The Weekly Update

US Treasuries closed out a fourth week of gains, with yields falling a further 4 basis points on the 10-year to yields of 2.4%; this brought the rally in Treasuries for the month of March to over 30 basis points. Equities also performed over the last week of March with the S&P 500 up 1.2% closing up 1.8% on the month to cement in steady monthly gains for the first quarter of 2019. It seems equities are still focusing on the stimulus effects of the recent more accommodative stance of the Fed; whereas the bond market is putting more importance on the move as another warning sign of a looming cyclical slowdown, and even near-term prospect of a recession following the US yield curve (briefly) inverting between the 3-month and 10-year points. A recession model from the New York Fed estimates a risk of recession in the next 12-months at 29%: this is higher than levels seen ahead of five of the last seven recessions. The bear-flattening of the curve has been a steady theme through March as 3-year through to 30-year yields fell between 25 and 31 basis points, while 3-month Bills shaved only 5 basis points to 2.39%. Over in Europe investors in 10-year bunds were the latest casualties to suffer negative interest rates as doubts loom over the ECB’s capabilities in the face of growing economic and political headwinds.

Whispers of a narrow-reaching trade agreement being finalised between the US-China contributed to the positive economic narrative; once disagreements over translation and defining terms are resolved the 150-page settlement could likely unwind the bulk of tariffs with some US tariffs on China remaining whilst the structural disagreements remain at an impasse. Also last week, US Special Counsel Robert Mueller submitted findings from a two year investigation. William Barr, Attorney General concluded that ‘The investigation did not establish that members of the Trump Campaign conspired or coordinated with the Russian government in its election interference activities’.

Traders in Turkish lira and markets suffered a volatile week as Erdogan imposed capital controls rocketing overnight swap rates from 23% to 1,300% in the days ahead of the local elections. Despite this and FX interventions to stave off a lira sell-off it seems Erdogan still fared poorly at the polls as Turks vent their frustration with the economy in recession, unemployment at 13.5% and inflation at 20%. Other continuing political frustrations were seen in Parliament as MPs failed to find a majority for any alternatives to May’s Withdrawal Agreement which still proceeded to lose a 3rd meaningful vote. The 29th March came and went with focus now on Monday 1st April as Parliament conduct a second round of indicative votes with many hoping that one proposition will finally draw a majority as well as unanimity of approval from the EU.

Today we have US retail sales, Eurozone flash CPI and manufacturing PMIs with unemployment rate on Tuesday along with US durable goods. On Wednesday we have services PMIs across the US, Eurozone, UK and China as well as US factory orders while US jobless claims data is out on Thursday and nonfarm payrolls on Friday. Also on Friday is Germany industrial production, France trade balance and Eurozone retail sales.

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