Originally published by Rivkin Securities
US data showed that inflation rose month-on-month in April, with the Fed’s preferred measure of inflation being personal consumption expenditure, rising +0.2% from -0.1% in March and surpassing estimates for +0.1%. Still year-on-year price pressures eased as forecast, with the headline figure decreasing to +1.7% from +1.9% while a core measure which excludes volatile items dipped to +1.5% from +1.6% previously as forecast. That is not overly troubling for the FOMC as they look set to hike rates in June as consumer spending, the job market and optimism remains strong.
Data from the US commerce department overnight showed that personal income (MoM Apr) rose to +0.4% from +0.2% previously in line with estimates and personal spending rose to +0.4% from a revised upwards +0.3% in March. Consumer sentiment also remained at high levels, although was slightly lower than in April with the conference board’s index easing from 119.4 to 117.9 in line with the recent University of Michigan’s consumer confidence index. While slightly disappointing the reading is sitting modestly below sixteen year highs. Interestingly a measure of future expectations eased to six month lows suggesting that a lack of progress on promised fiscal spending and tax cuts is weighing on sentiment.
US equity markets were mixed with the Nasdaq 100 rising to yet again a new all-time high, up +0.11% while the S&P 500 edged -0.12% lower. The dollar index was flat, down just -0.04% despite a decrease in treasury yields with both the two-year and 10-year yields down -1.6 and -4.2 basis points respectively. Spot gold dropped -0.31% as investors look towards the FOMC hiking rates by 25 basis points on June 14th with the implied probability now rising to 91.2% from 87.7% on Tuesday.
In Europe inflation also dipped with German consumer prices rising +1.5% year-on-year in May, down from +2.0% previously and estimates for +1.6% providing support for ECB President Mario Draghi’s case for continued monetary stimulus. A preliminary reading of French GDP for Q1 increased to +0.4% from +0.3% previously topping estimates and rose +1.0% over the prior year against forecasts to remain unchanged at +0.8%.
The euro gained +0.17% recovering after a -0.23% drop early on Tuesday after Greece denied reports by German newspaper Bild that it was threatening to opt out of its next bailout payment unless it receives some debt relief. Also supporting the euro was further polling showing that French President Emmanuel Macron’s En Marche party is set to become the largest of the French legislative branch following the June 11th elections, however falling just shy of a majority.
Staying in Europe the pound dipped -0.34% against the US dollar and reversed initial gains overnight against the euro to finish flat before declining in early trade this morning down -0.23%. This came after a YouGov poll published by The Times suggested that PM Theresa May’s conservative party may actually lose their majority in parliament. This is the first poll showing such an outcome and while we should never place too much emphasis on one poll other polling has suggested the PM’s lead over Labour Corbyn has narrowed in the recent weeks. Such an outcome would be seen as Pound negative as it would weaken the PM’s Brexit negotiating stance at a time when the EU’s has strength following Macron’s victory.
Locally the S&P/ASX 200 index reversed initial declined to close +0.19% higher on Tuesday while ASX SPI200 futures are pointing to a flat open this morning, down just -0.07% in overnight trading.
Data releases:
· Chinese Manufacturing & Non-Manufacturing PMI (MoM May) 11:00am AEDT
· Australian Private Sector Credit (MoM &YoY Apr) 11:30am AEDT
· German Retail Sales (MoM & YoY Apr) 4:00pm AEDT
· German Unemployment (MoM May) 5:55pm AEDT
· Euro-zone Unemployment (MoM Apr) 7:00pm AEDT
· Euro-zone CPI (YoY May) 7:00pm AEDT