Equity markets soften as investors avoided risk after the IMF downgraded its global growth forecasts. Crude oil fell on the lower growth outlook and Russian voicing approval with the current level of oil prices. The USD weakened as treasuries yields fell, with safe-haven demand boosting JPY and lesser extent CHF. FX Volatility has vanished or gets pushed to a dark corner of the liquid EM universe. Overall, we see price action as a reaction to the lack of real drivers ahead of today business schedule. The highlight will be the EU response to the UK request for another Brexit extension and ECB policy meeting. Markets expect the extension to be granted which should be GBP positive. From the ECB we could get some discussion on TLTRO and reserve tiers but nothing groundbreaking.
In the US, the CPI inflation report will bring headline which is expected to hit 0.4% m/m on the back of gasoline prices. However, more importantly for Fed policy, core will read a modest 0.1% sending annual core read down .1% to 2.0%. The trend in core will likely generate expectations for the Fed to keep dovish bias. This should be generally negative for USD but within the macro context unlikely to be game-changer. Finally, the release of the March FOMC Minutes will have investors focused on factors driving US growth and discussion over rate cuts (unlikely). Markets are likely to remain in current markets, as investors are pricing in a tail-like event over micro-tuning forecasts.
By Peter Rosenstreich
