The final May UK PMI services index was revised higher to 53.4 from the flash reading of 51.8, although this was still a sharp slowdown from the April reading of 58.9 and the lowest reading for 15 months. The rate of increase in costs was the strongest since the survey started in 1996 and price charged by service providers also increased at the fastest pace on record. The strong inflation pressures were a contributory factor to a decline in business confidence. There were further concerns that political uncertainty would be prolonged, although some reports of an economic support package helped curb selling pressure. The UK 10-year gilt yield held close to 8-year highs on Tuesday which helped underpin the currency. After initial vulnerability, risk appetite also recovered which helped underpin the UK currency and triggered a fresh round of short covering.
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German factory orders declined 2.7% for April after a revised 4.2% fall the previous month and much weaker than consensus forecasts of a small increase. The June Euro-zone Sentix index, however, recovered to -15.8 from -22.6 previously and compared with market expectations of -20.0. The Euro was unable to draw support from the data releases and edged lower as high US yields continued to dominate. There will be further caution ahead of Thursday’s ECB policy meeting with forward guidance from the bank very important ahead of the July meeting when interest rates are expected to increase. In particular, markets will be looking for hints on whether a larger 50 basis-point rate hike could be under consideration.
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10.00 Gross Domestic Product (QoQ) (Y1) Exp. 0.3% Prev. 0.3%
10.00 Gross Domestic Product (YoY) (Y1) Exp. 5.1% Prev. 5.1%
The April total trade deficit declined to $87.1bn from a record $107.7bn the previous month with a sharp decline in imports for the month while exports increased to a record high. The sharp deficit decline will lead to an upward revision to second-quarter GDP estimates. The Federal Reserve will remain in the blackout period ahead of the June 15th policy decision which is likely to contribute to volatile trading conditions.
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