Last week, the main focus was on US data following the disappointing US job figures in the previous week which dampened the longer-term interest outlook. US inflation may have reversed this chain of thought. The US consumer prices rose by 4.2% in April, the most since 2009 and above forecasts, adding concerns to inflationary pressures capping the economy’s longer-term performance which in turn resulted in the 10-year US Treasury yield surging to a two-week high. In addition, according to JOLTS data, there was an increase in job openings to a record high of 8.12 million with underlying confidence in the outlook remaining mixed following last week’s employment report.

In the meantime, the Sterling was boosted as the government confirmed that the UK coronavirus alert level had been reduced from four to three due to reduced transmission rates and it also confirmed that the further easing of restrictions would take place this week in England. There are obvious concerns regarding the Indian variant, but the UK intends to speed up the vaccine rollout.

The EU Commission increased the Eurozone 2021 GDP growth forecasts from 3.8% to 4.3% and the 2022 outlook was also upgraded. The Commission expects a significant easing of coronavirus restrictions during the second half of the year and the EU also announced that budget rules would be suspended until the end of 2022. The German and Eurozone ZEW sentiment both strengthened which helps reinforce the upgrade in forecasts.

Looking to the week ahead, the market will once again focus on economic data for clues on economic activity. The UK, Eurozone and US are all expected to release the PMI services and manufacturing data which will put into context the pace of expansion or contraction. In addition, it is a busy week for the Sterling with labour data set for release on Tuesday and inflation on Wednesday.

Monday

  • UK Rightmove
  • US Empire Manufacturing
  • Bank of England Members Tenreyro, Vlieghe and Haldane Speaks
  • FOMC Member Clarida Speaks

The UK house price index is due for release today which is against expected outputs to show that house prices have risen. The US Empire manufacturing data is expected to show that the pace of manufacturing growth will have slowed slightly. In the meantime, there are several members of the Bank of England (BoE) that are due to speak including the outgoing Chief Economist Haldane who has historically been optimistic about the economy. Across in the US, Federal Reserve Governor Richard Clarida is also due to speak. With both the BoE and FOMC sitting on their hands with regards to policy the market is keen to articulate if there has been any change following the optimist data of late.

Tuesday

  • UK Unemployment Data
  • EZ GDP
  • US Housing Starts

The UK labour data is due for release with the market keen to articulate the impact on the reduction of levels of COVID-19 restrictions. However, given that furlough is still in effect, these figures may continue to post a divergence from reality. The flash reading (second reading) of the Eurozone GDP is set for release and not expected to change from the -0.6% figure posted in the first release. From the US, economic data will be released in the form of housing data.

Wednesday

  • UK Inflation
  • ECB Financial Stability Review
  • FOMC Meeting Minutes

The UK inflation reading will take centre stage. UK CPI inflation has so far remained well below the 2.0% target, but a sizeable bounce is expected from 0.7% in March to 1.6%y/y in April, in large part due to the increase in energy prices. Whilst this is still well below the target it could still drift higher in the coming months. Inflation is a key decision-making metric when it comes to monetary policy. The ECB Financial Stability Review will provide the market with some guidance on the assessment of conditions in the financial system and potential risks to stability; something that is key in this current climate. Finally, after the European markets close, the FOMC meeting minutes are due to be released. Given the current stance and rhetoric from the FOMC, it is not expected that we will see a change in tone here.

Thursday

  • ECB President Lagarde Speaks
  • US Philly Fed Manufacturing
  • US Weekly Jobless Claims

ECB President Lagarde is due to participate in a panel discussion about gender-related topics in money and finance at an online conference hosted by European Money and Finance. The market will decipher its rhetoric for clues on future policy action and forecasts. The market will continue to watch economic data from the US. The weekly jobless claims data are due for release as well as the Philadelphia Federal manufacturing data. Strong numbers will continue the growth-based theme.

Friday

  • UK Retail sales
  • UK/EZ and US PMI Services
  • UK/EZ and US PMI Manufacturing

Economic data takes centre stage today with a big focus on UK data in particular. Since restrictions have been eased the market will be keen to articulate the impact that this has had on both retail sales and economic activity. UK retail sales are expected to remain elevated whilst the pace of expansion in the UK service sector is expected to accelerate and manufacturing expansion remains healthy. The PMI services and manufacturing data is also due for release from both the Eurozone and the US.

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