• The persistence of uncertainties, related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets, is leaving marks on economic sentiment
  
• Although business investment has lost some momentum, economic fundamentals remain supportive
• Underlying inflation is expected to increase over the medium term
• Ample degree of monetary accommodation remains necessary to safeguard favourable financing conditions and support the economic expansion
• Risk-taking in parts of the financial and real estate markets contributed to mild signs of overstretched valuations in some areas
• Escalation of trade tensions, the downturn in global manufacturing and a turn in the tech cycle have increased the euro area’s external headwinds
• Preserving openness is crucial if the global economy is to thrive and secure its growth potential

A report from the University of Michigan revealed on Friday the preliminary reading for the Reuters/Michigan index of consumer sentiment fell to 96.9 in early April.

Economists had expected the index would decrease to 98.0 this month from March’s final reading of 98.4

According to the report, the index of current U.S. economic conditions rose to 114.2in April from 113.3 in the previous month. Meanwhile, the index of consumer expectations fell to 85.8this month from 88.8 in March.

• Wage growth in Germany and other EU nations should continue
• Germany needs to increase spending in the coming years
• Italy’s immediate challenge is reducing high debt
• Italy has made progress on non-performing loans

• The weakness of consumption not very worrisome and may be temporary
• Doesn't see de-anchoring of inflation expectations
• Believes in the scenario of growth stabilizing in the second quarter then rebounding
• Latest OIS curve fits well With how we think financial conditions should be 

U.S. stock-index rose on Friday, after JPMorgan (JPM) and Wells Fargo (WFC) kicked off first-quarter earnings season on a strong note, while signs of stabilization in China’s economy helped mitigate global growth worries.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

Walt Disney (DIS) resumed with an Overweight at JP Morgan; target $137

The Labor Department reported the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, rose 0.6 percent m-o-m in March, following a revised 1.0-percent m-o-m increase in February (originally a 0.6 percent m-o-m advance). Economists had expected prices to gain 0.4 percent m-o-m last month.

According to the report, prices for import fuel surged 6.4 percent in March after increasing 9.7 percent in February, as prices for both petroleum and natural gas increased. Meanwhile, the price index for nonfuel imports decreased 0.2 percent m-o-m in March, after rising 0.2 percent m-o-m in February, as falling prices for capital goods, consumer goods, and nonfuel industrial supplies and materials more than offset an increase in the prices for foods, feeds, and beverages.

Over the 12-month period ended in March, import prices recorded no change.

At the same time, the price index for U.S. exports rose 0.7 percent m-o-m in March, following a revised 0.7 percent m-o-m gain in the previous month (originally a 0.6 percent increase).

Both nonagricultural prices (+0.7 percent m-o-m) and agricultural prices (+0.9 percent m-o-m) contributed to the March advance.

Over the past 12 months, the price index for exports rose 0.6 percent.

Wells Fargo (WFC) reported Q1 FY 2019 earnings of $1.20 per share (versus $1.12 in Q1 FY 2018), beating analysts’ consensus of $1.10.

The company’s quarterly revenues amounted to $21.609 bln (-1.5% y/y), beating analysts’ consensus estimate of $21.048 bln.

WFC rose to $48.32 (+1.21%) in pre-market trading.

• Our focus is to get a Brexit deal through parliament as quickly as possible
• Talks with Labour have created a more constructive environment for Brexit talks
• No-deal Brexit no longer an immediate threat but risk hasn't been removed altogether
• Chances of second referendum depends on Labour, which is deeply divided on this
  
• UK will have some work to do to restore its reputation after Brexit
• Process for finding a new BoE governor is getting underway

• Further escalation cannot be ruled out
• Companies are holding back investments due to trade-related business uncertainty
• The ongoing Brexit drama is also contributing to global business uncertainty
• German exports not giving meaningful impetus to overall economic growth
• German economy expected to rebound after a soft patch
• Private consumption expected to recover in the second half of the year and support the overall growth
• German 2019 GDP could be weaker than 0.8%
  

JPMorgan Chase (JPM) reported Q1 FY 2019 earnings of $2.65 per share (versus $2.37 in Q1 FY 2018), beating analysts’ consensus of $2.35.

The company’s quarterly revenues amounted to $29.123 bln (+4.4% y/y), beating analysts’ consensus estimate of $28.054 bln.

JPM rose to $108.68 (+2.31%) in pre-market trading.

• We all need to increase trade and connect economies

“Though it is usual to have high credit growth in the first quarter of the year in China, the growth is surprisingly high and a clear sign to us that this is to support the economy. Another sign that the central bank is supporting the economy is that the interest rate bid has remained low.”

“RMB loans from banks are still the largest contribution of total credit for the economy.”

“The second largest credit creator was the debt market, facilitating fundraising for infrastructure through the issue of local government special bonds.”

“As trade war uncertainties linger on, there is a need to keep the fast yuan loan growth to help small private firms survive. An RRR cut is needed to facilitate fast credit growth.”

