The Weekly Update

Last week, President Trump’s hiring and firing announcements featured heavily in the media, notably the nomination of CIA Director Mike Pompeo to replace Rex Tillerson as Secretary of State. Gina Haspel was confirmed as the nominee to replace Pompeo as the CIA Director and Larry Kudlow as the new director of the White House National Economic Council. At the end of the week, ex-FBI director Andrew McCabe also found himself fired. These events added to a sense of uncertainty and nervousness about the Trump administration’s policies, particularly after the imposition of tariffs on aluminium and steel.

US economic data releases were also important, particularly the US CPI data which was in line with expectations with the headline reading of 2.2% yoy. This reassured fixed income markets following on from the muted wage growth (2.6% yoy) for February’s non-farm payroll data. Other data points included February retail sales which fell 0.1% mom and the Atlanta Fed GDP now (seasonally adjusted annual rate) estimate for Q1 2018 which eased back to 1.8%. Both the March University of Michigan Consumer Sentiment and February industrial production readings were ahead of expectations. The Fed is expected to raise rates by 25 basis points at its upcoming meeting this week but this has largely been factored into markets already. The yield on the UST 10 year fell 5 basis points to 2.84% at Friday’s close and the UST 30 year yield fell 9 basis points to end the week at 3.07%. The yield curve flattened and the 2/10 year spread tightened to around ~55bp at Friday’s close.

The OECD upgraded its global growth forecast for 2018 to 3.9% from 3.7% in November. However, the OECD’s revised UK growth forecast was 1.3% for 2018 and 1.1% for 2019 and was highlighted as being the lowest projection of all the ‘leading advanced and emerging economies’. This tempered any positive reaction to Philip Hammond’s Spring Statement which was a low key affair lacking any policy announcements and only really updating some forecasts: the 2018 growth estimate was revised up to 1.5% from 1.4%, although medium term estimates were edged down.

Elsewhere, China’s industrial production for the first two months of the year came in ahead of expectations at 7.2% yoy, retail sales (YTD yoy) grew 9.7% yoy against expectations of 9.8% yoy growth and fixed asset investment (YTD yoy) grew 7.9% vs expectations of 7%. Wang Qishan was elected as China’s Vice President in a move that is seen as reinforcing Xi Jinping’s power and he will be tasked with managing Sino-US relations. Li Keqiang was also appointed for a second term as Premier and Liu He, one of Xi Jinping’s key economic advisors, was elected as Vice Premier. Yi Gang, who has held the position of Deputy Governor of the PBoC, was named as the next Central Bank Governor. The Central Bank also gained additional regulatory powers after the China Banking Regulatory Commission and the China Insurance Regulatory Commission were merged.

Over the weekend, the Russian Presidential Election saw Vladimir Putin re-elected with 77% support on a reported 67.5% voter turnout. Interestingly, Russia proceeded with its Eurobond sale at the end of last week which consisted of a USD1.25bn 2029 bond priced at 4.625% and a USD2.5bn 2047 tap at 5.25%. Orders came in around the USD 7.5bn mark despite it coming during a week of heightened diplomatic tensions between the UK and Russia over a nerve-agent poisoning incident. The incident resulted in the UK expelling 23 Russian diplomats and Russia retaliated by expelling 23 UK diplomats from Russia. The US also confirmed the imposition of further sanctions citing Russian involvement in a cyber-attack and interference in the 2016 election but so far these have been targeted at individuals and certain entities but seemed to avoid targeting oligarchs and government officials close to President Putin.

This week the FOMC meeting is one of the key market events: a 25 basis point rate rise is expected so the Fed’s updated set of economic projections will probably be of more interest to market participants, particularly any increase in the ‘dot plot’ interest rate forecasts. In the UK, February’s inflation data (CPI, RPI and PPI) will be watched ahead of the Bank of England’s meeting on Thursday. In Europe, Germany March ZEW survey and IFO data will be an important gauge of how the economy is performing. There is also a G-20 meeting in Argentina on Monday and Tuesday.

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