Markets will be responding to the resounding victory for Emmanuel Macron today and the early part of this week, however there will also be continued focus on the outlook for US economic data after Friday’s Non-farm Payrolls. The slightly underwhelming earnings growth again brings focus back on inflation with US CPI at the end of the week. Moves on commodities prices have also had a significant impact on markets. We look at the outlook for forex, equities and commodities this week.
US economic data may have been broadly underwhelming in recent weeks, but the Fed has tried to brush all that Q1 disappointment under the carpet by labelling it all as “transitory” (let’s just also ignore the disappointing April vehicle sales). The consensus for Q2 growth is for a rebound to c. 2.7% growth whilst the Atlanta Fed’s GDPNow forecast is currently up at 4.2%. However, I think that inflation data rolling over need to be watched now. Questions over the “reflation trade” have subdued the dollar in recent weeks and unless Donald Trump drastically improves his success rate in Congress, the prospects for fiscal spending driven inflation in the US look difficult (pushing the Obamacare repeal bill through Congress is only a very minor victory). Focus towards the end of this week will be on whether US CPI inflation and Retail Sales can buck a trend of deterioration. The immediate reaction comes from the French Presidential Election, with the decisive victory for Emmanuel Macron. The market had already reacted significantly in the wake of the first round of voting and this leaves markets perhaps open for some near term profit taking as traders bought the rumour. However, once the dust settle on markets such as the euro, there should be a fairly decent set up for continued euro strength and recovery. The euro could see a degree of near term profit taking, and it is interesting that equities are also threatening the same.