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UK GDP beats. Sterling gains

Investors stayed away from stock markets in Asia despite more dovishness from Fed member Evans’ speech. The plunge in oil and commodities has discouraged the bulls overnight and investors continue to reduce their US bonds holdings in favour of risk assets. US stocks advanced to fresh 2016 highs in the run up to the March NFP figures on Friday.

Still, even a strong read may not be sufficient to revive the Fed hawks as the expectation for the next Fed hike have been pushed back to November. The US dollar is expected to remain in the driving seat till the end of the week at the very least. With much of the short covering completed, time will now tell whether investors believe there is room for more upside. As we approach earnings season, the forecasts are rather poor. S&P 500 earnings are forecast to decline around 7% from the same quarter last year. This would be the third-straight quarter of year-over-year profit deterioration.

We have a fairly busy macro calendar today with plenty of data both in Europe and US slated for release.

In Europe, inflation data is in focus. German inflation turned positive in March yet the Euro area consumer prices are expected to have contracted by 0.1%y/y – thus Europe is sitting at the edge of a deflationary spiral. Any improvement in the ‘core’ number could help underpin the single currency, however which now trades at the top of its recent range against the dollar. A break above 1.1370 would put us on a trajectory towards the 1.1480/1.15.

Closer to home, the UK consumer confidence index remained at zero this month – it would seem the concerns about Brexit and what it may entail are beginning to manifest themselves.
GDP growth was a pleasant surprise, with the UK economy growing 0.6% in Q4 ahead of the 0.5% growth expected. The pound is now trading at the day’s highs against the dollar and may well make a push towards and through $1.44. Against the single currency, the 79p level remains a barrier but should Eurozone CPI core inflation beat expectations it may well be the catalyst for a break higher here.

A reversal from yesterday’s flow today with UK miners on the back foot again and dragging the FTSE back from the heavily resistant 6200 zone. Month end flows are no doubt aiding and abetting the choppiness this morning. The basic resource sector continues to trade haphazardly and swings from gains to losses from one day to the next as uncertainty regarding global growth and legacy debt levels for the individual companies take their toll on investor sentiment. Comments from BHP Billiton overnight in respect of weak iron ore and copper prices over the coming year are also weighing.

Anglo American – one of the big gainers yesterday is lower by around 4% this morning.
All basic materials companies have shed an average of 3% with precious metals producer Randgold bucking the trend rising 0.24%. The weaker dollar has helped support gold prices. The metal has seen its best quarter since 1986, rising 15.6% in the first three months of this year.

77 stocks reside in the red in early trade while gains in the travel and leisure sector are the only bright spot with some profit taking setting in today.
TUI +4.28% has reported higher bookings for summer holidays this year, particularly from UK customers. Tui Group said it had sold 47% of its summer holidays for this year, broadly in line with expectations. Overall, bookings were up 2% and revenues were 3% higher.

Carnival (+0.3%) Carnival Corp. said its earnings nearly tripled in the latest quarter as the cruise-ship operator continued to benefit from a slide in fuel costs. For the fiscal year ending in November, the company narrowed its adjusted earnings estimate to $3.20 to $3.40 a share, from its previous estimate of $3.10 to $3.40. The company expects to benefit from higher booking volumes and higher prices. The company backed its and net revenue yield growth of roughly 3%.

Canadian GDP will also be in focus. The Canadian dollar has rallied this week with demand for commodity currencies boosted – in the main on the back of Janet Yellen’s dovishness, but due to the higher oil prices. At present, it would seem that this recent rally in oil is losing ground with WTI and Brent lower by an average of 1% this morning so any GDP beat may just be a flash in the pan.  

FOMC member William Dudley is set to speak later tonight - "The Role of the Federal Reserve - Lessons from the Financial Crisis" at the Virginia Association of Economists Annual Meeting, in Lexington. We may well expect some moves in the US dollar crosses as a result.