Markets Rebound

OVERNIGHT

Asian equity markets are mostly higher this morning although Chinese indices are little changed on the day. The World Bank has revised down its global economic growth forecasts citing concerns about the surge in energy and food prices, supply side disruptions and the impact of tighter monetary policy. It warned that a few years of below-average growth and above-average inflation lie ahead, and that the global economy could tip into 1970s like stagflation. Reports suggest that the UK government plans to push ahead with legislation to override the Northern Irish protocol in the Brexit deal. Some sources say this will be introduced to parliament today or tomorrow, but others claim it will be delayed until next week.

THE DAY AHEAD

Today’s data calendar is very light. In the UK, the PMI construction index for May will provide an update on a part of the economy that is both highly cyclical and interest rate sensitive. As of April, the survey still showed activity in the sector at a high level but there were signs that growth was slowing. Having held steady at 59.1 in February and March, the headline index slipped to 58.2, although this is still the third highest reading since July of last year. In further signs of slowing growth, the detail of the April report showed that both new orders and expectations regarding future output fell to their lowest levels this year. The consensus expectation for May is for a further slowing in pace of growth. In the Eurozone, Q1 GDP is a second reading. The expectation is that this will not be revised. However, a much larger-than-expected quarterly growth in Ireland of 10.8% points to some upside risks. The report will also contain more detail and there will be particular interest in what components of expenditure led the rebound from Omicron and whether consumer expenditure will show any signs of a negative impact from surging inflation. Eurozone employment data for Q1 will also be released. The OECD will publish its latest set of economic forecasts this morning. Its last update in March gave its first impressions of the potential economic impact of the war in Ukraine. This new release will provide further information now that it has more time to consider potential effects. It will be particularly interesting to see the organisation’s economic policy recommendations, including the extent to which it expects interest rates to rise.

MARKETS

After Monday’s surge, global bond yields edged down yesterday but US Treasury yields have risen again overnight. Sterling is a touch weaker against both the US dollar and the euro overnight following gains yesterday. Markets continue to wait for the two key economic events of the week – tomorrow’s policy update from the European Central Bank and Friday’s US inflation report.

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