for risk sentiment. European equity indices are in the green across the board, with Italy’s FTSE MIB leading the way higher, currently up 2%. The Japanese Nikkei 225 jumped 3% overnight, and the Hong Kong Hang Seng advanced 0.1%. “Clearly we’re looking for the pain trade amidst blah data and the occasional elbowing of external data, like the hint of weaker China GDP and the Ukrainian headlines,” says David Ader, head of government bond strategy at CRT Capital. “The lack of a pain trade lower has some evidence, like the JPMorgan survey yesterday, which showed a deep pullback in [U.S. Treasury] longs — although price action through yesterday and last week’s auctions argue against that. As for the shorts, deeper in JPM, we’re not really sure where they are. After last week’s [FOMC] minutes and high volume gains, logic suggests covering took place. All of this leaves the market with a more neutral position, relatively speaking.”
Earnings. Bank of America this morning reported adjusted earnings per share of $US0.35 in the quarter ended March 31, above the $US0.28 consensus estimate. Revenues for the quarter were $US22.8 billion, sightly above the $US22.1 billion consensus estimate. Shares are lower in pre-market trading. After the closing bell on Tuesday, Intel and Yahoo! both reported earnings of $US0.38 per share, above consensus estimates of $US0.37 for each. Both stocks are getting a lift in pre-market trading.
Mortgage apps.According to the Mortgage Bankers Association, mortgage applications rose 4.3% in the week ended April 11 after declining 1.6% the week before.
Housing starts. Monthly U.S. housing starts and building permits data are due out at 8:30 AM ET. Economists predict starts rose to 975,000 units at a seasonally adjusted annualized rate in March from 907,000 in February. Permits are expected to have remained unchanged at 1 million units annualized.
Industrial production. The Federal Reserve will release monthly U.S. industrial production data at 9:15 AM. Economists predict total output expanded 0.5% from the previous month in March after rising 0.6% in February. Manufacturing production is expected to have risen 0.6%, down from February’s 0.8% pace of growth.
Beige Book. At 2 PM, the Federal Reserve will release its latest Beige Book, a collection of anecdotes on economic conditions from business contacts in each of the 12 Fed districts. The word “weather” appeared 119 times in the last Beige Book, released in early March. Market participants will be interested to see what effect the warmer weather in the past month or so has had on business confidence.
Below is a submission to our quarterly “Most Important Charts In The World” presentation from Peter Hooper, chief economist at Deutsche Bank. If you haven’t seen the other 123 charts yet, click here to check them out »