PBoC Weakens Yuan, Risk Aversion Jumps

Daily Analysis - 14/04/2016

China’s Central Bank Pegged the Yuan 0.46% Lower

The People's Bank of China (PBoC) depreciated the yuan by about 0.46% yesterday marking the sharpest one day decline since January’s 0.51% depreciation this year. The yuan’s mid-point rate was set to 6.489, and this sent the US dollar spiking higher during the overnight session and also stoked a risk aversion sentiment in the market.

Eurozone Industrial Production Falls More than Expected

Industrial production in the Eurozone missed estimates, falling 0.80% in February more than analysts' forecasts of a 0.60% decline. The dip in February follows January's downward revised print of 1.90% against earlier estimates of 2.10%. The weak industrial production data came with weaker data from Ireland and Greece weighing in on the headline print. Among the sectors, consumer goods and energy production saw the biggest drag while capital goods saw marginal declines. Non-durable consumer goods fell 1.80% with intermediate goods staying stable. Over the year, industrial production rose 0.80%, missing expectations of a 1.20% increase.

US Retail Sales Fall on Large Drop in Demand for Motor Vehicles

Lower demand for motor vehicles saw US retail sales falling in March. Missing analysts' expectations of a 0.10% increase, total retail sales fell 0.30% for the month with February's print revised up to zero change versus initial reports of a 0.10% decline according to data released by the Department of Commerce on Wednesday. Motor vehicle sales fell 2.10%, posting the sharpest decline in a year after being flat in February. Excluding cars, retail sales increased 0.20% in March falling below 0.40% expectations. Stripping motor vehicles and gas station sales, retail sales increased 0.10% during the month following a 0.60% gain in February.

Bank of Canada Holds Rates Steady at 0.50%

The Bank of Canada, at its monthly monetary policy review meeting yesterday left the main interest rate unchanged at 0.50% as widely expected by analysts. The BoC sounded cautious, noting that the global slump in commodity prices may continue to weigh on Canada's growth over the next several years. Despite the cautious tone, the central bank revised its forecasts for GDP higher for 2016 at 1.70% and 2.30% for 2017. Acknowledging the government's fiscal stimulus spending announced earlier in March, the central bank said that the new measures could add as much as 0.50% to GDP growth in 2016 and 0.60% in 2017. Commenting on the stronger than expected first quarter data, the bank said that it provided the markets with false hope as it expects the gains to be reversed in the second quarter but said that real GDP growth could average 2.0% in the first half of 2016. The bank revised Q1 GDP up to 2.80% from 1.0% previously and forecasted Q2 growth was revised down to 1.0% from 2.20% previously.

Eurozone and US Inflation Data Eyed

The markets will be watching for inflation data from the Eurozone, due for release at 10:00 GMT. Headline CPI for the year is expected to rise 1.10% in March following February's 0.20% increase. On a yearly basis, headline CPI is expected to fall 0.20%, same as the previous month while core CPI is expected to rise 1.0%. Later in the day, the US consumer price index is expected to show the core CPI rising 0.20% for March on a month over month basis, following February's 0.30% increase. On a yearly basis, headline CPI is expected to rise at the same pace as in February at 1.0%. US weekly jobless claims data will also be released simultaneously and is expected to see an increase of 269k for the week ending April 9th.