The UK PMI construction index declined to a 4-month low of 56.4 for May from 58.2 previously and slightly below consensus forecasts. Business confidence dipped to the lowest level since August 2020, but there was a further increase in orders and there was a slight easing of inflation pressures as supply-side pressures eased slightly. Overall sentiment towards the UK outlook remained weak as high energy costs continued to sap support amid expectations of weak consumer spending. At the latest gilt auction, the 10-year yield increased to near 2.30% and the highest reading for over 7 years. Higher yields proved an element of Sterling support, but overall Sterling confidence remained weak which limited potential support, especially with most central banks raising interest rates.
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German industrial production increased 0.7% for April after a revised 3.7% decline the previous month, but marginally below consensus forecasts. The first-quarter Euro-zone GDP estimate was revised up to 0.6% from the flash estimate of 0.3% with year-on-year growth of 5.4% from 4.7%. Ahead of Thursday’s ECB policy meeting, there was a further increase in market expectations surrounding interest rates with futures markets pricing in 200 basis-point increases by May 2023. ECB expectations continued to underpin the Euro after the US open with traders reluctant to sell the currency ahead of Thursday’s policy meeting. There are no expectations for a rate hike at this meeting, but the bank is expected to give clear forward guidance that there will be an increase in July with bond purchases ending this month.
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12.45 ECB Deposit Rate Decision Curr. -0.5% Prev. -0.5%
12.45 ECB Interest Rate Decision Curr. 0% Prev. 0%
12.45 ECB Monetary Policy Statement
13.30 ECB Press Conference
Treasury Secretary Yellen stated that there was no way that inflation would be a decade-long problem. There were also suggestions that the US will look to adjust tariffs on China to help ease near-term inflation pressures which provided a minor lift to risk sentiment, although Wall Street equities still closed lower. There will be an element of caution ahead of Friday’s US CPI release with markets also monitoring inflation expectations.
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