“By 17 April a sizeable liquidity injection expires and there will be tax payments around mid-April. Usually, this would create some tightness in the interbank market. This should allow the central bank to cut RRR by 0.5 percentage points to 13.0%.”

Bill Evans, chief economist at Westpac, suggests that their target for the AUD to depreciate to USD0.68 over the course of 2019 remains the same, after it has held within a narrow range of USD0.704 to USD0.716 over the month.

“On the demand side, confidence is rising in response to China’s commitment to stabilising growth through lifting credit; easing restrictions on the shadow banking sector; supporting bond issues by local governments to finance new infrastructure investment; tax cuts; and some support to housing in selective regions. This stability at high levels for key commodity prices is providing solid support to the Australian dollar – indeed the fair value of the AUD as measured by commodity prices, is currently holding well in excess of current spot. On the other hand, interest rate differentials continue to weigh on the AUD.”

Karen Jones, analyst at Commerzbank, points out that the EUR/GBP cross has continued to consolidate near 55 day ma, currently at .8642 and is somewhat stuck at this zone.

“A close above here would allow for a test of the recent high at .8723 and .8826 (200 day ma). It continues to hold the .8471 recent low and we suspect might be trying to base near term. Currently though we remain unable to rule out the risk of a slide to the 200 week ma at .8411 (although this is less favoured).The market is expected to struggle on rallies to the 200 day ma at .8830, and only above here allows for a move to the October .8941 high, which is expected to contain the topside.”

According to estimates from Eurostat, in February 2019 compared with January 2019, seasonally adjusted industrial production fell by 0.2% in the euro area (EA19) and remained unchanged the EU28. In January 2019, industrial production grew by 1.9% in the euro area and by 1.3% in the EU28. In February 2019 compared with February 2018, industrial production decreased by 0.3% in the euro area and increased by 0.3% in the EU28.

In the euro area in February 2019, compared with January 2019, production of energy fell by 3.0%, both capital goods and durable consumer goods by 0.4% and intermediate goods by 0.1%, while production of non-durable consumer goods rose by 0.9%.

In the EU28, production of energy fell by 2.2% and capital goods by 0.2%, while production of durable consumer goods remained unchanged, intermediate goods rose by 0.2% and non-durable consumer goods by 0.7%.

The U.S. Fed has switched from a stance that was “too hawkish” at the end of last year to “too dovish” presently, according to Mohamed El-Erian, Allianz’s chief economic advisor.

While such a drastic swing is not expected to hit the U.S. economy in a big way, it has contributed to greater volatility in financial markets globally, he told.

“I think they went a little too far,” he said, referring to the Fed. “In the fourth quarter, they certainly were too hawkish ... and now I think they have swung too dovish.”

El-Erian said the U.S. economy “is still in a good place,” so he’s surprised that the central bank appeared to have given up on the option to tweak monetary policy for the rest of the year. In fact, he predicted that the U.S. could grow by 2.5 percent to 3 percent this year. In 2018, the U.S. economy grew by 2.9 percent.

According to Karen Jones, analyst at Commerzbank, USD/JPY pair has held over cloud support at 110.78 and looks set to retest tough overhead resistance.

“This includes the 112.13 March high, the 112.04 200 week ma, the 112.43 55 quarter moving average and the 112.80 2015-2019 downtrend. This is extremely tough resistance and should cap the topside. Failure at cloud support is needed to alleviate immediate upside pressure and will re-target the 109.70 recent low. The 109.70 low guards the 38.2% retracement at 109.06 and there is scope for the 50% retracement at 108.11. The base of the cloud lies at 108.11.”

• Industrial sector is going through weak phase but domestic impetus remains strong

• Production in 1H 2019 will be significantly weaker than in 1H 2018

• Weak phase in manufacturing will be more than compensated for in other areas of the economy in Q1 2019

• Order levels, business expectations point to continued weakness in manufacturing

• Indicators point to subdued exports in the coming months

Economists at Goldman Sachs have pushed back their forecast for the Fed to raise interest rates amid low inflation and political scrutiny of the central bank’s decisions.

The U.S. bank now expects the Fed to hike in the fourth quarter of 2020 from the first quarter. The shift comes even as the bank lifted its U.S. GDP forecast to 2.5% in the second half of 2019 and 2.25% in the first half of 2020.

"But the inflation numbers have surprised to the downside even as the goalposts for the next rate hike have shifted higher with the FOMC’s emphasis on muted inflation pressures and review of its policy framework. Coupled with an increase in political scrutiny of monetary policy decisions, this has lowered the odds of a hike before next year’s presidential election," economists wrote in the note. "

Still, the better growth outlook means the U.S. bank added a second rate hike in 2021 to its forecast.

Both emerging markets and the U.S. appear poised to recover from last year’s economic stumbles, but problems persist for Europe, Axel Weber, chairman of the Swiss investment bank UBS, told.

