Italian situation eases, while Eurozone inflation improves
What’s been happening?
Pound Sterling – UK Markets
Britain’s consumers picked up the pace of their borrowing in April, as well as increased confidence in spending during the month of May, according to the latest data. The new figures could reassure the Bank of England that the economy is ready for another interest rate hike after a cold winter slump.
Yesterday’s data from the BoE revealed consumer credit jumped by a bigger than expected £1.832 billion, the strongest growth since November 2016, up from an increase of only £425 million in March. On the other hand, the annual growth rate in consumer lending saw its slowest increase since November 2015, which edged up to disappointing 8.8% from 8.6% in March. The annual Nationwide house-price index increase also slowed to 2.4% from 2.6%. The Pound advanced against its developed world rivals this morning as markets responded to surprise increase in the IHS Markit manufacturing PMI. The PMI rose to 54.4 for the month of May, up from 53.9 previously, whilst economists had estimated it would fall to 53.5.
US Dollar – US Markets
US consumer spending increased beyond the market expectations in April, with economic activity jumping 0.6%, the biggest gain in five months. Personal income rose 0.3% in April, while wages increased by 0.4%, also comfortably meeting market expectations. The latest figures suggest that economic growth was regaining momentum early in the second quarter, with inflation continuing to rise steadily.
Yesterday the Trump administration announced it will impose tariffs on steel and aluminium imports from Canada, Mexico and the European Union, who previously had been granted exemptions to allow talks to eb held. US Commerce Secretary Wilbur Ross said the tariffs reflect a lack of progress on negotiations between all affected countries. The US will also place quotas or volume restrictions on other countries such as South Korea, Argentina, Australia and Brazil instead of tariffs.
Euro – European Markets
Eurozone May inflation data came in stronger than expected yesterday, with an increase to a 13-month high of 1.9% from 1.2%, beating the 1.6% market expectation. The core rate increased by 0.4% from the previous month, amid stronger services-sector data.
Following recent political turmoil in Italy, their anti-establishment parties revived coalition plans yesterday and announced a government that promises to increase spending, challenge the European Union’s monetary rules and crack down on immigration. A new coalition deal, following inconclusive elections in March, would eliminate the risk of a repeat vote, which had triggered a big sell-off in the Italian financial market this week. While some Euro relief has been provided, markets now turn to the political unrest in Spain, where earlier this morning Prime Minister Mariano Rajoy was forced out of office in a no-confidence vote.
What’s coming up?
UK: No major data coming out of the UK today. Markets will look at how the latest improved PMI data and newly introduced US tariffs will impact the Pound.
US: Markets will be focusing on the month of May data coming out this afternoon, with non-farm payrolls and year on year average hourly earnings being most important to the US Dollar rate.
EU: Markets will continue to follow the political situation in Italy, as well as Spain. The G7 meeting will be taking place tomorrow. The G7 meeting is the meeting of the finance ministers from the group of seven industrialized nations that are the United States, Japan, Germany, France, United Kingdom, Italy and Canada. The meeting takes place several times a year to discuss economic policy. Traders should pay close attention to this event as it might bring a new dimension to the markets.