FED: Gov Barr Eyes Potential Inflationary Impact From Supply Chain Hit
Fed Governor Barr (permanent FOMC voter) as usual has little to say about current monetary policy in opening remarks at a small business event (link), though he appears to be concerned about the inflationary impact from broken supply chains, comparing the potential impact of disruptions to the pandemic and suggesting that there are risks of weaker growth and higher inflation.
- His relevant comments don't stray very far from the central views of the FOMC, noting that growth has been solid but tariff policy has boosted uncertainty. Given the context he addresses the potential role small businesses could play in upcoming economic developments.
- Barr: "In my view, the economy is on solid footing, with solid growth, low and stable unemployment, and inflation continuing to come down towards our 2 percent target. But the outlook has been clouded by trade policies that have led to an increase in uncertainty, contributing to declines in measures of consumer and business sentiment. Potential disruptions to supply chains and distribution networks are particularly acute for small businesses, which are less diversified, less able to access credit, and hence more vulnerable to adverse shocks. Small businesses play a vital role in production networks, often providing specialized inputs that can't easily be sourced elsewhere, and business failures could further disrupt supply chains. As we saw during the pandemic, such disruptions can have large and lasting effects on prices, as well as output. If these disruptions were to occur, we'd likely see lower growth and higher inflation ahead."
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EURGBP TECHS: Unwinding An Overbought Trend Condition
- RES 4: 0.8800 Round number resistance
- RES 3: 0.8781 2.236 proj of the Mar 3 - 11 - 28 price swing
- RES 2: 0.8768 High Nov 20 ‘23
- RES 1: 0.8738 High Apr 11
- PRICE: 0.8553 @ 16:04 BST Apr 15
- SUP 1: 0.8520/0.8482 Low Apr 10 / 20-day EMA
- SUP 2: 0.8413 50-day EMA
- SUP 3: 0.8316 Low Mar 28 and a key near-term support
- SUP 4: 0.8299 Low Mar 5
Despite the fade off highs, a bull trend in EURGBP remains intact. Note that a deeper retracement would allow a recent overbought trend condition to unwind. Support to watch lies at 0.8482, the 20-day EMA. Support at the 50-day EMA is at 0.8413. The area between these two averages represents a key support zone. For bulls, a resumption of gains would open 0.8781, a Fibonacci projection point.
US: Voters Give Trump Poor Assessment On The Economy And Tariffs
US President Donald Trump continues to receive poor polling numbers in surveys taken after his April 2 'Liberation Day' tariff announcement. Morning Consult reports: “Trump’s approval rating has slumped to 45%, the lowest point of his second term so far as Americans react to his trade policies, while 52% disapprove, tying last week’s record-high rating since he took office in January. For the first time since May 2021, more voters trust Democrats in Congress than their Republican counterparts to handle the economy (46% to 43%).”
- The Washington Post reports: “Even before the shock of price increases have hit shelves, Trump’s poll numbers have taken a hit. After entering March with narrowly positive ratings overall, the president now faces a disapproving citizenry, with worse ratings on the economy and even worse ratings on his tariffs.”
Figure 1: Expectations for the Economy Over the Next Year
Source: Washington Post
BONDS: EGBs-GILTS CASH CLOSE: Gilts Strengthen Pre-UK CPI
Gilts handily outperformed Bunds Tuesday.
- Softer-than-expected elements of the UK labour market report saw Gilts get off on the front foot across the curve.
- Gilts rallied into the close, potentially in anticipation of tomorrow's CPI data, unlike Bunds which were unmoved.
- On the day, the UK curve twist steepened with a notable rally at the short end, with Germany's bear steepening.
- Italy and Greece underperformed on the EGB periphery.
- Wednesday's data includes UK CPI - MNI's preview is here. And Thursday brings the ECB decision - preview here.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.7bps at 1.766%, 5-Yr is up 1.6bps at 2.09%, 10-Yr is up 2.2bps at 2.534%, and 30-Yr is up 3.8bps at 2.915%.
- UK: The 2-Yr yield is down 5.6bps at 3.962%, 5-Yr is down 4.3bps at 4.11%, 10-Yr is down 1.2bps at 4.648%, and 30-Yr is up 4.3bps at 5.427%.
- Italian BTP spread up 1.7bps at 118.2bps / Greek up 2.9bps at 92.4bps
