“Please sir, I want some more” – Oliver Twist. 

The removal of fear brings an extension of greed. The fear of a no-deal Brexit receded a bit as the UK Parliament pushed back on all alternatives and asked for an EU extension in the midst of chaotic politics. The fear of a no-deal US/China talks receded further as a summit between Trump/Xi sets up for 4-6 weeks.The fear of another FOMC flip-flop on rate guidance receded with a tame but strong US jobs report with rates still expected to be lower elsewhere. The RBNZ dovish outlook sent NZD lower, the RBI cut helped send the INR lower.  The risk-on mood for the week ensued with JPY the best example as 112 returns as the upper boundary next likely to be in play for an otherwise dull time for FX.  

The lack of fear drives down volatility everywhere and the stretch for yield follows along with all the implications for passive program trades. The excitement for some came with Trump again calling for the FOMC to cut rates and this time to throw in more quantitative easing. Trumps push to add two of his political supporters with less than ideal academic credentials to the Fed add to fears about independence, even while he notes he is stuck with Chair Powell. The wearing off of the US fiscal stimulus leaves a bigger deficit and a slowing economy, albeit one that remains above potential. The wish for many investors is more, just like the US President, wanting more momentum, more growth to justify an otherwise gloomy world where growth and trade forecasts are still being cut.  

The synchronized slowing of global growth has become the clarion call for central bankers to do more than stop normalization, with all eyes to the FOMC minutes and ECB next week. Delivering more in monetary policy will likely do less, leaving the gap for fiscal and reform wider than ever into the rest of 2019. The return of JPY to 112 maybe the key balancing act for geopolitical fears as China/US hopes meet the reality of a slowing Japanese economy stuck with a BOJ at the limit and Abe’s VAT hikes clashing against positions set up for the worst outcomes. 

Themes:

• European Bank Reform: Last week saw UniCredit prepare a rival bid for Commerzbank should the Deutsche talks fail and the BdF Governor Villeroy jumps into the deep end of the pool pushing for banking consolidation ideas. “A useful step towards forming genuine pan-European banking groups could be to lower capital requirements of European subsidiaries, while safeguarding their financial position through credible cross-border guarantees provided by the parent company, which could be triggered both in normal times and in crisis situations,” Mr Villeroy de Galhau said in Bucharest on Friday.” “This would be based on European Union law and enforced by European Union authorities,” added Mr Villeroy de Galhau, one of the leading candidates to succeed Mario Draghi as European Central Bank president later this year. 

• The chase for yield continues. While the S&P500 rallies to new highs for the year, bond funds see more inflow and equities see more outflow. 

The divergence of flows to price has been seen before most notably in 2016 when stocks rose 5% and outflows were $93 billion. The rally Friday in the S&P500 happened in low volume – the second lowest of the year. For the month, volumes are 15% below average. Some of the price up in equities relates to corporate buybacks - $227 billion in 1Q 2019 up from $143 billion in 1Q2018.  

Some of the price is due to option hedging – with open interest in the derivatives $446 billion from -$1.2 trillion in December.  Global bond funds attracted $11.4bn in the week ending on Wednesday, the second strongest seven-day stretch of the year, according to data from EPFR Global. The push marked 13 weeks of positive investor inflows into bond funds globally. US bond funds were the primary recipients of week’s activity, drawing in $8.7 billion, the bulk of which was dominated by inflows into corporate debt. Investment-grade credit bond funds drew in $5.8 billion, the fourth-best week since the start of 2007, while high yield credit — a much smaller sector by assets — drew in $1.6 billion, according to EPFR Global figures.

Question for the Week Ahead: Is global trade no longer important to global growth?  

The biggest worries into 4Q 2018 were Brexit and US/China trade talks. Both hit at the way the trading world of goods and services plays out. The rise in uncertainty caused by both left many watching trade as the key for growth. However, nothing is quite that simple and the risk ahead maybe in the false hope that trade and Brexit certainty don’t bring a better growth outlook, though perhaps they remove some of the worst outcomes. The correlation of trade growth leading global growth has been in question since the great recession. The chart from the WTO with its new forecasts for 2019 and 2020 suggests that trade below average doesn’t mean much for global growth at average. 

