Summary

  • Long-dated bond yields picked up ahead of US CPI release, increasing odds of USD rebound;
  • Solid China trade data, in particular growth of imports, underpinned oil prices.

Calm in the equity markets extended into Tuesday with US equity index futures swaying near the opening. However, debt markets appear to be strained. Bond yields advanced as the risk of higher inflation rates re-emerged in the past and this week’s data.

Today US consumer inflation report is due and there are good reasons to expect a surprise on the upside. The fact is that inflation on intermediate goods (PPI) in China and the United States came materially higher than forecasts in March, which is likely to affect the final prices due to cost-push inflation pressures. A strong CPI reading will most likely wake up the bears in the Treasury market, and again we will see a renewed uptrend in yields and USD. EURUSD will probably not hold at the current levels and likely go down to 1.1850-1.1860, given tepid behavior of the buyers after reaching 1.19 mark:

Accordingly, a breakout of 1.70% level in 10-year Treasury Note yield may become a technical signal for resumption of the rally to new local highs. The factor of Treasury sell-off, as shown by the dynamics of USD in March and February, is probably the most import in the currency’s strength.

ZEW report on corporate sentiment in Germany, which is usually of high importance, can be ignored, as investors focus on data on vaccination pace, as well as news on the European Recovery Fund, which still has a long way before approval and which could be the factor of Euro strength, similar to fiscal stimulus in the US.

China foreign trade showed mixed dynamics - export growth did not meet expectations, but imports accelerated significantly (38.1% versus 23.3%). Details also showed that China ramped up oil purchases, which came as a surprise. Oil prices rose moderately, but the focus is on successes or failures in suppressing the virus. The situation in this regard is very ambiguous - the deserted streets of India due to record daily growth on the one hand and the rapid recovery of mobility in the United States or Great Britain due to the weakening of the restriction on the other.

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