Sterling softens after UK sold bonds with negative yield

Sterling is weakening mildly today after the UK sold government bonds with a negative return for the first time ever. According to the Debt Management Office, it auctioned GBP 3.75B of 3-year bonds at an average rate of -0.003%. Demand was also weak with the bid-to-cover ratio of 2.15, the lowest since March. Nevertheless, Dollar and Yen are not too far off with investors remaining in a positive mood. DOW futures point to another day or higher open. New Zealand and Australian dollar continue to expand gains, while Swiss Franc suddenly rises.

Technically, GBP / USD and GBP / JPY are losing some recovery, but this week’s rebounds are not yet threatened. EUR / GBP is more in focus in Sterling weakness and is still moving to 0.8987 near sieve-based resistance. The strength of the euro is somewhat limited by the volatility of the EUR / CHF. Despite today’s withdrawal, a further increase in EUR / CHF is expected, as long as 1.0578 less support holds, to 1.0710 cluster resistance. However, breach of 1.0578 would return the focus to 1.0503 low. AUD / USD would be a focus for the rest of the week as resuming the rally will put 0.6670 key resistance into focus.

In Europe, the FTSE is currently up 0.47%. DAX has risen 0.29%. CAC is down -0.22%. German 10-year yield rose 0.008 at -0.4545. Earlier in Asia, Nikkei rose 0.79%. Hong Kong HSI rose 0.05%. China Shanghai SSE fell -0.51%. Singapore Strait Times fell -0.75%. Japan’s 10-year JGB yield increased 0.0017 to 0.003.

Canada in deflation with CPI of -0.2% in April

Canada’s CPI was negative in April, falling to -0.2% yyyy, falling from March’s 0.9% yyyy. It is also slightly below expectations at -0.1% yy. The decline was mainly due to a fall in energy prices as a result of the coronavirus pandemic.

CPI generally decreased slightly by -01% to 1.6% yyyy, below expectations of 1.7% yyyy. The CPI median was unchanged at 2.0% yyyy above expectations to 1.9% yyyy. The CPI cut remained unchanged at 1.8% yyyy, matched expectations.

Also from Canada, full-sales sales fell -2.2% mom in March, better than expected at -4.5% mom.

Eurozone CPI ended 0.3% in April, core CPI 0.9%

The Eurozone CPI closed at 0.3% yoy in April, down from 0.7% yoy in March. Core CPI ended at 0.9% yyyy, down from 1.0% yyy March. In April, the highest contribution to annual inflation in the euro area came from food, alcohol and tobacco (+ 0.67%), followed by services (+ 0.52%), non-energy industrial goods (+ 0.09%) and energy (-0.97%)

The EU CPI was finished at 0.7% yyyy, down from 1.2% yyyy March. The lowest annual rates were recorded in Slovenia (-1.3%), Cyprus (-1.2%), Estonia and Greece (both -0.9%). The highest annual rates were recorded in the Czech Republic (3.3%), Poland (2.9%) and Hungary (2.5%).

The current account surplus in the euro area was reduced to EUR 27.4B in March, down from EUR 37.8B.

The UK CPI slowed to 0.8% in April, the lowest since 2016

UK CPI fell -0.2% mother in April. Annual CPI declines to 0.8% yyyy, down from 1.5% yyyy, below expectations to 0.9% yyyy. It is also the lowest level since August 2016. Core CPIs slowed to 1.4% yyy, down from 1.6% yyy, meeting expectations. RPI, an older measure of inflation, slowed to 1.5% yyyy, down from 2.6% yyyy.

“Falling gasoline and diesel prices, coupled with changes in domestic energy prices, were the main causes of lower inflation in April,” said U.S. Deputy State Statistician Jonathan Athow.

Also released, PPI input came in at -5.2% mom, -9.8% yoy, expecting -3.7% mom, -8.4% yoy. PPI output was -0.8% mother, 0.7% yoy, lower than expected at -0.4% mother, -0.4% yoy. The PPI output core was -0.1% mother, 0.6% yyyy, matched expectations.

Australia’s retail sales fell a record -17.9 in April, falling in all industries

According to preliminary data, retail sales in Australia fell by -17.9% in April. It is the biggest seasonally adjusted fall on the record and came after the biggest jump in March. Compared to a year ago, retail sales fell by -9.4% yyyy. Decreases were seen in all industries with particularly strong declines in the food trade, cafes, restaurants and takeaways and clothing, footwear and personal accessories.

The Westpac-Melbourne Institute Leading Index fell from -2.34 to -5.16 in April. The indicator points to a “broad economic contraction”. This is “easily the weakest reading since the JRC and is comparable to measurements seen before Australia’s recessions in 1990-91, 1982-83, 1974-75 and 1960-61.”

Westpac also said, “we do not expect the economy to return to pre-2022 coronavirus activity levels.” But so far, the RBA has already indicated that it is “committed to maintaining its significant support for the economy for the foreseeable future.”

RBNZ Orr was prepared to go negative, but much later

RBNZ Governor Adrian Orr said in a Bloomberg interview today that he is currently “aiming for a low and flat yield curve through the bond market.” The central bank “does not want to go negative at this time”. It’s “ready to go at a negative price but much later” And it’s still a possibility for RBNZ.

He also reiterated the view that “the operational challenge is still with some banks that are still working to work with negative official cash rates and negative wholesale rates”.

Mid-day Outlook in GBP / USD

Daily pivots: (S1) 1.2191; (P) 1.2243; (R1) 1.2303; More….

GBP / USD continues to battle around 4 hours 55 EMA, and intraday bias remains neutral first. Recovery from 1.2065 could possibly rise higher. But as long as 1,2476 resistance holds, another fall is mild. We will maintain the view that the correction increase from 1.1409 should be completed. Downward targets below 1.2065 target a test of 1.1409 low. However, the 1.2467 break will turn bias to the upside for 1.2647 upside resistance.

In the bigger picture, rebound from 1.1409 is strong, but there is no indication of trend reversal yet. The down trend from 2.1161 (2007 high) still had to resume sooner or later. The next medium-term target will be 61.8% forecast from 1.7190 to 1.1946 from 1.3514 at 1.0273. In any case, the outlook will remain bearish as long as 1.3514 resistance holds, in case of strong rebound.

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