Dollar Ends the Week on Firm Note

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  • The dollar is closing out the week on a firmer note 
  • Preliminary Eurozone March CPI will be reported today 
  • During the North American session, the US reports February personal income and spending, March Chicago PMI, and final March Michigan confidence 
  • Japan reported February national CPI and IP  
  • China reported official March PMI, which came in at 51.8 vs. 51.7 expected
  • Banco de Mexico slowed the pace of tightening; South African President Zuma finally fired Finance Minister Gordhan 

The dollar is mostly firmer against the majors during Asian trading. Sterling and the Aussie are outperforming, while Nokkie and Kiwi are underperforming. EM currencies are mostly softer. INR and MXN are outperforming, while KRW and ZAR are underperforming. MSCI Asia Pacific is down 0.3%, with the Nikkei rising 0.5%. MSCI EM is down 0.6%, with China shares rising 0.4%. S&P futures are pointing to a lower open. The 10-year UST yield is flat at 2.41%. Commodity prices are mixed, with oil down 0.4%, copper flat, and gold flat.

The dollar is closing out the week on a firmer note. Higher US rates are helping, as are hawkish Fed comments and dovish Eurozone developments. The 2-year US-German differential has gotten a toehold above 200 bp, which should help underpin the dollar vs. the euro. Indeed, the single currency broke below the $1.0720 area, which sets up a test of the March 15 low near $1.06.

Germany reports February retail sales and March labor market data. France reports March CPI and February consumer spending. In light of lower than expected German and Spanish CPI already reported, we see downside risks to French readings (1.2% y/y expected).

Preliminary Eurozone March CPI will be reported today. Headline inflation is expected to ease a couple of ticks to 1.8% y/y, while core inflation is expected to ease a tick to 0.8% y/y. All in all, developments this week suggest that the markets were too quick to assign a hawkish slant to the ECB.

During the North American session, the US reports February personal income and spending, March Chicago PMI, and final March Michigan confidence. The Fed’s Kashkari and Bullard speak. Canada reports January GDP, which is expected to rise 1.9% y/y vs. 2.0% in December.

Japan reported February national CPI and IP. Headline CPI rose 0.3% y/y vs. 0.2% expected, while CPI ex-fresh food and energy rose the expected 0.1% y/y. IP rose 4.8% y/y vs. 3.9% expected, while the jobless rate fell to 2.8% vs. 3.0% expected. All in all, the data support the notion that the BOJ will be in no hurry to add further stimulus.

China reported official March PMI, which came in at 51.8 vs. 51.7 expected. The economic data out of China recently points to stabilization. Taken along with rising price pressures, we think the PBOC may move to a more hawkish stance this year. The recent snugging of the OMO and MLF rates are likely a precursor for a hike in the policy rates.

South African President Zuma finally fired Finance Minister Gordhan. While part of a wider cabinet shuffle, the moves are unambiguously negative for the nation’s standing. The ratings agencies have been very patient so far, but we think this will be the trigger for at least one downgrade to sub-investment grade.

Banco de Mexico slowed the pace of tightening. It hiked 25 bp, as expected, which is smaller than the usual 50 bp hikes during most of this cycle. The bank left the door open to further hikes, which may be taken in lockstep with the Fed.

Over the weekend, Korea reports March trade data. This will be the first snapshot of global trade activity for the month. Consensus is for exports to rise 12.8% y/y and imports by 23.9% y/y. Earlier today, Korea reported February IP.