The WTO last week released its updated 2019 forecasts. They see 2.6% trade growth (down from 3.9%) and 2.6% global GDP. In 2020 they see trade growth at 3% and global GDP at 2.6%. WTO Director-General Roberto Azevêdo said: "With trade tensions running high, no one should be surprised by this outlook. Trade cannot play its full role in driving growth when we see such high levels of uncertainty. It is increasingly urgent that we resolve tensions and focus on charting a positive path forward for global trade, which responds to the real challenges in today's economy – such as the technological revolution and the imperative of creating jobs and boosting development.”  

The WTO also noted that beyond trade tensions there were one-off events like the US government shutdown and German auto manufacturing issues that hit trade and growth. The import/export charts from the WTO highlight the situation.

The risk of a no-deal world on trade with unilateral tariffs, a "worst case" scenario, would lead to a reduction in world GDP in 2022 of about 2% and a reduction in global trade of about 17% compared to baseline projections. For comparison, global GDP fell about 2% and global trade dropped about 12% in 2009 following the financial crisis, according to the WTO report. But there are clearly other factors at play also hitting growth beyond trade uncertainty. The US government spending shift post the tax reform being a key focus. The growth of 2019 and 2020 pivots on the other growth components. 

Market Recap:

Mixed global growth data with China PMI beating up 1.3 to 50.5 and Europe weaker with German PMI -2.5 to 44, along with Japan’s Tankan and consumer sentiment at 2-yar lows. Also notable noise in economic data as Germany saw -8.4% factory order drop and a 2.3% industrial production rise in February. RBA was on hold, RBI eased as expected. UK Parliament didn’t pass any Brexit deals but wants an extension from EU. Trump and Liu meet and trade deal summit in 4-6 weeks now expected. Australia plans a A$158 billion tax cut into the election. Turkey saw the AKP ruling party lose Ankara and Istanbul though Erodogan orders recount. The Fed speakers sounded dovish enough while the ECB continues to chat about rate-tiering and the minutes of their meeting make clear the dovish tilt. US jobs data was a goldilocks outcome with better with more NFP, less participation and lower than expected wage growth. 

Equities:

The MSCI all-country World Index rose 2.04% to 519.04 on the week. The MSCI EM index rose 2.55% to 1085.14 on the week. China and Germany led the rally while India lagged in the big eight bourses. 

• The S&P500 rose 2.06% to 2,892.74 on the week. The DJIA rose 1.91% to 26,424.99 on the week. The NASDAQ rose 2.71% to 7,578.84 on the week. The Cboe VIX fell -0.89pp to 12.82 off 6.49% on the week. 
• The Stoxx Europe 600 rose 2.41% to 388.23 on the week. The German DAX rose 4.20% to 12,009.75 on the week. The French CAC40 rose 2.35% to 5,476.20 on the week. The UK FTSE100 rose 2.30% to 7,446.87 on the week.  The Italian MIB rose 2.22% to 21,758.61 on the week. 
• The MSCI Asia Pacific Index rose 1.7% to 162.53 on the week.  This was a shortened week for Hong Kong and China given the Friday holiday. The Japan Nikkei rose 2.84% to 21,807.50 on the week. The Hong Kong Hang Seng rose 3.04% to 29,936.32 on the week. The China Shanghai Composite rose 5.04% to 3,246.57 on the week. The India Nifty 50 rose 0.36% to 11,665.95 on the week. The Korea Kospi rose3.22% to 2,209.61 on the week. The Australian ASX rose 0.14% to 6,270.60 on the week. 

Fixed Income

The rally up in equities led to higher rates particularly in the US. Some of this comes from lower hard Brexit fears, some of it from better China PMI reports. The hope for a US/China trade deal also continues to drive. However, the dovish tilt to central bankers holds and keeps rates tame in comparison to equities. In Europe, Italy suffered with weaker growth and EU budget battle issues returning mixing with uglier politics as 5-Star and the league battle for control. The Greek bonds had a winning week on better growth and relative stability. Focus in Asia was on China more than US with curve steepening notable. 

