EUROPEAN EQUITY OPEN: Stocks are on course for a second straight week of gains, but Friday's open has been cautious ahead of key Eurozone inflation data

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  OVERNIGHT: On Wall Street, stocks extend gains on Thursday despite weakness in banks and strength in havens (see here). Asian stocks were mostly higher heading into quarter-end, and amid a slew of data including better-than-expected Chinese PMIs (see here). The official NBS PMI data saw the non-manufacturing index rise to the highest since 2011 at 58.2 (from 56.3), above the expected 55.0; manufacturing index ease to 51.9 (from 52.6), a little above the expected 51.5; that helped the composite index to rise to 57.0 from 56.4 (also the highest since 2011). Analysts said the manufacturing gauge was weighed on by the weak global manufacturing landscape, while the services sector is being supported by a bounce-back in consumer spending, while construction was supported by fiscal policy. "This strength won’t be sustained indefinitely, however," Capital Economics said, "with much of the immediate boost from dismantling virus restrictions now already passed and policy set to turn less accommodative, the recovery is likely to moderate over the coming months."


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  EUROPEAN OPEN: European equities have opened flat/mixed, though are still on course for a second straight week of gains. The narrative is subject to change given the key Eurozone inflation data out later in the morning, which will help shape expectations for the ECB policy in the months ahead. Annual French HICP fell to 6.6% Y/Y fin March from the 7.3% in February, while the national measure of CPI eased to 5.6% Y/Y in March from the 6.3% Y/Y – while both measures fell, they were both one-tenth of a percentage point higher than what the consensus was expecting, a similar dynamic seen in the German data released Thursday. In reaction to the data, the EUR rose and EGB yields ticked up. This may leave some upside risks relative to the consensus estimates for today’s Eurozone-wide data, which are expected to show a slowing in the headline rate to 7.1% Y/Y from 8.5%; but analysts will likely be paying greater attention to the core measures, where the core and super core are seen rising by one-tenth of a percent apiece to 7.5% Y/Y and 5.7% Y/Y respectively. Also on the inflation front, US PCE measures for February will be released in the afternoon, which will help shape expectations for the Fed’s May meeting (see Day Ahead, below). Our European stock specific briefings for March 31st can be accessed here and here.


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  OTHER EUROPEAN DATA: Data from Germany showed February retail sales falling 1.3% M/M (exp. +0.5% M/M), which pushed the annual rate down to -7.1% Y/Y from the -6.9% in January. Meanwhile, German import prices eased 2.4% M/M, deeper than the -1.0% M/M the street was looking for; the annual rate pared back to +2.8% Y/Y from +4.2% in January. Data out of the UK showed GDP growth of 0.6% Y/Y in Q4 (final), above the expected and prior +0.4%; the quarterly measure was revised to +0.1% from 0.0%. Capital Economics said that the upward revision to real GDP growth in Q3 and Q4 of last year suggests that high inflation took a slightly smaller toll on the economy than previously thought, but it is still forecasting a recession this year, given that around two-thirds of the drag on real activity from higher rates is yet to be felt. In the housing market, Nationwide’s monthly data showed house prices falling at a rate of -3.1% Y/Y, a deeper fall than the expected -2.2%.

DAY AHEAD:

• Our full interactive calendar can be accessed here; a pdf version can be accessed here.


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  EUROPEAN DATA/SPEAKERS: The Eurozone inflation print for March is expected to show a cooling in the headline rate to 7.1% from 8.5%, but analysts will likely be paying greater attention to the core measures, where the core and super core are seen rising by one-tenth of a percent apiece to 7.5% Y/Y and 5.7% Y/Y respectively. There are also some noting upside risks relative to consensus after the hotter-than-expected German inflation data in the month. Elsewhere, Germany’s March labour market data is likely to be little changed on the month. On the speakers’ slate, ECB President Lagarde will be delivering some remarks at a student event, but no text is expected, and she has already spoken on quite a few occasions post the ECB’s policy meeting.


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  NORTH AMERICAN DATA/SPEAKERS: The US Personal Consumption Expenditures Price Index for February is the highlight, and the core component is expected to be unchanged at 4.7% Y/Y, while the monthly core reading is seen rising +0.4% M/M, cooling from he previous pace of 0.6%. With the FOMC in a data-dependent, meeting-by-meeting approach to setting policy, the data will help inform expectations about what the Fed will do on the May 3rd meeting, where it is currently 50-50 as to whether it lifts rates; additionally, pricing for rate cuts over the course of 2023 seems at odds with official commentary too. It is worth noting that this inflation data will not be the final piece of the puzzle, with other data ­– like next week’s NFP – is due to be released ahead of the meeting. There are a number of Fed officials due to speak in wake of the data, including Fed’s Collins (non-voter), Fed’s Williams (voter), Fed’s Waller (voter), and Fed’s Cook (voter). Elsewhere, final Michigan consumer sentiment data is released, where there will be attention on the inflation expectations components.  The docket also contains the Chicago PMI, and monthly GDP data out of Canada.


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  RATINGS: Fitch is set to review Germany's sovereign debt rating (currently AAA), while S&P may review Turkey (currently at B).


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  ENERGY: Brent May 2023 futures expire. Baker Hughes weekly rig count data will be out after the European close.

31 Mar 2023 - 08:10- Fixed IncomeData- Source: Newsquawk