| ON DECK FOR FRIDAY, APRIL 19 |
KEY POINTS:
- Markets calmer after initial reaction to Israel’s strike on Iran
- A pair of Fed-speakers sounded incrementally hawkish
- Japanese core inflation continues to ebb
- UK retail sales were soft
- Light developments into the N.A. session
What started as a significant market disruption into the Asian open has mostly subsided.
Israel’s retaliatory strike against Iran was on a modest scale and neither side is trumpeting its consequences. Comments just before the strike that were made by an Iranian general about how the country’s nuclear program could be revised and “deviate from the considerations of previous declarations” if Israel attacked are being taken in stride for now. Risks remain into the weekend, but for now, de-escalation seems feasible.
Oil had been up by as much as about US$3½ but is now down by half a buck. US 10s had fallen as much as about 13bps but have since reversed much of that to be only about 5–6bps richer. S&P futures had been down as much as 1.7% but are now only ½% lower. Asian equities took it harder as the claw back effect only kicked in after they closed, but European cash markets are down only modestly.
What the attacks masked, however, was a pair of hawkish sounding Fed speakers just ahead of the strike. Minneapolis Fed President Kashkari (nonvoting, voting 2026) indicated that the Fed could “potentially” not cut this year. Atlanta’s Bostic one-upped him by saying that he could support a hike if inflation edges higher. Both comments sounded purely speculative.
Japanese core CPI inflation has dwindled to nothing. The m/m core CPI reading (ex fresh food and energy) rose by just 0.2% m/m NSA for among the weakest months of March in history (chart 1) and 0.1% m/m SA in March (chart 2), matching February’s soft reading. Key into next week may be comments about the inflation outlook given further yen weakness since the last meeting on March 18th, although oil in USD terms is basically back to where it was at that time.
UK retail sales were soft last month. Total sales volumes were roughly flat again at 0% m/m (chart 3). Sales ex-fuel fell 0.3% m/m. Other considerations dominated market attention.
Into the N.A. session we’ll only get Mexican retail sales for February (8amET), light Fed-speak (Chicago’s Goolsbee at 10:30amET) and the Fed’s financial stability report after the close.
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