Bond yields likely to stay flat

Economics

This week we expect US Q1 GDP growth to be sustained by strong private spending and private fixed investment. Consumer confidence and the Chicago Purchasing Manager Index for April should have improved.

In Europe we expect the German Ifo index to have fallen slightly in April. Japanese industrial production probably improved in March as both external and domestic demand grew robustly.

Foreign exchange

As long as the euro remains below 1.2125, the pressure would remain on the downside with 1.1750/1.1650 as next support level. The USD/YEN may test its resistance line at 110.45.

This level needs to be taken out to make the outlook further bullish to 112.30. Support at 107.15 should hold to keep the pressure on the upside. Below that level, the underlying downtrend would continue with 105.00 as next support.

Fixed income

The week was quite volatile on most bond markets as different speeches from Fed officials led to different interpretations by the financial markets.

We remain cautious before changing our Fed policy outlook (first hike in January 2005) as we expect the Fed to wait for more evidence regarding the key figures on employment and inflation.

Bond yields are expected to remain broadly flat over the coming week as the markets stabilize after the confusing comments of Fed officials.

Equities

Already 190 of the S&P 500 companies did proclaim their earnings, of which 78% surprised on the upside against only 11% on the downside. So the market should be able to work its way higher, if one would refocus on strong fundamentals and accept that gradually rising interest rates are a consequence of an improving economic environment. Confirmation of this stance is however badly needed.