Fundamental Analysis

The US Dollar Weakened Broadly


Market movers today

Another quiet day today in terms of data releases but markets will continue to follow the political development in the US after a very bad week for President Trump and his administration.

In the US, initial jobless claims data as well as the Philly Fed index for May are due out today. We expect the Philly Fed index to have fallen, as it has overshot ISM/Markit PMIs, supporting our view that the US manufacturing cycle has peaked.

In the UK, retail sales for April are due out , which will at t ract at tention after plunging in Q1.

The ECB's Mario Draghi is due to speak in Tel Aviv, but we do not expect him to express anything new on the policy out look.

There are no market movers in Scandi today.

Selected market news

Asian stocks are in the red this morning mirroring earlier losses on Wall St reet with S&P 500 and Dow Jones both falling by around 1.8% overnight , as uncertainty mounted over US President Donald Trump's future following reports that he t ried to interfere with a federal invest igat ion. The US dollar weakened broadly against its peers and the VIX index reached its highest level since April on the back of the turmoil in the White House. Former FBI director and prosecutor Robert Mueller has been appointed to lead the investigat ion into collusion between Trump's campaign team and Russia.

Japanese GDP data released this morning showed annualised growth of 2.2% (0.5% q/q) in Q1, offering some relief to the Bank of Japan, which hopes that the economy will gather momentum to drive up wage growth and inflation, which remain low on soft household spending.

The new French President Emmanuel Macron yesterday presented his cabinet , comprising both veterans from the Republicans and Socialists and newcomers to politics. Having already made the Republican Edouard Philippe Prime Minister on Monday, Macron picked conservat ive Bruno Le Maire as his Economy Minister. Gerard Collomb and Jean-Yves Le Drian from the Socialist party will be Interior and Foreign Ministers, respect ively. Should his party fail to obtain a majority at the parliamentary elect ion in June, Macron would have to rely on the supportfrom other part ies to govern. The diverse party composit ion of his cabinet is in line with his aim to bridge the right -left divide in French politics and makes the emergence of such a cross-party coalit ion even more likely, in our view.

The final euro area HICP figures for April released yesterday confirmed that the higher core inflat ion at 1.2% y/y was driven by service price inflation related to package holidays and accommodation over the Easter. We expect lower core and service price inflation in May as the Easter volatility should fade and the underlying price pressure is not strong enough to lift core price. The May inflation figure will also be crucial for whether the ECB will change its communication in a more hawkish direction at the June meeting (see also ECB research: Hawkish wording but changed forward guidance less likely, 10 May).

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