“We’re a bit skeptical about the ability of Europe to use stimulus to come out of this,” he said. “I think there is some downside risk in Europe and you have to acknowledge that. So, whilst I do have the main outlook to be a sort of L-shaped recovery, stabilization at a lower level, growth below potential, I don’t have the main scenario of a recession. ”

In many European countries, including Italy and France, there’s very little room for governments to use fiscal policy to stimulate the economy, Weber said. That’s because their fiscal deficits are near the upper limit of the 3 percent of GDP that the ECB.

On the monetary policy front, the ECB has pumped trillions of euros into the economy over the past few years to boost inflation and promote growth. “What you have to ask yourself is: After years of quantitative easing, is adding more of the same really going to have the same impact on the economy that it did have when they started this? My answer to that is, probably not,” Weber said.

Customs General Administration of China said, March exports rose 14.2% from a year earlier, while imports dropped 7.6%. That left the country with a trade surplus of $32.64 billion for the month.

Analysts had expected March exports to have increased 7.3% from a year earlier, after a sharp drop of 20.8% in February. Imports were expected to have dropped 1.3%, narrowing from 5.2% fall in the preceding month. The trade surplus had been tipped at $7.05 billion last month from February's $4.08 billion.

Analysts caution that Chinese data is often highly volatile early in the year, due to massive business disruptions caused by the long Lunar New Year holidays, which began in early February this year.

China's automobile sales fell 5.2 percent in March from a year earlier, marking the ninth consecutive month of decline in the world's largest auto market.

Sales fell to 2.52 million vehicles, the China Association of Automobile Manufacturers (CAAM) said.

That followed declines of 14 percent in February, 16 percent in January and the first annual contraction since the 1990s against a backdrop of slowing economic growth and China's crippling trade war with the United States.

New energy vehicle (NEV) sales, however, remain a bright spot, rising 85.4 percent in March to 126,000 units, the CAAM said.

According to analysts at TD Securities, there’s been more noise than usual in the Chinese data on account of the timing of Chinese new year, but their model suggests that activity may be settling down.

“We look for near-flat import growth at +0.2% y/y and an export growth rebound of +3.0% y/y, generating a deficit of -$US800m. Along with the pickup in global PMIs of late, global trade might have finally turned a corner though the fact that both China export and import PMIs remain in contraction territory suggest any trade recovery will be slow.”

According to the report from Federal Statistical Office (Destatis), the selling prices in wholesale trade increased by 1.8% in March 2019 from the corresponding month of the preceding year. In February 2019 and in January 2019 the annual rates of change had been +1.6% and +1.1%, respectively.

From February 2019 to March 2019 the index rose by 0.3%.

The biggest impact on the overall development compared with the same month of the previous year was the increase in wholesale prices of petroleum products, which rose by 7.7 % (+2.4% compared with February 2019).

Prices in the wholesale trade of cereals, raw tobacco, seeds and feed (+11.5 %) and fruit, vegetables and potatoes (+6.4%) also rose by an above-average rate compared with March 2018.

On the other hand, prices for live animals (-8.0 %) and waste and residues (-5.4 %) were lower at wholesale level than in March 2018.

There is too much debt floating around the world and China is a big reason why, World Bank President David Malpass said.

“There are challenges facing the world in terms of how do you have transparent projects that are high quality, where the debt is transparent. China moved so fast that in some part of the world there is just too much debt. That’s something that we can work on with China.” Malpass told.

China has lent trillions of dollars to other countries, including the U.S. As of January, China owns $1.12 trillion in U.S. Treasurys, according to data from the Treasury Department.

Malpass has been a critic of China’s lending efforts to fund its “One Belt, One Road” infrastructure initiative. Last year, he said these loans leave weaker countries with “excessive debt and low-quality projects.

Malpass indicated China is willing to scale back on these efforts, noting: “They want to see a better relationship with other countries and be part of the world system. I expect to be successful in that and have a good relationship with China.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.1384 (3318)

$1.1358 (2484)

$1.1340 (268)

Price at time of writing this review: $1.1287

Support levels (open interest**, contracts):

$1.1259 (3362)

$1.1227 (3640)

$1.1187 (3031)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date May, 3 is 70248 contracts (according to data from April, 11) with the maximum number of contracts with strike price $1,1500 (6170);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3277 (869)

$1.3241 (1178)

$1.3209 (864)

Price at time of writing this review: $1.3069

Support levels (open interest**, contracts):

$1.3016 (1323)

$1.2953 (1308)

$1.2874 (1774)

Comments:

- Overall open interest on the CALL options with the expiration date May, 3 is 20617 contracts, with the maximum number of contracts with strike price $1,3500 (2434);

- Overall open interest on the PUT options with the expiration date May, 3 is 20188 contracts, with the maximum number of contracts with strike price $1,2600 (2570);

- The ratio of PUT/CALL was 0.98 versus 0.94 from the previous trading day according to data from April, 11

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.