• US bonds see curve steeper 5-30Y, 3M-10Y with jobs, trade hopes key– for the week:  2Y up 7bps to 2.34%, 3Y up 7bps to 2.30%, 5Y up 7bps to 2.31%, 7Y up 8bps to 2.40%, 10Y up 8bps to 2.50%, 30Y up 9bps to 2.91%. 
• Canadian 10-year bond yields rose 8bps to 1.70% on the week. The mixed data and tame BOC speeches mixed with higher oil and US moves. 
• Japan JGBs see curve steeper with BOJ, US moves, China focus – for the week: 2Y up 2bps to -0.15%, 5Y up 3bps to -0.16%, 10Y up 6bps to -0.03%, 30Y up 5bps to 0.54%. 
• Australian bonds sold on China hopes, curve steepening, budget despite RBA – for the week: 3Y up 3bps to 1.45%, 10Y up 11bps to 1.90%. New Zealand 10Y up 18bps to 2.02%. 
• China bonds lower in bear steepening trade with US/China talk focus– for the week: 2Y up 1bps to 2.65%, 5Y up 11bps to 3.08%, 10Y up 19bps to 3.30%. 
• UK Gilts sold with Brexit delays hopes key– for the week: 5Y up 11bps to 0.86%, 10Y up 12bps to 1.12%, 30Y up 11bps to 1.66%. 
• German Bunds see curve steeper with ECB tiering hopes, better equities– for the week: 2Y up 1bps to -0.58%, 5Y up 3bps to -0.45%, 10Y up 7bps to 0%, 30Y up 7bps to 0.64%. 
• French OATs see curve steeper, focus is on Macron, EU elections– for the week:  2Y up 3bps to -0.50%, 5Y up 3bps to -0.23%, 10Y up 5bps to 0.37%, 30Y up 3bps to 1.39%. 
• Italy BTPs see bear curve steepening with weaker growth and EU budget, politics and EU elections driving– for the week: 2Y up 38bps to 0.63%, 5Y up 2bps to 1.53%, 10Y off 1bsp to 2.47%, 30Y off 2bps to 3.46%. 
• Spain 10-year bond yields up 1bps to 1.11% on the week, with focus on elections, growth and ECB. 
• Portugal 10-year bond yields flat at 1.27% on the week, with focus on politics, budgets and ECB. 
• Greek 10-year bond yields off 21bps to 3.53% on the week, with focus on higher growth, lower inflation, ECB and chase for yield. 

Foreign Exchange

The US dollar index rose 0.1% to 97.40 on the week. In Emerging Markets, the USD was mixed for the week – LATAM: MXN up 0.4% to 19.073 with border closing risks pushed back, BRL off 0.35% to 3.8730 with politics still dragging, ARS off 1.2% to 43.871 with inflation/politics key; ASIA: CNY up 0.1% to 6.711 with trade talks, INR off 0.3% to 69.16 with RBI and oil and election; KRW off 0.1% to 1136.70 with CPI down, growth down; EMEA: RUB up 0.2% to 65.2850 on oil, ZAR up 0.2% to 14.091 with metals; TRY off 0.65% to 5.625 on elections. 

• EUR: 1.1215 flat on the week with focus on ECB and data, 1.1160-1.1380 keys. 
• JPY: 111.75 up 0.8% on the week with risk-on mood driving 110-112 still key, EUR/JPY 125.30 up 0.8% on the week – reflecting equities. 
• GBP: 1.3035 flat on the week with Brexit focus dragging on and 1.30 pivot holding – EUR/GBP .8600 flat on the week with .8520-.8700 key. 
• CHF: 1.0000 up 0.45% on the week with risk-on driving, watching JPY, ECB with EUR/CHF 1.1215 up 0.5% - focus is on 1.00 pivot for 1.0080 for USD. 
• AUD: .7150 up 0.15% on the week with focus on RBA vs. China growth and crosses with .7050 to .7250 key. NZD off 1% to .6730 with RBNZ the driver and .6820 pivotal. 
• CAD: 1.3380 up 0.3% on the week with data mixed, BOC dovish enough, but oil and politics better leaving 1.3250-1.3450 intact. 

Commodities

The S&P/GSCI total return index rose 3.03% to 2,609.97 on the week. Platinum led the week with Oats and Cocoa while Spring Wheat, Rice and OJ all lagged. 

• Oil: $63.08 up 4.89% on the week. Brent $70.34 up 2.85% on the week. Despite higher US inventories, Libya disruption fears, Saudi output drop and higher global demand hopes led with $70 Brent break key. $65 WTI next target. 
• Gold: $1291.30  off 0.05% on the week. Going nowhere fast with USD and FX calm, risk-on keeping $1302 cap intact and $1282-$1286 holding. Silver off 0.35% to $15.08 on the week with $15.50 cap holding. Platinum up 5.85% to $895 – catch up to Palladium – which fell 1% to $1370 on the week. 
• Corn: $362.50 up 1.7% on the week with planting focus. Soybeans up 1.7% to $899 with trade deal hopes and Wheat up 2.2% to $467.75 on crop focus. 
• Copper: $2.9085 off 1.2% week and with May futures $2.8925 off 1.35% on the week. Housing and doubts about China real demand driving, divorce from equities notable. Iron Ore May futures jumps 11.7% to $91.45 on typhoon disruptions, China demand.

