Market movers today
In the US, Markit PMIs for May are due for release. We expect manufacturing PMI to fall this month from 56.5 down to 55.8, as we still believe we are beyond the peak, so manufacturing growth will be lower but still positive. We expect services PMI to come in at 55.0, up from 54.6.
Today also brings FOMC meeting minutes. We do not expect much news, as the Fed is continuing its gradual hiking cycle with two to three additional rate increases this year. However, we intend to keep an eye on why the Fed removed its phrasing about ‘monitoring inflation closely ‘.
In the euro area we expect the PMI, which has moderated recently, to yield another ‘softer’ reading across countries. It will be interesting to follow the manufacturing PMI and see the potential impact of the spill over of the ongoing trade spat in the US. So far, we expect it to be relatively benign.
In the UK, CPI figures for April are due out . Inflation is falling back towards 2%, as the impact of GBP depreciation fades. How fast it falls back will be an important factor for how fast the Bank of England tightens monetary policy.
In the Scandi markets, Danish consumer confidence for May is due out (see next page).
Selected market news
US equity market futures are slightly weaker this morning, despite Congress passing a sweeping overall of US financial regulations, easing the regulatory burden on SME banks. Comments from President Trump yesterday that cast doubt over the upcoming meeting with North Korea’s leader on 12 June might also have weighed on risk sentiment .
The political drama in Italy meanwhile continues: President Sergio Mattarella may announce his decision regarding the formal nomination of Giuseppe Conte as premier today or Thursday, after doubts about his suitability flared up. Markets will also focus on the choice of the finance minister, who sets the budget policy. The media reported yesterday that Paolo Savona, an economist and company executive who has repeatedly called on the Italian government to plan for a possible euro exit , is the front -runner for the posit ion. While the euro exit is not part of the Five Star-League government program me, the naming of Savona may st ill sound alarm bells in Brussels and will do nothing to improve the current market sentiment . Italian bonds st ill recovered somewhat yesterday, with 10-year yields falling 6bps.
While Italian turmoil is building, US and China trade tension seems to be easing. The recent developments in the US-China trade talks support our base case that the two parts will eventually make a ‘grand bargain’, which is positive for both the global economy and risk. Aft er China agreed on Saturday to ‘substantially reduce’ its trade surplus in goods with the US, the media reported yesterday that China will cut its tariffs on cars to 15% from 25%. While the ‘grand bargain’ is moving closer, it is too early to declare victory. Commerce Secretary Wilbur Ross will visit Beijing in early June to work out details of China’s commitment to purchase more American goods
