Marking Time

The global capital markets are relatively calm.  Japan, South
Korea, and Hong Kong markets are closed
for national holidays.  Investors await the FOMC statement, though
expectations could not be much lower.  

The disappointing US auto sales, and poor Apple sales figures reported
yesterday have had little impact on the broader investment climate. 

US 10-year Treasuries are hovering just below 2.30% and remains within the
range set since the popping higher in response to the first round of the French
presidential election a week and a half ago.  

The US dollar is posting minor gains against all the major currencies and
many in the emerging markets. 
The euro’s gains fizzled in Asia near
$1.0935, the upper end of the recent range.  The first estimate of Q1 17
GDP was in line with expectations rising 0.5%.  The year-over-year pace
slipped to 1.7% from 1.8% when it had been for the past two quarters.  We note that the slower growth that we had
anticipated on ideas that the survey data was running ahead of the real sector was
up GDP of the broader EU.  Growth for the 28 members slowed
to 0.4% from 0.6%, though the year-over-year pace was steady at

UK BRC Shop price index fell 0.5%,
which was large as expected

The aggregate conceals that food prices rose and non-food prices fell. 
Following the yesterday’s stronger than expected manufacturing PMI, the UK
reported an unexpected rise in the construction PMI.  It rose to 53.1 from
52.2.  Many had looked for a small
pullback.  It is the strongest reading since December and is above the Q1 average (52.3).  Sterling is a
little softer against the dollar.  Although the market is not showing much
penchant for testing the $1.3000-$1.3055 area, pullback remains limited too.  Support over the past five sessions has
been build in the $1.2865-$1.2885 area.  

Sterling is steady to firm against the euro, despite the front page story
in the Financial Times being the EU’s demand for 100 bln euro as part of the
cost of severing the treaty. 
   Ultimately, the important
thing at this juncture is not the amounts being
about, but an agreement on the methodology for calculating that cost.  The other
point that may still not be fully grasped
is that with Article 50 being triggered,
the balance of power shifts to the EU and away from the UK.  

The Australian dollar is the weakest of the majors.  It is off
about 0.7% at ~$0.7485.   It is snapping a three-day advance that brought
it up from $0.7440 to $0.7555 yesterday.    A sell-off in financials
and material sectors dragged Australian shares 1% lower, which is the largest
loss in six weeks, after reaching a two-year high at the start of the

Iron ore and copper prices are weaker today.  We note that oil
prices have stabilized after yesterday’s 2.4% drop on news of stepped up Libyan
output.  The decline in the API inventory estimate steadied prices after
hitting six-week lows.  According to the API, US crude inventories fell
4.16 mln barrels last week and gasoline
inventories fell by 1.93 mln barrels.  The DOE estimate is due out later
today.  By its calculations, oil inventories have fallen for the past two

In contrast, New Zealand posted a
healthy jobs report, the unemployment rate unexpectedly ticked down to 4.9%
from 5.2%, on stronger than expected jobs growth.
  The New Zealand
dollar initially rallied to almost $0.6970, a six-day high, before reversing
lower, setting the stage for a possible shooting
star candlestick formation
, depending on the close. 

Before getting to the FOMC meeting, investors will learn the ADP estimate
for private sector jobs (~175k after 263k in March). 
It so badly
missed the March BLS non-farm payrolls estimate (89k) that today’s report may
not have much impact.  Shortly after the ADP report, the US Treasury will
make two announcements.  First, it will announce the size of the Q2
refunding.  Second, it will release the minutes of the recent advisory
committee meeting that likely discussed the issuance of a ultra-long Treasury

This is a decision that the
Treasury Department makes without Congress.
  Many participants are
skeptical that a sufficient supply of say 50-year bonds can be issued that will significantly impact the
average duration of the $14 trillion (marketable securities) market. 
There is also concern that in order to
draw investors into that duration, a concession (higher yields) will be demanded.   

The US also reports services PMI and non-manufacturing ISM.
   The flash PMI slipped to 52.5 from 52.8.  It was the third
consecutive decline.  The Bloomberg survey has the April ISM rising to
55.8 from 55.2.  The peak since October 2015 was set in February at 57.6.   

There is no press conference following the FOMC meeting. 
Besides some minor adjustments to its economic assessment, we do not expect the
statement to change very much.  It is too much to expect strong clues into the June meeting.  The Bloomberg calculation puts the odds of a
June hike at almost 61%, while the CME’s estimate puts it at 63%.  Yet the US two-year yield is lower than it was
when the Fed hiked rates last December and in March.   

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