Market Review - Fundamental Perspective - 24 April 2018

US equities closed slightly lower yesterday on firmer US yields, while Asian stocks retraced from near two-week lows overnight. The main focus was on the surging US 10-year Treasury yields which were driven higher by a rally in oil prices and the subsequent increase in inflation expectations, now approaching the psychologically level of 3% again
The spike in oil prices towards $69/ barrel continues to be driven by tensions in the Middle East and falling US crude stockpiles
In FX, the USD continued to strengthen throughout yesterday’s session supported by higher rates, with the USD Bloomberg Spot Index reaching a near 3-month high. At the same time, the 60-day correlation between the USD index and benchmark Treasury 10-year yields has now turned positive again, after dipping into negative territory during the past few months
EM high-yielders, JPY and AUD came most under pressure versus the USD as a result of the greenback’s rally
GBPUSD continued to sell off yesterday, mainly due to broad-based USD strength, but also due to caution relating to Thursday’s House of Commons’ vote on whether the UK should be in a Customs union following the Government’s defeat last week in the House of Lords. While only a symbolic motion and non-binding, the vote could put increased pressure on the Government and stoke internal conflicts in the Conservative Party
Euro area April “flash” PMIs printed broadly in line with our above consensus forecast at 55.2, unchanged from the March reading. Current euro area PMI levels are high, and if they remain stable for the rest of Q2, would be consistent with Barclays Research’s 0.6% q/q GDP growth forecast

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