The hunt for yield dominates market sentiment on Monday. Having reached a new all-time high on Friday, US stock index futures are reluctant to decline much. FX markets are generally calm as well as commodity markets.

The eurozone was able to avoid a sharp drop in retail sales in February showed the data on Monday:

Year-over-year drop was twice less than expected while MoM gain was 3% against the forecast of 1.5%. The positive in retail expands on a series of upbeat EU data that started last week. Manufacturing activity indices in the Eurozone for March unexpectedly indicated that the Old World went into recovery a little earlier than expected. The news lowered the risk premium in European assets that the economy will lag behind in terms of the pace of recovery, which lifted Euro against major peers in the second half of the last week.

China boosted monetary support for the economy in March, showed official data today. This is usually followed by an increase in risk appetite in foreign markets.

US producer price inflation in March came as a big surprise to market expectations. In annual terms, it rose by 1%, double the forecast. Rising inflation on intermediate goods is usually a harbinger of end-price inflation, which is what the Fed is aiming to achieve.

The data curbed USD retreat on the back of rallying Treasury yields driven by inflation component. The latest CFTC data showed that the short position in USD against the G10 currencies has been falling for 12 consecutive weeks and now amounts to just 2% of open interest (down from 19% in January). Clearly, short squeeze potential in USD declined materially taking away one of the major drivers of technical USD rally.

In rival China, PPI also beat forecast in March adding 4.4% YoY against moderate expectations of 3.5%, adding credibility to the story that price pressures in the world economy are gaining momentum:

The risk of accelerating inflation boosts chances of early policy tightening despite Central banks’ reassurance that they won’t hike rates until they see high inflation. However, for four of the last six sessions, the yield-to-maturity of the 10-year Treasuries has been correcting downward, suggesting that inflation data has already been taken into account by the market and something new is needed.

The Canadian dollar is likely to be in favor this week as the Canadian labor market surprised the markets. The economy added 300K jobs in March beating fairly strong forecast (100K), bringing forward first interest rate hikes from the Bank of Canada to prevent overheating in local asset markets.

The oil market was supported by the words of Fed Chairman Powell that a turning point may soon come in the United States, after which employment and inflation will finally enter stable recovery trajectory. Despite a weak start to the day, prices turned to growth, WTI climbed to a weekly high of $60 per barrel.

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