MNI US Open: CPI Data In The Spotlight

MNI DATA IMPACT: UK Feb GDP Up, Trade Sees Modest Recovery

The UK economy expanded modestly in February, while trade with the European Union made up some, but not all, of the extraordinary losses suffered in January, according to the gross domestic product and trade reports released on Tuesday by the Office for National Statistics.

GDP rose by 0.4% between January and February, falling just a bit short of the expected 0.5%, leaving GDP 7.8% below its level a year ago. GDP stands 3.1% the level of October, which marked the peak of the recovery before much of the country headed into an economic lockdown in November.

Services rose by a paltry 0.2% in February, well below the forecast 0.6% increase, contributing 0.17 percentage point to total growth. Services remain 8.8% below the level of February last year. Within services, wholesale and retail trade rose by 3.3%, following an 8.3% plunge in January, lifted by a pick-up in the trade of motor vehicles, according to a statistician. Accommodation and food services increased by 2.6%, but that reflected the application of seasonal factors, as turnover was little changed from January, according to a statistician.

Industrial production rose 1.0% in February, falling by 3.5% over the same month of last year. Manufacturing increased by 1.3%, but declined by 4.2% over February 2020. Construction increased by 1.6%, falling by 4.3% over last February.

January GDP was revised upward, showing a decline of 2.2%, versus the initially-reported 2.9% decline. Services accounted for much of the upward revision. That means GDP must rise by 6.4% in March for first quarter GDP to match the level of the final three months of 2020. GDP growth exceeded that margin in June and July of last year, as much of the country emerged from the first economic lockdown.

TRADE

EU trade made up some of the ground lost in February, when Brexit-related friction contributed to a sharp fall in both imports and exports. EU exports rebounded by 46.6%, while imports increased by 7.3%. That leaves exports down by 15.1% since the end of 2020, while imports are down 24.5%.

The headline total trade deficit increased to GBP7.123 billion in February from GBP3.370 billion in the first month of the year (initially reported was a shortfall of GBP1.630 billion). The goods trade deficit increased to GBP16.442 billion from GBP12.592 billion. Excluding trade in precious metals (including non-monetary gold), the total trade deficit increase to GBP1.388 billion from GBP845 million in January.

Italian Industrial Production Up in Feb

• Feb SA ind. output +0.6% m/m (Jan revised up +1.1% m/m), WDA -0.6% y/y
• Feb data registered slightly below market expectations looking for a 0.7%-uptick
• Feb SA ind. output m/m ticks up third consecutive month--ISTAT says
• Feb SA m/m consumer goods rose; intermed. capital gds, energy fell—ISTAT SAYS
• Feb WDA y/y consumer, capital gds, energy fell--ISTAT SAYS
• Feb WDA y/y intermediate goods tick up +2.1%
• There were 20 working days in Feb 2021 vs. 20in Feb 2020.

ZEW Expectations Sentiment Fell in April

GERMANY APR ZEW ECONOMIC SENTIMENT +70.7; MAR +76.6

GERMANY APR CURRENT CONDITIONS -48.8; MAR -61.0

• ZEW Expectations fell by 5.9pt to 70.7 in Apr, in contrast to markets expectations of an uptick (BBG: 79.0)
• This marks the first decline after four consecutive months of gains and the lowest reading since Jan, nevertheless expectations remain at a very high level
• The ZEW Current Conditions rose markedly, up 12.2pt to -48.8, which is significantly better than anticipated (BBG: -55) and the highest level since Mar 2020.
• Nevertheless, the the current conditions index remains in deep negative territory, hence the divergence between the expectations and the current situation persists.
• Financial market experts are concerned about a stricter lockdown which led to a decrease in expectations for private consumption says ZEW President Achim Wambach.
• "Nevertheless, the outlook for exports is better than in the previous month", Wambach added.
• EZ economic sentiment dropped by 7.7pt to 66.3 in Apr, while current conditions edged up by 4.3pt to -65.5.
• Inflation expectations for the EZ declined 5.5pt to 75.1, although the indicator still signals rising inflation over the next 6 months.

FIXED INCOME: Supply and CPI

• Core fixed income has moved moderately lower this morning as the market digests a huge amount of issuance. Italian and Dutch spreads have widened due to issues from those countries.
• It's a big day for supply: Italy has already held a 3/5/15y BTP auction and the UK a 50-year gilt auction. Spain and the Netherlands are launching 15y issues, Austria holding a 4y/50y syndication, Germany selling linkers via auction and the US is selling $24bln 30-year USTs via auction. The EGB issues are likely to sum to around E28.5bln.
• With the reflation trade having been one of the key talking points of 2021, there will be huge interest in today's US CPI print, which is due for release at 8:30ET/13:30BST. There are also a number of Fed speakers today with Harker, Daly, Barkin and Mester all due to make appearances.
• TY1 futures are down -0-5 today at 131-15 with 10y UST yields up 2.3bp at 1.691% and 2y yields up 0.3bp at 0.172%.
• Bund futures are down -0.14 today at 171.16 with 10y Bund yields up 1.1bp at -0.284% and Schatz yields up 0.3bp at -0.709%.
• Gilt futures are down -0.04 today at 128.08 with 10y yields up 0.8bp at 0.796% and 2y yields up 0.5bp at 0.052%.

FOREX: Markets Await CPI, Fedspeak

• Currencies largely trade inside recent ranges, with traders awaiting today's CPI release and a deluge of Fedspeak ahead of the media blackout period that comes this weekend. The USD is mixed, with some pre-NY hours weakness emerging to erase modest gains seen in Asia-Pac trade.
• Price action again favours GBP, although GBP/USD is yet to top the Monday high. NOK and CAD are again softer as middling oil prices do little prop up the oil-tied currency outlook.
• Front-end implied vols are inching lower, with GBP implieds seeing the most notable decreases. The 1m contract now trades below the early April lows to rival February's post-pandemic low.
• After a quiet Monday, the events calendar gets considerably busier Tuesday, starting with US CPI, which is forecast to have risen 0.5% in March. There are also a number of Fed speakers, with Harker, Daly, Barkin, Mester, Bostic and Rosengren all due.

EQUITIES: U.S. Futures Flat As Earnings Season Gets Underway

• Asian stocks closed mostly higher, with Japan's NIKKEI up 212.88 pts or +0.72% at 29751.61 and the TOPIX up 3.96 pts or +0.2% at 1958.55. China's SHANGHAI closed down 16.478 pts or -0.48% at 3396.47 and the HANG SENG ended 43.97 pts higher or +0.15% at 28497.25.
• European equities are flat/higher, with the German Dax up 41.46 pts or +0.27% at 15246.97, FTSE 100 down 1.87 pts or -0.03% at 6879.4, CAC 40 up 19.49 pts or +0.32% at 6179.11 and Euro Stoxx 50 up 10.76 pts or +0.27% at 3972.82.
• U.S. futures are flat, with the Dow Jones mini up 24 pts or +0.07% at 33655, S&P 500 mini up 0.75 pts or +0.02% at 4121, NASDAQ mini down 3.75 pts or -0.03% at 13805.

COMMODITIES: Silver Outperforms As Gold Continues To Fall

• WTI Crude up $0.1 or +0.17% at $60.03
• Natural Gas down $0.02 or -0.59% at $2.544
• Gold spot down $4.28 or -0.25% at $1727.53
• Copper up $1.95 or +0.49% at $402.4
• Silver up $0.15 or +0.61% at $24.941
• Platinum down $1.54 or -0.13% at $1173.9