Market movers today
Most of this week’s key data is being released today. US retail sales for April are expected to show a decent rise of 0.4% m/m for the core measure (control group). US private consumption was soft at the beginning of the year but is expected to recover in Q2. However, the recent rise in oil prices could postpone a rebound in private consumption. The US is also due to release the Empire index; the first regional survey for April.
German ZEW expectations survey was very weak in April, which may be partly related to the uncertainty over a potential US-China trade war. Consensus looks for a stabilisation in the index in May at -8.2.
In the UK. It is time for the labour market report for March. Month-on-month wage growth has been remarkably stable in recent months and we estimate another increase of 0.2% m/m, taking the annual growth in average hourly earnings ex bonuses (3M average) to 2.9% y/y from 2.8%. The unemployment rate (3M average) is expected to remain at 4.2% but risk is skewed towards a fall to 4.1%.
Norway is due to release Q1 GDP data, see page 2.
Selected market news
ECB Governing Council member Francois Villeroy de Galhau commented that the first rate hike would come some quarters and not years after the end of QE. He also quipped that the exact timing of the end of QE was ‘not a deep existential question’. Bond markets fell, as Bund yields rose 5bps. We are surprised by the market reaction, as Villeroy’s commentary is in line with previous ECB commentary (see more on page 2).
Italy is close to forming a coalition government between the Five Star Movement and League parties. However, last minute hiccups have emerged such as choosing a prime minister. Some very radical populist ideas are being floated such as flat income tax at 15% (League) and guaranteed income for the poor (Five Star). These ideas will not sit well in Brussels or the bond market.
In terms of market reaction, after years of fear over a populist government in Italy, the bond market reaction has the distinct air of nonchalance. Italian bond yields have risen only moderately over other periphery or core debt. Or as Villeroy de Galhau might say, the bond market does not view the composition of Italian government as a deep existential question.
