UK markets re-opened on Tuesday following the Easter holidays, but overall ranges remained tight as investors waited for further UK developments and some form of signal from the Bank of England over the policy outlook. Markets continued to fret over the underlying economic outlook. Sterling was unable to derive significant support from gains on Wall Street as markets remained wary over the global economic outlook, but there was support against the dollar. Markets will still be waiting for any comments from Bank of England officials ahead of the important May policy meeting.
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The Euro was able to resist further selling pressure in early Europe on Tuesday with an element of short covering as the Euro held just above 23-month lows. The Euro was unable to make significant headway amid as overall yield spreads remained negative for the single currency. Latest opinion polls for the second round of the French Presidential election indicated that Macron would win 56.5% as he continued to build a stronger lead against National Front leader Le Pen, lessening market concerns over a possible Macron defeat.
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US housing starts were unchanged at an annual rate of 1.79mn for March and slightly above consensus forecasts while there was a slight increase in building permits to an annual rate of 1.87mn. The housing sector will be watched closely amid the surge in longer-term interest rates and on-going supply issues. US Treasures came under renewed pressure in early Europe on Tuesday and, although there was a limited recovery into the New York open, underlying selling pressure remained intact and the 10-year yield peaked at 2.92% and the highest level since late 2018 before a limited correction. Chicago Fed President Evans stated that the central bank needs to be mindful of a wage-price spiral and need to monitor for it. He added that it would be a great cause for concern if the inflation rate accelerated and that. He did express some hopes that the inflation pressures could be changing, but also commented that his expectation is that rates will need to rise above a neutral rate which he estimated at around 2.50%.
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