Daily FX Update, 14 April 2016

OVERNIGHT MARKET UPDATE:

·         Global – The IMF’s Global Financial Stability Report warned that public finances across the world are deteriorating, threatening to undermine the global recovery. The report said that the outlook has deteriorated in advanced economies because of heightened uncertainty and setbacks to growth and confidence, while declines in oil and commodity prices and slower growth have kept risks elevated in emerging markets. These developments have tightened financial conditions, reduced risk appetite, raised credit risks, and stymied balance sheet repair.

·         US – The headline retail sales fell 0.3% m/m, below market expectations for a 0.1% monthly growth, as the auto sales fell 2.1% m/m. The weakness comes despite employment strength and resilient consumer confidence. Upstream prices were also softer than market expectations in March, with the headline PPI falling 0.1% m/m.

·         Euro area – ECB Governing Council member Klaas Knot called for “patience and reality” when considering the negative impact of current ECB policy on savings and pensions, and the importance of recognising the benefit to governments and mortgage holders.

·         Currencies – Despite weaker US data, a solid risk environment saw USD demand. A stronger-than-expected China exports data sparked a global stock rally that brightened broader market sentiment.

·         Equities – US equities ended sharply higher, logging a second straight session of gains and pushing the Dow to its best one-day gain in nearly a month, on the back of the rally in financial stocks.

·         Rates – European yield curves flattened. 10-year yields declined 2–6 bps in the UK, Germany and France. US 10-year Treasury yields declined 1 bp to 1.76%.

·         Energy – Crude oil prices closed lower after the EIA released higher-than-expected US crude stocks. Rumours as to whether Iranian Oil Minister Bijan Namdar Zangeneh will attend the 17 April talks in Qatar also contributed to intraday volatility.  

·         Precious Metals – The global ‘risk on’ rally led to a stronger US dollar and equities, but weaker gold prices.