Market update: German business and consumer confidence in the spotlight

Market update: German business and consumer confidence in the spotlight

25th June 2018

Last Week - Key Takeaways

Bank of England holds rates for now as chief economist dissents

  • The UK base rate was held at 0.5%, but nine-member Monetary Policy Committee (MPC) split 6-3.
  • The Bank’s chief economist Andrew Haldane joins two others in voting for a rise to 0.75%.
  • MPC says the poor economic growth figures of the first three months of a year was likely to prove "temporary" and that the speed of growth would pick up.
  • The Omnis view: this is the first time that Andrew Haldane has dissented from the majority view since he joined the MPC in 2014, leading many to speculate that a rate rise could now happen in August.

Theresa May wins crucial Brexit vote as Airbus and BMW threaten to quit the UK

  • The prime minister narrowly fought off a revolt by pro-European Conservatives.
  • There was a last-minute concession about the vote MPs will get on the withdrawal agreement or if there is no deal.
  • Car giant BMW and plane-maker Airbus, which both employ thousands in the UK, have been warning of the threat of Brexit uncertainty.
  • The Omnis view: Brexit uncertainty is already having an impact on corporate decision-making and this will only accelerate as the negotiations drift without resolution.

Japan's inflation stays weak despite stimulus measures

  • Prices in Japan rose 0.7% in the year to May, unchanged from the April figure.
  • The data followed the Bank of Japan's decision to cut its inflation assessment, meaning it will be in no hurry to begin tapering its massive stimulus programme.
  • Despite five years of stimulus, inflation remains well below the Bank's 2% target.
  • The Omnis view: Bank of Japan governor Haruhiko Kuroda is under pressure again to explain why inflation remains so weak, with Japan out of sync with other major economies on the road to policy normalisation.

EU introduces retaliatory tariffs on US goods

  • Duties on €2.8bn worth of US goods, including bourbon whisky, motorcycles and orange juice, now come into play.
  • European Commission president Jean-Claude Juncker said duties imposed by the US on the EU go against "all logic and history".
  • Shares in car manufactures where then hit following a tweet from Donald Trump threatening a 20% tariff on all European cars imported into the US.
  • The Omnis view: another week, another trade spat. It remains to be seen whether these pressures will ease, as no country really wants a trade war.

Erdogan wins re-election in Turkey

  • Long-standing leader Recep Tayyip Erdogan has won a new five-year term following Sunday's presidential elections.
  • Erdogan secured nearly 53% of almost all votes counted, while his closest rival Muharrem Ince was one 31%.
  • The vote ushers in a powerful executive presidency backed by a narrow majority in a 2017 referendum. As part of this, the office of prime minister will be abolished.
  • The Omnis view: Turkish markets rallied initially on hopes of increased political stability, but the country remains divided with many fearing this controversial figure's one-man rule.

Looking Ahead - Talking Points

German business and consumer confidence in the spotlight

  • The IFO Business Climate Index measures the sentiment of German entrepreneurs on the current business climate, with data for June due this week.
  • This is followed by the GfK Consumer Climate Indicator, which edged down last month as spending slowed.
  • German unemployment data for May is also released this week, having fallen to 3.4% in April.
  • The Omnis view: Germany remains a driving force behind the eurozone. However, Trump's recent threats to its car manufacturers could be a hit to confidence in the future.

Germany GFK Consumer Climate Indicator – July 2017 to June 2018

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Source: GfK Group, tradingeconomics.com

US finalised GPD figure and personal income and spending

  • A final first quarter growth figure is due for the US, estimated at an annualised 2.2%.
  • Consumer confidence data is also due this week, as well as home sales and durable goods orders.
  • On Friday, we will see monthly data released on personal income and personal spending, with the later having increased by 0.6% month-over-month in April.
  • The Omnis view: the US appears to be in good shape economically, though many fund managers remain wary of expensive stocks.

US Personal Spending – May 2017 to April 2018

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Source: US Bureau of Economic Analysis, tradingeconomics.com

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