US data ahead should confirm that a Q2 recovery remains on track

Market Movers

• Focus will be on a number of US data that should at least to some degree confirm that growth is poised to rebound in Q2 on the back of a subdued Q1. Durable goods orders for March suggested that business capex gained momentum in late Q1 and today’s durable goods orders for April will show if the higher pace of core capital goods orders was maintained in April.

• New home sales in the US overall maintained its upward trend in Q1 despite the bad weather in February and March. We expect new home sales to have rebounded in April on the back of a drop in March. Higher gasoline prices have weighed a bit on consumer sentiment in recent months. However, employment growth is still healthy and we expect Conference Board’s consumer confidence to have been unchanged at 95.2 in May.

• We also have a couple of speeches from central bankers in the calendar today. Bank of Italy governor Ignazio Visco will speak at 10:30 CET in connection with Bank of Italy’s annual meeting and Fed Vice Chairman Stanly Fischer will speak at 18:30 CET about ‘The Federal Reserve and the global economy’.

• In Sweden Riksbank speeches are in focus. For more on Scandi markets see page 2.

Selected Market News

Endgame on Greece drawing closer. Over the weekend, the Greek Interior Minister Voutsis warned that the country is unable to meet the four IMF instalments in June amounting to EUR1.6bn. While Greece was able to meet a EUR0.8bn payment earlier this month after Prime Minister Tsipras made a similar threat, this was done only after tapping an emergency account held by the IMF. Meanwhile, Tsipras appears to have won backing from his party to conclude a bail-out deal, despite internal opposition from hardline fractions within Syriza, see Financial Times. However, Greece and its creditors still appear far apart, with the Greek government so far unwilling to discuss pension reforms and increases in the value-added tax.

Spanish election outcome points to increasing political risks. Elections taking place in 13 of Spain’s 17 regions over the weekend saw the governing People’s Party (PP) lose support. While the PP attracted the most votes, its overall share fell by 10 percentage points to 27% and the party has lost absolute majorities in several regional parliaments, including historical strongholds Barcelona and Madrid. Meanwhile, support increased for anti-austerity parties like Podemos, leaving Prime Minister Rajoy looking vulnerable ahead of the general elections due in December this year at the latest.

European shares decline in thin trade. Trading volume was thin yesterday, as most markets, including Germany, the United Kingdom and the United States were closed for holidays. However, the French CAC40 index fell 0.8%, while the Spanish IBEX index declined 2.3%, driven by the election results showing increased fragmentation. Meanwhile, EUR/USD has dipped back below the 1.10 level.