Marking Time – Wednesday, May 3

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 picked 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 1.9%.  

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 bandied 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.