Market movers today
Today we have PMI releases for May in the UK, Norway, Sweden, Spain and Italy, and US ISM manufacturing.
In the US, we will also get the ADP job report where the market consensus is for 180 ,000 new jobs being created in May, up from 177,000 in April. The US ISM index is expected to decline slightly to 54.6 in May from 54.8 in April, according to market consensus.
For the UK PMI release, as the PMI manufacturing index for the euro area increased slightly in May, there may be upside risk to our expectat ion of a slight fall in the UK index.
This morning we published our bi-annual global outlook called Big Picture. We lower our forecast for global growth due to downward revisions in the US and China. We no longer look for a fiscal boost in the US in 2018 and policy tightening in China has exceeded our expectations. Our forecast for the euro area is broadly unchanged. For more details see The Big Picture: Less tailwind for the global economy.
Selected market news
The European fixed income market eagerly awaited the first eurozone May inflat ion data yesterday. It showed a slightly bigger than expected drop in inflation to 1.4% from the previous 1.9%. Importantly, core inflation dropped from 1.2% to 0.9%. The low adds to the pressure on the ECB to keep its rhetoric dovish at its meeting next week. However, the impact of the slightly lower than expected inflation numbers was muted in the fixed income market . It might underline that the market , especially after the dovish words from him earlier in the week, is already positioned for a dovish Draghi.
However, the market could be in for a surprise. German hawks Weidman and Lautenschäger yesterday used the opportunity – just hours before the " silent period" of the ECB before the 8 June meeting kicks in – to give their views. Weidman said: " In my view, the current economic out look together with the improvement in the balance of risks suggests that the Governing Council is beginning to discuss whether and when it will be time to adjust our forward guidance". Laut enschäger added: " All ingredients for an appropriate increase in prices are present . Against that backdrop, we should prepare to slowly reduce the dose of monetary medicine."
OIL remained under pressure yesterday though it has recovered slightly this morning. The market continues to doubt that the OPEC cuts will be enough to stabilise the market given the surge in US oil production. The lower oil price spills over to the inflation market and coupled with the loss of confidence in Trump’s fiscal boost , US market -based inflation expectations like 5y5y are now back at levels not seen since before he was elected.
In the UK, all eyes are now on the polls ahead of the 8 June election after a poll from YouGov on Tuesday said that Theresa May and her Conservative Party could lose their absolute majority in the House of Commons. Other polls have not confirmed this change.
