Risk assets drifted sideways – weekly update 15 April

Risk assets drifted sideways – weekly update 15 April

Ben Seager-Scott
Published: 15 Apr 2019 Updated: 13 Jun 2022

Risk assets drifted sideways and core sovereign bonds weakened amidst early signs of a potential rebound in business activity. The European Central Bank (ECB) stayed in a holding pattern and US inflation remained on target. Earnings season picks up from here and over the next couple of weeks we will get the first estimates for the first quarter GDP from China and the US.

Activity indicators in the UK showed early signs of a rebound

Activity indicators in the UK showed early signs of a rebound. UK Industrial Production growth expanded 0.6% month on month (mom) in February (0.1% was expected), after an upwardly-revised 0.7% in January. This positive start to the year means that UK Industrial activity was actually up compared to a year earlier, expanding a marginal but still positive 0.1% year on year (yoy) well-ahead of the -0.9% contraction expected. The caveat, of course, is that much of this is being attributed to Brexit-related stockpiling, as was the case with the latest Manufacturing PMI reading discussed last week. Services growth was more subdued, growing 0.4% as expected for the three-month on three-month comparison (previously 0.5%).

The Eurozone also saw some encouraging business activity measures

The Eurozone also saw some encouraging business activity measures. The prior Industrial Production reading for January was revised up from an already-impressive 1.4% to 1.9% mom, while the first look for February showed a small contraction of -0.2% which was ahead of the -0.5% expected.

Within the geographical breakdown, Germany continued to struggle overall but did see a pick-up in auto manufacturing, while France and Italy continued the strong growth seen for January into February. I’ve used the mom numbers here, given our current focus on the potential bottoming out and recovery of economic indicators, which these data may be indicating the early stages of yoy Eurozone Industrial Production contracted -0.3%, well ahead of the -0.9% expected, while the January reading was revised up from -1.1% to -0.7%.

Inflation in the US remained around target

Inflation in the US remained around target. Headline CPI inflation rose from 1.5% to 1.9% yoy, slightly ahead of the 1.8% forecast, driven energy prices, with gasoline prices surging 6.5% during the period. Core CPI, which strips out the volatile energy and food components, unexpectedly dipped from 2.1% to 2.0% yoy, but within that shelter inflation – an important component measure – continued to accelerate. It was apparel that detracted with a sharp fall (down -1.9%), but this was largely explained by a change in collection methodology.

The European Central Bank remained in a holding pattern

The ECB remained in a holding pattern, indicating that economic growth risks continue to be tilted to the downside and once again seeming to endorse market pricing of the interest rate path. There was no change to monetary policy, and while ECB President Mario Draghi readily volunteered that discussions on tiering took place, there were no further details on this or the terms of the latest TLTRO offering, aside from a promise to provide full details in the near future – mostly likely at the June or July meetings.

Last week’s other events

  • The latest Brexit developments saw the UK granted a compromise extension to 31 October amid signs of growing tensions on the European side, especially France wanting a shorter extension to the end of June, and the rest of the bloc wanting a longer extension of around a year
  • In China, exports has a strong recovery with growth of 14.2% yoy in USD terms in March, recovering from a -20.8% contraction in February and well ahead of the 6.5% forecast. Imports contracted -7.6% over the same period, a deterioration from the -5.2% seen previously and defying forecasts for a bounce to 0.2%. There were also signs that credit growth had picked back up. CPI inflation rose from 1.5% to 2.3% yoy as expected
  • In Japan, the Eco Watchers Survey Outlook dipped from 48.9 to 48.6 (a pick-up to 49.1 was expected), and Consumer confidence mirrored this, falling from 41.5 to 40.5 (no change was expected). Core Machine Orders for February also showed deterioration, contracting -5.5% yoy, from -2.9% (-4.6% was expected)

The markets

Risk assets drifted sideways last week while core sovereign bonds weakened.


Equity markets paused for breath last week after the strong run the week before and in anticipation of the earnings season. US equities were the best performing of the main indices we track here, up 0.6% for the week. Continental Europe and the UK both returned 0.2%, whilst Japan was the worst performing region, down -1.1%. Emerging Market equities returned 0.3% (all indices are MSCI measures, total return in local currency).


