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The Early

18 Apr 2019 06:45

Markets: north at Easter

European equity investors should enjoy their long weekend now that local index benchmarks have recovered all the losses endured through Q4 2018. Yesterday's session ended with modest gains after the Stoxx 600 hit its highest point intraday since last August. The Euro Stoxx index was led by consumer goods +0.7%, financials +0.6% and oil & gas +0.6%. This morning's flash Eurozone PMI readings will provide some evidence as to whether the recent less pessimistic consensus on the macro backdrop is justified.

In the UK, the FTSE 100 ended flat with gains for life insurance +1.3% and media +1.1%, supported by oil & gas +0.6% and banks +0.5%; pharmaceuticals -1.3% and mining -1.1% were the main drags at the top end of the market. The Mid 250 gave back some of its recent outperformance; technology +1.3% stood out as nine of our 12 PHySiCS sectors ended lower. The puzzling revival of the mid/small cap growth style factor, in an environment that seems more favourable to value, continues; the long/short performance is now close to +600bp over the past month.

Overnight. Further progress for the US indices was hampered by the continued struggles of the health care group, which lost another -2.9% and is now down -6.6% in a week, as regulatory concerns have intensified. Volumes picked up from recent subdued levels and consumer goods +0.7%, financials +0.6% and oil & gas +0.6% all pushed higher. The Asian regional benchmarks touched a nine-month high but retreated modestly later in the session. Global bond yields continue to back up, with Germany's bund at a one-month high above 0.1%. Oil prices eased slightly. Europe is called moderately lower.

Early numbers. Dow -0.01%, S&P -0.23%, NASDAQ -0.05%, VIX 12.60; US 10-yr 2.57%; Nikkei -0.80%, Hang Seng -0.58%, Shanghai Comp -0.40%; £=$1.3047, £=€1.1543, Brent $71.60/bbl, Gold $1272.40; FTSE 100 indication -19 (at 6.50 UK).

Macro: under control

Headline UK inflation unexpectedly remained at +1.9% YoY in March after a monthly increase of +0.2% MoM; core CPI rate was stable at +1.8% YoY. The upward impact of fuel prices was offset by cheaper food, and especially the recreation & culture category, as the prices of video games rose less quickly than a year ago. An unexpected -0.2% MoM decline in input prices left the annual rate unchanged at +3.7% YoY. The firmer pound is helping to mitigate the impact of the rallying oil price and output price inflation was unchanged at +2.4% YoY, with the core reading at +2.2% YoY. The data are unlikely to have any impact on the Bank of England's monetary policy stance.

The final Eurozone CPI readings for March reinforced the message for the ECB that inflationary pressure remains subdued. The headline rate dipped to +1.4% YoY, with the core rate (ex-food and energy) at just +1.0% YoY and the narrower measure (which also excludes alcohol & tobacco) running at just +0.8% YoY. Energy was the only component recording an uptick last month.

The US trade deficit contracted to an eight-month low of -$49.4bn in February as imports from China contracted by a much greater than expected -20.2% MoM. Overall imports rose by a modest +0.2% MoM as growth in consumer goods offset a sharp decline in crude oil. Total exports expanded by +1.1% MoM with motor vehicles and civilian aircraft volumes improving.

Today's events. Eurozone April flash PMIs (9.0) manufacturing 47.9, services 53.2, composite 51.8; UK Mar retail sales (9.30) -0.3% MoM, +4.6% YoY, core -0.3% MoM, +4.0% YoY; US Mar retail sales (1.30) +0.9% MoM, core +0.7% MoM; US Apr Philly Fed manufacturing (1.30) 10.4.

Ian Williams
Economics & Strategy
020 7418 8819

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