Theresa May's days as prime minister look numbered

Market movers today

In the UK, key focus is on the Conservative Party's response to the results of the European parliamentary elections today. The Conservative Party is likely to suffer a heavy defeat and Nigel Farage's new Brexit Party may be the biggest party of all. It is highly likely that the defeat would cause Prime Minister Theresa May to resign (see our Brexit Monitor - End of May ).
In the euro area, we will get both the flash PMIs and German ifo for May, as well as the ECB minutes form the April meeting. We see scope for a very limited rebound in the manufacturing PMI to 48.3 on the back of the improving order situation in the April survey. However, the latest negative developments in the trade negotiations between the US and China will weigh on the PMIs going forward and a dent in business expectations might already be visible in today's German ifo print.
The ECB minutes from the April meeting may prove uneventful for the market. While we are interested in the discussions on inflation and the growth outlook, we doubt there will be any new colour on this, or on the potential 'tiering system' and the upcoming TLTRO3 modalities.
In the US, we also get the Markit preliminary PMIs for May, which should give us a clue to how growth has performed in Q2. Recently, manufacturing PMIs have added to the signs that the economy is set to slow and that the manufacturing sector is not immune to what happens in the rest of the world.
In the Scandi countries, labour market data is in focus in Sweden, Norway and Denmark (see next page).

Selected market news

Yesterday, pressure mounted on Theresa May to step down on the back of her renewed bid to find a majority for her Withdrawal Agreement. A senior Cabinet member, Andrea Leadsom, resigned, saying she no longer believed the government's approach will honour the result of the 2016 referendum. Later in the day, the powerful, so-called 1922 Committee of rank-and-file Conservatives, which oversees leadership elections, decided not to change the rules, but Committee chairman Graham Brady said after the meeting that he will meet with Theresa May tomorrow after the European elections. If Theresa May decides to step down, it opens the opportunity for a more pro-Brexit conservative leader, although such a process may only be completed in autumn. Hence an extension of the 31 October deadline with the EU may be needed, although uncertainty remains high about the potential different scenarios at the moment.

The Asian markets declined on hardening rhetoric from the Chinese side, with the state media sharply criticising the US's decision to curb Chinese companies. Meanwhile, Fed Minutes released yesterday showed little support for the market view that the Fed will cut rates later in the year.

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