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China data weaker

Stocks were a tad firmer in Europe on Friday amid a mixed picture in Asia after China’s manufacturing PMI was steady at 49.0 but non-manufacturing PMI falls to 53.2, the lowest for the year so far. The data underlines the slow pace of recovery post-pandemic, but fuels speculation for more stimulus. US PCE inflation is coming up later – core seen at 0.4% monthly, or +4.7% year-on-year. After the strong data yesterday in the US this will be a marker for how many more times the Fed might hike – markets now more confident that another 50bps is coming. 

 

US data strong

Meanwhile we saw front end yields spike and deeper inversion of the yield curve in the US after data showed a much more resilient economy than expected. GDP grew by 2.0% in the first quarter, vs the expected 1.4. Jobless claims also came down. We have the 2yr touching 4.9% now and the 10yr at 3.865%...chunky moves reflecting that the market is maybe buying the Fed’s higher for longer message. Amid this Wall Street finished mixed with the Nasdaq flat and the Dow up 0.8% with financials picking up after the big banks all passed the Fed’s stress tests. 

 

YTD gainers

Month-end, quarter-end shake down. Scores on the doors – FTSE 100 basically unchanged, DAX +15%, CAC +14%, S&P 500 +15%, Dow +3%, Nasdaq +30%, Nikkei +27%. So global equities are displaying a lot of divergence – we can pin largely (not entirely) on the BoJ staying super-loose and the AI thing in the US. Apple is up 45% YTD, Nvidia +180%, Meta +133%, Tesla +109%.

 

YEN intervention

USDJPY touched 145 to extend the decline to a 7-month low...definitely close to intervention territory and the language being deployed is consistent with the BoJ being ready to step in. Japan’s finance minister said "The government is watching the market with a very high sense of urgency. Rapid and one-sided movements are also seen. Any excessive movement will be dealt with appropriately". 

 

Hawkish ECB

ECB speakers have been beating a hawkish drum – they don’t want what happened to the UK happen to the Eurozone. That is despite inflation clearly falling. Spain’s inflation is down to 1.9% - below target! French inflation is down to its lowest in about a year and a half. Disinflation in the Eurozone seems to be real. Eurozone inflation is due at 10am.

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