Market movers today
On a day where much of Asia and Europe are out for holiday, the main event is US ISM manufacturing: we expect a fall from 59.3 to 58.0. Looking ahead, we expect a further decline over the coming months but stress that ISM manufacturing has been elevated for quite some time now compared with other indicators and hard data.
In the UK, we expect the manufacturing PMI to remain unchanged at 55.1 as it is already below the equivalent euro area index. Note that on Thursday we will get the service PMI.
Overnight, we will get Caixin PMIs in China, where we expect a moderate decline in the manufacturing index as was the case with the official PMIs released yesterday morning.
Selected market news
As expected, the White House announced that President Donald Trump has extended the exemption period of steel and aluminium tariffs on the European Union, Mexico and Canada for 30 days to allow for further negotiations. According to the statement, the US has finalised a deal with South Korea and reached agreements-in-principle with Australia, Brazil and Argentina.
The price on Brent crude jumped above USD75/bbl yesterday after Israeli Prime Minister Benjamin Netanyahu said that Israel has evidence Iran has lied about its nuclear programme. The US and EU will decide whether to scrap the Iran nuclear deal from 2015 on 12 May; hence a key date.
Yesterday brought inflation data in both the US and the eurozone. In the US , minor revisions to previous months’ PCE core data meant we got a low 0.2% m/m (0.153%) against an expected 0.1% following Friday’s GDP report. Irrespective, base effects from wireless telephone services last year brought yearly PCE core up to 1.9% y/y. Like markets and the current signals from the Fed, we expect an additional two rate hikes this year with risks skewed towards a third hike.
German Länder figures together with French, Italian and Spanish prints suggests Thursday’s eurozone HICP print will turn out at 1.24% %y/y – just below our original estimate of 1.25%. We still expect core inflation to drop to 0.9% and see downside risks to this call.
On a related note, yesterday’s monetary aggregates in the eurozone disappointed on the downside. Historically, an inflation-adjusted version of M1 has been a reliable leading indicator for eurozone growth, which in isolation suggests further growth headwinds, see this chart .
In Norway , yesterday brought the final key data releases ahead of Thursday’s Norges Bank (NB) meeting. Domestic activity data releases have generally been on the weak side of expectations since the last monetary policy meeting in March, and the risk remains that NB could emphasise this on Thursday rather than weighing it against the weaker-than-expected NOK and higher oil price. However, over the past years NB has tended to give very little news to markets at the short interim meetings – like the one this week – and with yesterday’s retail sales figures surprising on the upside (see chart ), we think this will once again be the case. See our Norges Bank Preview: No new signals – September hike still in store .
This morning, the Reserve Bank of Australia as expected kept the cash rate unchanged at 1.5%. We continue to pencil in one 25bp hike over the coming 12M, namely in Q1 19.
