Markets turn focus

Most of this week’s key data is being released today. US retail sales for April are expected to show a decent rise of 0.4% monthly. US private consumption was soft at the beginning of the year but is expected to recover in second quarter. However, the recent rise in oil prices could postpone a rebound in private consumption. The US is also due to release the Empire index; the first regional survey for April. In the UK. It is time for the labour market report for March. Month-on-month wage growth has been remarkably stable in recent months and we estimate another increase of 0.2% m/m, taking the annual growth in average hourly earnings ex bonuses (3M average) to 2.9% y/y from 2.8%. The unemployment rate (3M average) is expected to remain at 4.2% but risk is skewed towards a fall to 4.1%.

Italy is close to forming a coalition government between the Five Star Movement and League parties. However, last minute hiccups have emerged such as choosing a prime minister. Some very radical populist ideas are being floated such as flat income tax at 15% and guaranteed income for the poor. These ideas will not sit well in Brussels or the bond market.

Oil prices received their latest lift as OPEC reported that the global oil glut has been virtually eliminated. Tensions in the Middle East and uncertainty about output from Iran amid renewed U.S. sanctions have contributed to the recent rise in oil prices.