Calendar for the Week Ahead

The week starts slowly but will focus on China/US trade talks and Brexit still. The EU emergency meeting and the UK plans will likely make the ECB decision and IMF meetings in Washington less forceful. The data ahead matters – particularly that from China with CPI/PPI and Trade all being watched for seasonal bounce backs. The US CPI/PPI and JOLTs also matter along with the factory orders, University of Michigan sentiment and the absorption of US bond supply along with Fed speakers including Powell at IMF meetings. 

Monday, April 8: Japan EcoWatchers, German Trade, US Factory Orders

• 0750 pm Japan Feb Current Account Y600.4bn p Y2.68trn e
• 0100 am Japan Mar consumer confidence 41.5p 42.3e
• 0100 am Japan Mar EcoWatchers 47.5p 46.7e / outlook 48.9p 49.3e
• 0200 am German Feb trade surplus E14.5bn p E16.5bn e / imports (m/m) 1.5%p -0.7%e / exports 0%p -0.5%e / C/A E18.3bn p E17.5bn e
• 0815 am Canada Mar housing starts 173.1k p 193k e
• 1000 am US Feb factory orders (m/m) 0.1%p -0.6%e / ex trans -0.2%p 0.1%e
• 1100 am US Mar consumer inflation expectations 2.79%p 2.8%e

Tuesday, April 9: US JOLTS, NFIB

• 0930 pm Australia Feb home loans (m/m) -2.6%p -2%e / investment lending -4.1%p -3.6%e
• 0400 am Italy Feb retail sales (m/m) 0.5%p 0.1%e (y/y) 1.3%p 0.1%e
• 0545 am UK DMO sells 10Y Gilts
• 0600 am US Mar NFIB business optimism 101.7p 101.3e
• 0900 am Mexico Mar inflation (y/y) 3.94%p 3.94%e
• 1000 am US Apr IBD/TIPP economic optimism 55.7p 54e
• 1000 am US Feb JOLTS job openings 7.581m p 7.565m e
• 1200 pm US WASDE report
• 0100 pm US 3Y note sale
• 0430 pm US weekly API crude oil stocks 2.963mb p 1mb e
• 0645 pm FOMC vice-chair Clarida speech

Wednesday, April 10: Japan machinery orders, UK trade, IP, ECB decision, US CPI, FOMC Minutes

• 0700 pm Korea Mar unemployment rate 3.7%p 3.9%e
• 0750 pm Japan Feb Machinery Orders (m/m) -5.4%p +2.5%e 
• 0750 pm Japan Mar PPI (m/m) 0.2%p 0.2%e (y/y) 0.8%p 1.1%e
• 0830 pm Australia Apr Westpac consumer confidence 98.8p 97e / -4.8%p -1.8%e
• 1030 pm RBA Debelle speech
• 0215 am BOJ Kuroda speech
• 0245 am French Feb industrial production (m/m) 1.3%p -0.5%e
• 0400 am Italy Feb industrial production (m/m) 1.7%p -0.8%e
• 0430 am UK Feb GDP (m/m) 0.5%p 0%e (y/y) 1.4%p 1.7%e
• 0430 am UK Feb trade deficit G3.82bn p G1.2bn e 
• 0430 am UK Feb construction output (y/y) 1.8%p 2.4%e
• 0430 am UK Feb industrial production (m/m) 0.6%p -0.1%e (y/y) -0.9%p -0.8%e / manufacturing (m/m) 0.8% p 0.2%e (y/y) -1.1%p -0.6%e
• 0540 am German 5Y Bobl sale
• 0745 am ECB rate decision – no change from 0% or -0.4% depo expected.
• 0830 am ECB press conference with Draghi
• 0830 am US Mar CPI (m/m) 0.2%p 0.3%e (y/y) 1.5%p 1.8%e / core 2.1%p 2.1%e
• 1030 am US weekly EIA crude oil stocks 7.238mb p 5.04mb e
• 1150 am FOMC vice-chair Quarles speech
• 0100 pm US sells 10Y notes
• 0200 pm ECB Coure speech
• 0200 pm US monthly budget statement -$234bn p -$212bn e
• 0200 pm FOMC Minutes

Thursday, April 11: China CPI/PPI, OPEC and IEA monthly, India elections, US PPI, Fed Speakers. 

