Tim Riddell, Research Analyst at Westpac, suggests that for Eurozone, ZEW’s expectations tend to lead activity data and May’s flash PMIs highlight the same risk: Q2 fails to lift from the Q1 pullback.
Key Quotes
“PMIs also reflected the slowing in exports seen in recent trade data. IFO and German April retail sales will be keenly awaited in front of the end of month inflation updates. Failure to see any lift in data will weigh on both EUR and ECB expectations.”
“Market angst has built around the protracted forming of Italy’s populist/extreme coalition. The addition of overtly euro-negative rather than merely sceptic ministers (e.g. Savona) add to concerns over the policy combination of right-wing League’s low taxes and welfare spending from 5 Star. The impact has already pushed the BTP-Bund spread from 110bps a month ago towards 200bps and the early 2017 peak around 215bps.”
“Given current USD strength and impending (end-May) deadlines for US-EU steel tariffs, EUR/USD looks set to test 1.15.”
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