Japanese economy defies trade war pull

Market movers today

• We start the week in a quiet fashion on the data front and even the US-China trade war might be entering a quiet phase after the recent round of escalation. The next thing to look for is any news on more Chinese stimulus and more specific information regarding when the next round of talks in Beijing will take place. While things may have calmed down for now, we still see a risk of another flare-up later as the two sides seem far from each other on the last critical bits of the deal. More financial stress is needed, in our view, to get enough pressure to reach a deal.

• Later this week, markets will keep an eye on the PMI readings out on both sides of the Atlantic to gauge what is next for the global economy after the new trade spat. In the UK, the EU elections, which start on Thursday, could inflict a heavy defeat on the Conservative Party and increase pressure on Prime Minister Theresa May to resign.

Selected market news

Asian stocks are up this morning, helped by election wins for incumbents in India and Australia and better-than-expected Japanese GDP figures. Defying gloomy survey readings that had pointed to a slowdown, the Japanese economy expanded by an annualised 2.1% in Q1. However the details suggest that consumer demand has remained soft and in light of slowing demand from China and ASEAN countries due to the trade war, we remain cautious on the outlook for Japan.

Elsewhere, politics continues to dominate the news flow. After cross-party talks with Labour collapsed last week, the GBP hit its weakest level since February. Over the weekend, embattled PM Theresa May promised to make a "bold offer" and set out a "new and improved" Brexit deal as she tries to pass her EU withdrawal treaty at the fourth attempt in early June. Although the new offer is said to include improvements on workers' rights, Labour leader Jeremy Corbyn is widely quoted as being sceptical of any deal passing and hence a June agreement is already facing headwinds. On previous occasions the GBP would rally mildly on the news of a change in the impasse and this could very well happen again in the coming week. However, overall, we remain sceptical, as we see only a slim likelihood of the bill passing, after pressure on politicians to find a way forward has eased following the Brexit deadline extension.

Austria is heading for new elections after vice-chancellor Strache from the far-right FPÖ party resigned over a corruption scandal on Saturday, plunging the country into a government crisis just days ahead of the European elections.

Amid rising tensions in the Middle East - not least due to more sabre-rattling between the US and Iran - and signs from OPEC producers of continuing output cuts, oil prices surged past USD73/bbl.

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