USD is stronger, many economic reports incoming

EUR continued to fall against USD yesterday, and reached 1.0501 a 5-year low. After a brief rebound the pair is again trading lower this morning. This results from the looming recession in Europe due to the war in Ukraine and from the hawkish policy the Fed is planning to follow. For the same reason, JPY fell below the 130 JPY per USD hitting a 20-year low, as the Bank of Japan announced its commitment to buy unlimited amount of government bonds in an effort to maintain low yields.

Stocks ended higher both in Europe and in the US where companies report better-than-expected quarterly results on average so far.

Many economic reports today. Japanese industrial production climbed by +0.3% in March, below the +0.5% expected. We are waiting for the European Commission survey this morning, the ECB report as well as the German inflation figures for April: stability is expected, as for the Eurozone whose figures will be published tomorrow. But the markets should focus on the Q1 US GDP growth. The consensus forecast is for a sharp slowdown: +1% qoq annualised vs +6.9% in Q4 2021. Could this be due to the effects of inflation, the pandemic at the beginning of the year or the war in Ukraine at the end of the period? Probably these factors may have played a role, but only modestly compared to the main explanation which is a strong rebuilding of stocks in the second half of 2021 and particularly in Q4, which weighed on production in Q1. The core trend of growth (measured by our estimate) should remain solid. The negative impact of inflation on consumption should be masked by the strong rise in spending in January, but spending fell in February and probably in March, which does not bode well for Q2.