Dollar Pushed Lower in Subdued Activity

The US dollar has a slight downside bias today through the European
  The market does not seem particularly focused on high
frequency data, though sterling traded higher after an unchanged year-over-year
reading of 2.3%, and the euro traded higher after a stronger Germany ZEW

Geopolitical concerns continued to be elevated.  The South
Korean won’s slide has been extended for the sixth consecutive session and ten
of the past 11 sessions.  Its 0.3% decline today brings this week’s loss
to 1.0% after around a 1.4% loss last week.  Korea’s Kospi’s nearly 0.5%
loss today is also its sixth consecutive loss and also was among the larger
losers in today’s session that saw the MSCI Asia Pacific Index slipped

European shares are also trading with a slight downside bias. 
Information technology and financials are leading the way lower, while consumer
discretionary and real estate are doing better.   With the tightening
in the French polls ahead of the election in a couple of weeks, pressure is
staying on France, where bonds are under pressure and the 10-year premium over
Germany continues to trend back to the high seen in February.  

Since the end of March, the French premium on 10-year yields has risen a
little more than 10 bp to 75 bp. 
The late February high was 79
bp.  The 2-year premium investors are demanding to hold French paper is
making new multi-year highs today near 56 bp.  It has more than doubled
since the late-March.  The February high was 45 bp.  It has been
nearly five years since the 2-year premium was this large.  

The German investor survey, ZEW, rose more than expected.  The
assessment of the current situation rose to 80.1 from 77.3.  This is a new
six-year high.  The expectations component rose to 19.5 from 12.8. 
This is the highest since August 2015.   With the DAX up four
consecutive months through March, a euro that makes German businesses extremely
competitive and low yields, it is hardly surprising that investor confidence is
buoyant in Germany.   That said sentiment is running ahead of real sector
data.  Earlier today, the German 10-year yield slipped briefly below 20 bp
for the first time since late February.  It is trading a little above
there near midday in Europe.

As we noted yesterday, after seeing the large states report national
figures, the risk on the eurozone aggregate industrial output was on the
downside, despite relatively upbeat PMI data. 
Industrial output in
February fell 0.3%.  The Bloomberg consensus was for a 0.1% gain. 
Adding insult to injury, and underscoring the gap between real sector data and
the surveys, the January gain was slashed to 0.3% from 0.9%.  

BRC like-for-like UK retail sales in March fell 1.0%.  This
matches the largest decline in since April 2015.  The 0.8% decline in
non-food sales was the worst in nearly six years.  Part of the reason for
weaker sales may be higher inflation.  Separately, the UK reported March
CPI was flat at 2.3% year-over-year, rising 0.4% on the month.  Many look
for UK inflation to push toward 3.0% before peaking later this year as last
year’s oil rally and sterling’s slide drop out of year-over-year
calculations.  The UK’s core rate slipped to 1.8% from 2.0%, but also
probably has not peaked.  Producer prices were a little firmer than
expected.   Input prices (17.9% year-over-year) continues to outstrip
output prices (3.6% year-over-year), which is often seen as pressure on
profits.   Tomorrow the UK reports the latest employment

Oil is threatening to snap a five-day rally.  The May light
sweet crude oil futures contract rallied more than a dollar a day over the past
three sessions and four of the past five.  Disruptions in Libya and
reports that Russia is considering extending its cuts helped fuel the last
gains.   We note that the May contract is running into a technical area
that may give the bulls a pause. The 61.8% correction of this year’s decline is
found near $53.50, which also corresponds to trend line resistance off of the
early January and late February highs.  The upper Bollinger Band is just
above $53.20.  

Oil prices have done little to lend support to the US Treasuries. 
The yield, near 2.33% is six basis point below yesterday’s high.  Yellen’s
comments yesterday failed to inspire the bears despite saying nothing to deter
the expectations of a June hike.  She did acknowledge that the Fed has a
different posture now.   Previously, the Fed was concerned about
ensuring the economy was recovering from the financial crisis.  Now it is
engaged in trying to extend the expansion.   

There is little concession built for today’s $20 bln auction of 10-year
  This maturity is the fourth most popular among foreign
investors and central banks, behind the 10 and 30-year TIPS and the 7-year
note.  Foreign official demand is often picked up in the indirect
bids.  In the last dozen auctions, the indirect bids took almost 2/3 of
the 10-year sale.  

The US economic calendar is light, featuring the JOLTS report on job
  The Minneapolis Fed President Kashkari, the lone dissent to
the last month’s decision to hike rates, speaks late in the session.


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