LAST WEEK – KEY TAKEAWAYS

US JOBS FIGURES IMPRESS, WHILE ECONOMIC GROWTH REVISED SLIGHTLY LOWER 

• US jobs growth faster than expected, with a further 223,000 new positions added in May.

• Unemployment rate fell to an 18-year low of 3.8% during the month, from 3.9% in April.

• The second estimate of gross domestic product (GDP) for the first quarter of the year was 2.2%, slightly lower than the original estimate of 2.3%

• The Omnis view: US economic data like this is encouraging and follows on from a positive US earnings season.

US/CHINA TRADE TALKS END IN STALEMATE AS G7 FINANCE MINISTERS RAISE CONCERNS

• Latest discussions over the weekend centred around US agricultural and energy products.

• Beijing says it will not sign up to buy more US goods until the Trump administration has promised not to impose further tariffs on Chinese exports.

• At a G7 meeting in Canada, officials criticised US tariffs on steel and aluminium imports which “undermine open trade and confidence in the global economy”.

• The Omnis view: while ongoing fears of a trade war dominate the news agenda, stock markets have remained resilient to negative headlines as they are seen as points within the negotiation process and not the final outcome.

UK MANUFACTURING PICKS UP SPEED IN MAY, WHILE MODEST RECOVERY CONTINUES FOR CONSTRUCTION SECTOR

• The Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PPI) rose to 54.4, recovering from a fall to 53.9 in April.

• Brexit concerns weigh on construction with the HIS Markit/CIPS UK Construction PPI holding at 52.5.

• Activity in May was buoyed by firms catching up on disruptions caused by poor weather conditions in March.

• The Omnis view: the Bank of England is looking for concrete signs that the UK economy is picking up from a slow start to the year before it will consider any gradual interest rate rises.

SPANISH AND ITALIAN POLITICAL UNCERTAINTY BRINGS MORE CHALLENGES TO THE EUROZONE

• Spanish prime minister Mariano Rajoy suffers defeat in a vote of no-confidence, having been implicated in a corruption scandal. 

• Pedro Sanchez of the Spanish Socialist Workers’ Party sworn in as his replacement, prompting calls for more talks around Catalonian independence.

• Italy’s new populist government takes power, headed by prime minister Giuseppe Conte.

• The Omnis view: Italian bonds were among the most volatile assets last week, though these make up only a small position in the Omnis fixed income funds.

MERKEL OFFERS CLARITY ON EUROZONE REFORM, AHEAD OF EU SUMMIT

• In an interview with German newspaper FAS, Germany’s chancellor backed the idea of turning the eurozone’s ESM bailout mechanism into a European Monetary Fund to offer short term loans for countries suffering economic stress.

• Merkel also backed the step-by-step introduction of a eurozone investment budget, and called for common asylum standards.

• Merkel and French prime minister Emmanuel Macron will present a joint plan for reform at the end of June.

• The Omnis view: given the aforementioned uncertainty in Spain and Italy, it is important that Europe’s largest economies present a united front and investors will be looking for further clues on this plan ahead of the next EU summit.

LOOKING AHEAD - TALKING POINTS

EUROZONE WATCHERS AWAIT GERMAN MANUFACTURING, INDUSTRIAL PRODUCTION AND TRADE BALANCE DATA

• German factory orders data is expected to have rebounded for April, having surprisingly fallen by 0.9% month-on-month in March.  

• Industrial production data for April is due on Friday, with factories in Europe’s largest economy having ended the first quarter of the year on a strong footing.

• Germany’s trade surplus came in at a healthy €25.2bn in March. Shares in car manufacturers have since been hit amid rumours of a plan from Donald Trump to cut imports in to the US.

• The Omnis view: while the German economy slowed in the first quarter of the year, economists believe this was a temporary blip caused in part by poor weather conditions and strikes, and many of its companies have benefited from strong export demand. 

GERMAN INDUSTRIAL PRODUCTION (%) – APRIL 2017 TO MARCH 2018

Source: Federal Statistics Office, tradingeconomics.com

US PMI AND TRADE DATA DUE AHEAD OF NEXT WEEK’S FED MEETING

• May’s ISM non-manufacturing purchasing managers’ index (PMI) data is due on Tuesday, an important survey of more than 400 executives on the health of their businesses.

• Amid the headlines around tensions with China, the latest US balance of trade data will be closely scrutinised, following a narrowed deficit in March. 

• The US FOMC meets on 12-13 June, with Bloomberg data showing an 86% probability of a rate hike (as at 4 June).

• The Omnis view: economists remain confident of rate increases in June and September, boosted by last week’s employment data.

US BALANCE OF TRADE ($M) – APRIL 2017 TO MARCH 2018

Source: US Census Bureau