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Pre-Brexit talks centred on maintenance

Pre-Brexit talks centred on maintenance

The UK Q1 GDP release disappointed, printing an increase of 0.3% compared with consensus expectations of a 0.4% gain and a 0.7% gain for the previous quarter. The services sector reflected a sharp slowdown; consumer spending fell but the manufacturing sector remained firm.

Sterling sentiment suffered mildly due to fresh concerns about the likely tone of Brexit negotiations. Although EU member countries quickly ratified their negotiating stance, there were fears of difficult talks, especially after widespread reports of tension between Theresa May and EU Commission President Jean-Claude Juncker at last week’s meeting. The Pound dipped to below 1.2900 against the Dollar, and 1.1800 versus the Euro yesterday, although trading volumes were low with UK markets closed.


Eurozone inflation data finally showed some life with a stronger than expected reading. The headline Consumer Price Index (CPI) rate increased to 1.9% for April, up from 1.5% the previous month. Core inflation increased to 1.2% from 0.7%; the strongest rate for over three years. The data has revived expectations that the European Central Bank (ECB) would push towards a policy tightening at the June meeting.

The Euro held above 1.0850 against the Dollar but trading was subdued given that most European markets were closed for a holiday, although this morning the Euro moved above the 1.0900 level. The French Presidential campaign concludes on Sunday, and polls have continued to indicate around 60% support for Macron.


US Q1 GDP data fell short of expectations with annualised growth of 0.7% compared with the expected 1.3% gain. Consumer spending suffered a sharp decline and government spending also made a negative contribution. There was, however, an increase of 0.9% in employment costs, the sharpest increase for over nine years which increased speculation over higher inflation and curbed potential Dollar selling.

Yesterday saw the US ISM manufacturing index fall short of consensus forecasts with a decline to 54.8 for April, down from 57.2 previously; the lowest reading for four months. There was a sharp slowdown in employment growth, but price pressures remained elevated. The US Personal Consumption Expenditure price index for March printed a 0.2% decline with the core annual rate declining to 1.6% from 1.8% previously.

Data to watch:
8:55am EUR GER Markit Manufacturing PMI (Apr). 9:00am EUR ITA Unemployment (Mar), EUR Markit Manufacturing PMI (Apr). 9:30am GBP Markit Manufacturing PMI (Apr). 10:00am EUR Unemployment Rate (Mar). 10:30am AUD Budget Release.

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