JPY weakness extends

In focus today

In the US, today's focus will be on Q1 flash GDP data, where consensus expects growth to moderate to 2.4% Q/Q AR (Q4 3.4%). Private consumption has remained on a gradually cooling, yet steady trend, while private manufacturing investments and public state and local investments are still supported by past stimulus measures. That said, April PMI data released earlier this week suggested that Q2 has started on a relatively weaker footing.

In the euro area, Isabel Schnabel will deliver the opening remarks for a monetary policy conference in Frankfurt. Christine Lagarde delivers a speech at a conference on the Capital Market Union in Paris. Today's list of ECB speakers also includes Vujcic, Nagel and Panetta. The ECB will also publish its economic bulletin today.

In Sweden, we get the last NIER Economic Tendency Survey (at 9.00 CET) before the Riksbank's upcoming policy rate decision 8 May. Companies' pricing plans will be of high importance. Overall, companies' price plans are now compatible with an inflation rate of 2% (being in line with pre-pandemic averages), but there is perhaps a question mark around the services sector, where we saw an uptick in price plans last month. Riksbank's Aino Bunge participates in a seminar on "Functioning Payments in Crisis and War". Despite the topic of the seminar, we will likely get some comments on monetary policy as Bunge will be available for journalists after the event (around 14.15 CET).

The Central Bank of Turkey announce their rate decision, after their monetary policy meeting. Market consensus is in favour of unchanged interest rate, with some forecasters eyeing a possible hike.

Economic and market news

What happened overnight

The JPY continues to weaken with USD/JPY hitting as high as 155.48 in overnight trading. The Japanese monetary and fiscal authorities have earlier said that they are concerned with the continuously weakening of the JPY, and have threatened to intervene in the market over several occasions, but we are still to see some action on the matter.

What happened yesterday

In the US, President Biden signed the USD 95 billion bill with military aid for Ukraine, Israel, and Taiwan. He later stated that some of the aid for Ukraine would be sent to them already Wednesday evening.

Yesterday's fixed income sell-off has pushed 10y UST yield near recent highs. 10Y UST yields ended up by 5bp in 4.65% for the day.

Meta, the company behind Facebook and Instagram, presented forecasts of higher AI expenses and lighter-than-expected revenue, leading to the share falling 10% in after-hours trading. Alphabet, the parent of Google, fell 3% in extended trading and Microsoft fell 2% as investors fear that they may have underestimated the costs of the AI race among big tech companies. Both companies will deliver financial statements for Q1 today.

In Germany, the Ifo indicator showed that business sentiment increased more than expected in April to 89.4 (cons: 88.8, prior: 87.9). Both the assessment of the current situation and future expectations rose more than expected. Note that the index still indicates that the German economy is in contractionary territory.

ECB's Nagel said that a June rate cut will not necessarily be followed by a series of rate cuts. He is still worried about a potential inflation rebound, especially service inflation, which has proved more persistent than goods inflation, and is driven by continued strong wage growth.

Yesterday's market movements

Equities. Global equities ended marginally higher yesterday after a bit of a roller-coaster ride in both Europe and US. It was a huge reporting day which helps explain the fairly rare mix of sector performance with financials, industrials and healthcare underperforming. The earnings season is peaking today, and that coupled with reports we saw in the afterhours yesterday means that we should prepare for yet another day micro dominating markets. In the US yesterday, Dow -0.1%, S&P 500 +0.02%, Nasdaq +0.1%, and Russell 2000 -0.4%. Asian markets are sharply down this morning, led lower by the afterhours earnings results from the US and even more so, the disappointing company guidance. European futuress are marginally lower this morning while US futures are dragged down by the tech sector.

FI: The Bund curve continued bear-steepening in yesterday's session with the 10Y tenor up by 9bp for the day, closing at a 5-month high of 2.59%. The repricing happened gradually through the day without a clear catalyst triggering the move. The 10Y German auction yesterday was well-bid with BTC at 2.5. However, with Eurozone PMI/IFO data showing strong signs of recovery, additional uncertainty on the disinflationary trajectory is now evident in the remarks coming out from the hawkish ECB members.