Trade communication across Pacific shrouded in fog – UK Retail Sales shines

EU mid-market update: Alphabet on cloud nine; Trade communication across Pacific shrouded in fog; UK retail sales shines.

Notes/observations

- Attention has pivoted from tariffs to earnings, with latest strong results from Alphabet (Google) helping lift US futures overnight. Cloud revenue (like SAP) was above estimates; Raised dividend and $70B buyback also impressed; Alphabet also affirmed FY25 capex at $75B and noted that Waymo’s paid rides quintupled to 250 K/week with new city rollout.

- Trade war story saw some optimism that China is considering exempting some US goods, but this was refuted by China Foreign Ministry this morning, noting they are not familiar with the reports. Second “fake news” narrative by China in recent days, undermining Trump admin comments.

- China Politburo statement lacked any substantial stimulus while vowing to cut rates and RRR in ‘timely manner’.

- For US markets, the rare Zweig Breadth Thrust signal has been triggered for the first time since November 2023, indicating a sudden surge in market breadth. Historically triggered only 18 times since WWII, it implies the S&P 500 averaging +15.3% gains in 6 months and +24.0% in 12 months.

- For data, UK retail sales were stronger than expected. UK assets little changed however. 10-year gilt yield at 4.51%. Sterling at 1.33. Non-food stores saw a 1.7% rise, while food stores experienced a 1.3% drop. Online sales grew by 2.0%, with the online sales proportion reaching 26.8%. Sunny weather likely boosted non-food and online sales, especially in clothing and DIY. UK GFK Consumer Confidence was lowest since Nov 2023.

- Next week's economic calendar is condensed due to Thurs holiday, causing plethora of US to drop on Weds (includes GDP reading) and Nonfarm Payrolls on Fri.

- Asia closed higher with Nikkei225 outperforming +2.0%. EU indices +0.2-1.1%. US futures +0.0-0.4%. Gold -1.2%, DXY +0.4%; Commodity: Brent -0.4%, WTI -0.3%; Crypto: BTC +1.2%, ETH +1.4%.

Asia

- Japan Apr Tokyo CPI Y/Y: 3.5% v 3.3%e; CPI Ex-Fresh Food Y/Y: 3.4% v 3.2%e (both readings were the highest since Apr 2023).

- BOJ Gov Ueda reiterated stance that would raise rates if the expected outlook materialized; Uncertainty regarding global economy heightening; Must scrutinize the impact on business confidence; Tariffs might impact consumer sentiment and market prices.

- China PBOC Gov Pan Gongsheng reiterates stance that monetary policy to be 'moderately loose' (comments at G20 meeting).

- China Fin Min Lan Foan reiterated view that trade and tariff war impacted global economic stability.

- More speculation that China said to consider exempting some US goods from tariffs, relates to the 125% tariffs. Considering removing the additional levies related to medical equipment and certain industrial chemicals [such as ethane]. Earlier there were unconfirmed reports that China might ease the 125% tariff on some U.S. semiconductors excluding those for storage use.

Europe

- UK Apr GfK Consumer Confidence: -23 v -21e.

- BOE Gov Bailey commented that the UK economy was not close to recession, recent GDP reading was encouraging; Tariffs would have a negative impact on growth; Impact on tariffs on the exchange rate had not been that large on the UK. The talk about the potential loss of the USD reserve currency was overdone.

Americas

- Fed's Kashkari (non-voter) noted that he was worried among the uncertainties that businesses would do layoffs; Had not seen an uptick in layoffs yet; Some business contacts were scenario planning for potential layoffs if uncertainty lasts.

- Canada Fin Min Champagne cautioned that tariffs would have inflationary impact and affect global growth.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.36% at 520.48, FTSE +0.19% at 8,423.43, DAX +0.56% at 22,193.85, CAC-40 +0.67% at 7,553.03, IBEX-35 +1.08% at 13,313.00, FTSE MIB +0.92% at 37,147.00, SMI +0.29% at 11,971.20, S&P 500 Futures +0.42%].

Market focal points/key themes: European indices open higher across the board and remained upbeat through the early part of the session; reports of progress on the trade front seen supporting risk appetite; sectors among the leading gainers are consumer discretionary and industrials; while lagging sectors include telecom and utilities; Mobico sells its NA School Bus unit to I Squared; earnings expected in the upcoming US session include SLB, AbbVie, Colgate-Palmolive and Stanley Black & Decker.