• 0930 pm China Mar CPI (m/m) 1%p -0.2%e (y/y) 1.5%p 2.3%e
• 0930 pm China Mar PPI (y/y) 0.1%p 0.5%e
• 0200 am German Mar final HICP (m/m) 0.5%p 0.5%e (y/y) 1.7%p 1.4%e / national 1.5%p 1.3%e
• 0245 am French Mar final HICP (m/m) 0.1%p 0.9%e (y/y) 1.6%p 1.3%e / national 1.3%p 1.1%e
• 0400 am China Mar vehicle sales (y/y) -13.8%p
• 0440 am Spain sells 3-5-10Y bonds
• 0545 am Italy sells 3-7-30Y bonds
• 0830 am Canada Feb new home prices (m/m) -0.1%p -0.1%e
• 0830 am US Mar PPI (m/m) 0.1%p 0.3%e (y/y) 1.9%p 1.9%e / core 2.5%p 2.5%e
• 0930 am Fed speakers Clarida, Williams, Bullard
• 1100 am Mexico Banixco minutes
• 0100 pm US sells 30Y bonds
• 0400 pm Fed Bowman speech 

Friday, April 12: China trade, EU IP, India IP, inflation; US Michigan consumer sentiment, IMF meetings. 

• 0930 pm RBA financial stability review
• 1100 pm China Mar trade surplus $4.08bn p $8.8bn e / exports -20.7%p +7.3%e / imports -5.2%p -1.3%e
• 0200 am German Mar wholesale prices
• 0300 am Spanish Mar final HICP (m/m) 0.2%p 0.4%e (y/y) 1.1%p 1.3%e / national 1.1%p 1.3%e
• 0500 am Eurozone Feb industrial production (m/m) 1.4%p -0.6%e (y/y) -1.1%p -1%e
• 0800 am India Feb industrial production (y/y) 1.7%p 2.1%e / manufacturing 1.3%p 1.8%e
• 0800 am India Mar inflation rate (y/y) 2.57%p 2.8%e
• 0830 am US Mar import prices (m/m) 0.6%p 0.4%e / export 0.6%p 0.2%e 
• 0845 am ECB Praet speech
• 1000 am US Apr prel University of Michigan consumer sentiment 98.4p 98e
• 0100 pm IMF/World Bank meetings in Washington

Conclusions: Are we still stuck with Brexit and US/China trade talks as the only stories that matter?  

The week ahead makes clear we remain in a world where politics trump economics. The muted reactions to data last week highlight this point – China PMI beats and German Factory Order misses being the exceptions. Many want to believe that with some stability and conclusion to US/China trade and to the UK eternal Brexit debates that global growth returns. Others just see the TINA and FOMO pushes for risk-on as central bankers retreat back to easy money policy. There is no getting around the dynamic tension of uncertainty clashing with lower volumes and lower volatility that follows. This makes all price chasing programs vulnerable to larger worst-case outcomes.  

The big four US data indicators are mixed as employment and income are strong but retail sales and industrial production have been below trend. This economic result will continue to lead FOMC policy responses despite the best wishes of investors and the US President.  

The IMF meetings in the week ahead will be interesting to watch for how the US, China, Europe outlooks converge in economic forecasts and yet diverge in markets. Lagarde said as much ahead of the meetings warning that they will cut growth forecasts again. The FT-Brookings global tracking index is telling us that we are back to 2016 growth with risk of lower both in developed and emerging economies. Professor Eswar Prasad of the Brookings Institution said the slowdown did not yet appear to be heading for a global recession, but all parts of the world economy were losing momentum. “The nature of the slowdown has ominous portents for these economies over the next few years, especially given present constraints on macroeconomic policies that could stimulate growth,” he said. 

The next week seems set to be more about how markets resolve the divergence of economic slowdowns with market rebounds and the role of central bankers in manipulating stability against the noise of politics, then in anything like a Spring celebration moment with new momentum leading to new highs.  The world seems to be seeing a dramatic increase in uncertainty and the meetings in the week ahead are unlikely to change it. The week maybe more about listening for key words and parsing them into the right buckets before trading.