Hot retail sales keeps US dollar higher

APAC indices

APAC indices were down for a second day, following the tracks of US equity markets, as rising tensions in the Middle East drove traders to seek out safety. The VIX hit its highest level since October last year.

The US dollar

The USD has been strengthening since retail sales on Monday afternoon, which was another indication of the robustness of US consumption. The index increased by 0.7% month-ocer-month (MoM) in March, beating forecasts of 0.3%, and after an upwardly revised 0.9% gain in February, much higher than forecasts of 0.3%. Eight out of 13 categories posted increases.

The San Francisco Federal Reserve Bank

Mary Daly, the president of the San Francisco Federal Reserve Bank, said there was "no urgency" to cut U.S. interest rates. The Fed is increasingly expected to hold its policy rate steady in the range of 5.25% to 5.5% until mid-September. We knew for a while that there was virtually no chance of a rate cut at the Federal Reserve (Fed)'s meeting in May. But now, probabilities of a rate cut in June have fallen to 22.7%, according to the Chicago Mercantile Exchange (CME) FedWatch Tool. For the July meeting, the probability rises to 48.3%. The market is now betting on a September rate cut; probabilities currently stand at 72%.

China's economy

China's economy grew faster than anticipated in the first quarter, but separate data also showed momentum is slowing. Gross domestic product grew 5.3% in January–March from the year earlier, comfortably above analysts' expectations in a Reuters poll for 4.6%. Industrial output in March grew 4.5% from a year earlier, compared with a forecast increase of 6.0% and a gain of 7.0% for the January-February period. Growth of retail sales, a gauge of consumption, rose 3.1% year-on-year in March, against a forecast increase of 4.6% and slowing from a 5.5% increase in the January-February period.

The UK unemployment rate

In the UK, the unemployment rate rose to 4.2% in February from 3.9% the previous month. Economists expected a rise to 4%. Wages, excluding bonuses, rose 6% in the three months to the end of February. A Reuters poll of economists expected wages to slow to 5.8% from 6.1%.

Germany’s ZEW economic sentiment

Germany’s ZEW economic sentiment for the month of April is forecast to rise to 35.1 from 31.7 the previous month. This would be the ninth consecutive month of improvement and the highest level since February 2022. The Canadian consumer price index is expected to decelerate to 2.7% in March YoY, down from 2.8% the previous month. Core consumer price index (CPI) growth is seen dropping to 1.8% from 2.1%. That would be the first record below 2% since March 2021, three years ago.

Dr. Martens

Hays quarterly group fees are down 14%. Temp fees are down 12%. Fees on permanent jobs are down 18%. The group says it is too early to determine whether there will be a meaningful rebound in Q4. Dr. Martens expects finacial year (FY) 2024 earnings to be in line with the forecast, but the FY 2025 outlook is challenging.

The US earnings season

The US earnings season steps up a gear today. The last of the major banks is due to report, including Bank of America. The street anticipates earnings of 76 cents per share on revenue of $25.49 billion. This report could be another indication that net interest income has peaked for major US banks. In 2023, JPMorgan shares dropped on Friday as its net interest income outlook disappointed the market. Yesterday, despite better-than-expected earnings and revenue, Goldman Sachs showed a fall in net interest income in Q1. Today, analysts are also expecting this metric to shrink at the Bank of America.

Johnson & Johnson

Also expected before the bell on Tuesday is Johnson & Johnson. The market expects the group to deliver a year-over-year decline in earnings on lower revenues. Earnings per share are forecast at $2.54. Revenue should reach $21.40 billion. Investors will want to know more about J&J's most recent acquisition, Shockwave Medical, bought for $13 billion, to help it expand its offerings in the cardiovascular intervention market. Other earnings reports expected today include those from UnitedHealth and United Airlines.