Equities

- Industrials: Safran [SAF.FR] +4.5% (results), VINCI [DG.FR] -0.5% (earnings), Michelin [ML.FR] +2.5% (earnings).

- Materials: Yara International [YAR.NO] +5.5% (earnings), Holcim [HOLN.CH] +1.5% (results), Holcim [HOLN.CH] +1.5% (results), IMCD [IMCD.NL] +6.5% (results).

- Telecom: WPP [WPP.UK] +1.5% (results).

Speakers

- ECB's Holzmann (Austria) noted that the next policy steps were completely open. Net tariff impact had been deisinflationary thus far. Saw economic scars even if tariffs are lowered.

- SNB' President Schlegel stated that price stability could not prevent trade policy related uncertainty, but still very important; Trade policy could fragment global economy. Reiterated stance that main instrument was interest rate, but could also use FX interventions to influence monetary conditions.

- China's Politburo stated that its fiscal policy to be more proactive as economic recovery needed to be further reinforced. To create new policy financial tools and new policy-based financial instruments to support scientific and tech innovation. To expand consumption and stabilize foreign trade. To continue stable, active capital market.

- China Foreign Ministry Official Guo stated that was not familiar with reports on China tariff exemptions.

- China Commerce Ministry (MOFCOM) noted that trade frictions have entered high-intensity phase.

- US reportedly seeks India trade deal on e-commerce, crops and data storage.

Currencies/fixed income

- USD began the session on steady footing as optimism was peculating over easing trade tensions.

- EUR/USD edged higher despite ECB futures now fully pricing June rate cut. ECB's hawk Holzmann fanned the flames after he commented that was expecting disinflationary impact from US tariffs.

- USD/JPY stayed well above the 146 level in the session. Markets currently see only a 5% that the BOJ would tighten at its next policy decision next week.

- 10-year German Bund yield at 2.46% and 10-year Gilt yield at 4.49%. 10-year Treasury yield at 4.30%.

Economic data

- (UK) Mar Retail Sales (ex-auto/fuel) M/M: +.5% v -0.5%e; Y/Y: 3.3% v 2.0%e - (UK) Mar Retail Sales (including auto/fuel) M/M: +0.4% v -0.4%e; Y/Y: 2.6% v 1.8%e.

- (HU) Hungary Mar Unemployment Rate: 4.3% v 4.5%e.

- (FR) France Apr Business Confidence: 96 v 96e v 97 prior; Manufacturing Confidence: 99 v 95e.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 116.8K v 171.6K tons prior.

- (TH) Thailand May Foreign Reserves w/e Apr 18th: $255.9B v $251.6B prior.

- (RU) Russia Narrow Money Supply w/e Apr 18th (RUB): 18.07T v 18.02T prior.

- (IS) Iceland Mar Wage Index M/M: 0.4% v 0.0% prior; Y/Y: 0.9% v 9.0% prior.

Fixed income issuance

- (IN) India sold total INR270B vs. INR270B indicated in 2029 and 2054 bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2033, 2043 and 2058 Bonds.

- 06:00 (SE) Sweden Central Bank (Riksbank) Breman.

- 06:00 (UK) DMO to sell £5.5B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £3.0B respectively).

- 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave 1-Week Auction Rate unchanged at 21.00%.

- 07:00 (BR) Brazil Apr FGV Construction Costs M/M: 0.5%e v 0.4% prior.

- 07:30 (IN) India Forex Reserve w/e Apr 18th: No est v $677.8B prior.

- 07:30 (IN) India announces upcoming bill issuance (held on Wed).

- 08:00 (BR) Brazil mid-Apr IBGE Inflation IPCA-15 M/M: 0.4%e v 0.6% prior; Y/Y: 5.5%e v 5.3% prior.

- 08:00 (MX) Mexico Feb IGAE Economic Activity Index (Monthly GDP) M/M: +0.5%e v -0.2% prior; Y/Y: -1.1%e v -0.1% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (CA) Canada Feb Retail Sales M/M: -0.4%e v -0.6% prior; Retail Sales (ex-auto) M/M: -0.2%e v +0.2% prior.

- 10:00 (US) Apr Final University of Michigan Confidence: 50.5e v 50.8 prelim.

- 10:15 (UK) BOE's Greene.

- 11:00 (US) Apr Kansas City Fed Services Activity: No est v 0 prior.

- 11:00 (EU) Potential sovereign ratings after European close (S&P on Belgium, Netherlands,, Finland & Turkey; Moody’s on EFSF & ESM).

- 13:00 (US) Weekly Baker Hughes Rig Count data.