Core sovereign bond yields moved higher towards the end of the week. 10-year US Treasury yields were up 7 basis points (bps) by the end of the week to close at 2.57%. 10-year gilt yields were 10 bps higher to 1.21% and the equivalent German Bund yields picked up 5 bps to 0.06%. Japanese Government bonds bucked the trend, though, with 10-year yields dropping further into negative territory, falling 3 bps to -0.06%.


Commodities were fairly directionless last week. Gold finished at US$1,290 per ounce, copper at US$2.95 per lb and Brent Crude at US$71.55 per barrel.


The Euro was the main strengthener last week, while the Japanese Yen softened. Sterling closed on Friday at US$1.31, €1.16 and ¥146.

The two weeks ahead

There will be no note next week due to the bank holiday weekend, so here we will preview the highlights for the next two weeks. Earnings season really starts picking up, which will give the market some useful bottom-up insight. We also have the first estimates of the first quarter GDP data due out from China on the first Wednesday (6.3% from 6.4% yoy expected), and US first quarter GDP on the last Friday of the period (the 26th, with forecasts of 1.6% annualised from 2.2% in the fourth quarter). There will also be a raft of activity data to look out for, including the latest data batch release from China on the first Wednesday, Retail Sales from the US and UK on the first Thursday, PMI readings from the US and Eurozone (first Wednesday) and US Durable Goods (second Thursday). The details are below in the daily breakdown:

Monday 15 April: UK House Prices are reported by Rightmove a minute after midnight, and in the afternoon the US Empire Manufacturing reading is released.

Tuesday 16 April: The highlight of the morning will be the UK labour market report – Average Weekly Earnings are forecast to pick-up from 3.4% to 3.5% yoy (three-month period). Also in the morning will be Eurozone Construction Output and the latest results from the ZEW business sentiment surveys. In the afternoon, US Industrial Production is forecast to have picked up from flat in February to 0.2% mom growth in March.

Wednesday 17 April: It’s a busy couple of days starting on Wednesday, with Japanese trade data out first thing, followed by the Chinese data release – in addition to GDP data (covered above), Industrial Production growth is forecast to have picked up from 5.2% to 5.6% yoy (year-to-date basis), Retail Sales are expected to have risen from 8.2% to 8.3% and Fixed Asset Investment is expected at 6.3% from 6.1%. Later in the morning, the UK reports CPI inflation (2.0% from 1.9% yoy expected).

Thursday 18 April: The morning gives us Eurozone PMI readings, where expectations are for Manufacturing PMI to rise from 47.5 to 48.0, whilst Services PMI are forecast to dip from 53.3 to 53.1; UK Retail Sales figures are also released – markets expect 4.5% yoy growth from 4.0% previously. In the afternoon, US Retail Sales are forecast to have grown 1.0% mom for March (Advance measure) from a -0.3% contraction in February, and the latest PMI readings from Markit are reported – Manufacturing PMI is expected at 52.8 from 52.4, whilst Services PMI is forecast at 55.0 from 55.3.

Friday 19 April: The Good Friday bank holiday means most markets are closed, but we will still see Japan report CPI inflation (0.5% from 0.2% expected) as well as US Housing Starts and Building Permits.

Monday 22 April: There are still some data releases on Easter Monday, including the Chicago Federal Reserve’s National Activity Index and US Existing Home Sales.

Tuesday 23 April: Japan reports Manufacturing PMI in the morning, and in the afternoon we have Eurozone Consumer Confidence and the Richmond Fed’s Manufacturing Index to look forward to.

Wednesday 24 April: Early in the morning, Japan reports the all Industry Activity Index and the associated Leading and Coincident indices. Later, the German IFO business survey results are out.

Thursday 25 April: The UK’s CBI reports Business Optimism and Order Trends in the morning. In the afternoon, US Durable Goods Orders are expected to have bounced from a -1.6% contraction to 0.4% mom growth for March, and later in the afternoon it’s the turn of the Kansas City Federal Reserve to report its Manufacturing Activity index. Thursday also has the latest Bank of Japan monetary policy meeting.

Friday 26 April: Early in the morning, Japan reports Industrial Production and Retail Sales figures, and then in the afternoon the first estimates of US GDP will be the highlight to see the week out (details above).


This article was previously published on Tilney prior to the launch of Evelyn Partners.