Mexico faces Trump tariffs
Dave Ramsden, Bank of England (BoE) Deputy Governor, stated that he held a slightly pessimistic view of the UK growth outlook compared to the Bank, but a smooth Brexit process would mean gradual monetary policy tightening would become appropriate. Sterling ebbed lower as focus remained on political tension and the lack of a Brexit resolution in sight. Germany was reported to have suggested they’d back a further Brexit extension if there was a second referendum vote. The Lloyds business survey weakened to 10 for May from 14 as political uncertainty sapped confidence, although there was a recovery in consumer confidence.
Caution surrounding potential month-end selling persisted and post-lunch trading today is likely to be choppy. Global trade fears mean Sterling opens just above 1.2600 on the US Dollar and little changed against the Euro, at 1.1325.
The Dollar held a firm tone last night amid fears over trade protectionism after the US move to impose tariffs on Mexico. Concerns that the US would also target the EU undermined Euro support, but US reservations limited further US buying.
The April goods trade deficit widened to $72.1bn from $71.3bn for March with exports and imports declining for the month. Initial jobless claims were little changed at 215,000 from 212,000 previously which still indicated a very firm labour market. The data impact overall was limited, although low inflation readings maintained speculation that the Federal Reserve (Fed) would be in a position to lower interest rates later this year, especially if the economy loses traction and trade fears intensify.
Italian Deputy PM Salvini threatened to end the government agreement unless the five-star coalition backed the Lega tax plans. There was also virtually no reaction to the EU’s letter warning Italy that they were in violation of deficit-reduction rules pointing to the fact that they do not seem to care too much. Italian bonds dipped but despite this very little seemed to happen with the Euro and there was virtually no movement in the single currency at all.
From a data perspective, the main news is German retail sales, Swiss retail sales and Italian GDP due first thing. Perhaps the most interesting data, however, will be the German harmonized index of consumer prices which will feed into the European Central Bank’s (ECB) decision next week. Most volatility is expected to come from across the pond today, with no-one seemingly safe from his tariffs.
Data to watch:
06:30 EUR Retail Sales (MoM) (Apr) (Germany)
06:30 CHF Real Retail Sales (YoY) (Apr)
08:00 EUR Gross Domestic Product (YoY) (Q1) (Italy)
08:00 EUR Gross Domestic Product (QoQ) (Q1) (Italy)
08:30 GBP Consumer Credit (Apr)
12:00 EUR Harmonized Index of Consumer Price (YoY) (May) (Germany)
12:30 USD Core Personal Consumption Expenditure – Price Index (YoY) (Mar)
12:30 USD Personal Spending (Apr)
12:30 USD Core Personal Consumption Expenditure – Price Index (MoM) (Apr)
12:30 USD Personal Income (MoM) (Apr)
12:30 CAD Gross Domestic Product (MoM) (Mar)
13:45 USD Chicago Purchasing Managers’ Index (May)
14:00 USD Michigan Consumer Sentiment Index (May)