Market movers today
In the euro area, focus will be on the PMI figures and whether they can continue upwards, in cont rast to the weakness in manufacturing PMIs observed in the US and China in recent months. We expect a minor slowdown in the euro area PMIs, but note that the figures should remain at a high level and still show continued expansion.
The German ifo business confidence will also at tract attention today. Ifo estimates fell slightly in April to 105.2 from 105.7 in March. We may see a further small decline in German business expectations to 104.9 due to a softening of the business cycle indicators in the US and China, although there could be tailwind from the outcome of the French election.
In the UK, focus will be on the nature and impact of the terrorist at tack in Manchester. The UK government has announced that election campaigning is suspended today.
In the US, the Markit PMI (composite) is expected to show a modest increase as the current level only reflects around 1% GDP growth, which is below our expectation of a current underlying growth rate of around 2%. This would justify a modest rise in Markit PMI. US new home sales are estimated to show a small decline in April after some strong months in early 2017.
The Trump administ ration is expected to release its full budget today, which is expected to contain big cuts to safety net , tax cuts and USD100bn infrastructure projects over the next decade. One major assumption is that real GDP growth will increase to 3% due to supply side effects from the tax cuts, which in our view is doubt ful. We see difficulties in passing the budget given a divided Republican party in Congress.
In the Scandies, it is time for unemployment in Sweden, where we look for a small increase in unemployment.
Selected market news
The Asian equity markets are seeing small gains this morning following a terrorist at tack in Manchester that is said to have killed 19 and wound 50 people. Prime Minister Theresa May and her government have decided to suspend election campaigning today. The cautious risk sent iment follows a rather strong session in US equity markets as some of the concerns about the political upheaval in the US have faded. Furthermore, oil prices continued their recovery as markets are expect ing an extension of the OPEC deal on Thursday.
On Brexit , EU ministers endorsed t he EU’s negotiation stance towards the UK yesterday. The EU maintained the maximum demands on the UK in terms of the financial liabilities and legacy obligations for EU citizens in the ‘divorce’ phase of the negotiations. The EU’s lead Brexit negotiator Michel Barnier announced yesterday that the preferred strategy is to start the Brexit negotiations during the week of 19 June. Germany warned that the reality of Brexit had yet to ‘break through’ in London.
On Greece, euro area finance ministers failed to break an impasse on debt relief for Greece yesterday in Brussels. Talks will continue over the next few weeks with the objective of reaching an agreement in June. Meanwhile, the EU Commission announced yesterday that it recommends closing the Excessive Deficit Procedure for Portugal six years after its bailout , raising the prospect of a rat ing upgrade when Fitch reviews the country’s rating on 16 June.
