Market movers today
German GDP growth for Q1 is due for release today and we estimate strong growth of 0.6% q/q, up from 0.4% q/q in Q4 16, as business sentiment has shown optimism throughout Q1, especially observed in strong PMIs and ifo expectations. Additionally, the euro area reported quarterly GDP growth of 0.5% q/q in Q1 already, which - although not as strong as indicated by the PMI figures - suggests that the German figure should also be solid.
Focus will also be on US inflation with the release of the CPI figure for April. We expect some reversal in both headline and core inflation after they fell sharply in March, driven partly by the timing of Easter and by lower energy prices. We estimate CPI core inflation was 2.0% y/y and headline inflation was 2.3% y/y, which would mean headline inflation has fallen from 2.8% to 2.3% in just two months, with a large part of this due to the base effects of oil prices. Note that although these numbers are at or above 2%, the Fed is more concerned about PCE core inflation, which is still below 2% and showing no signs of accelerating.
US retail sales figures for April are also due for release. Since October 2016, consumer confidence has been very high, indicating tailwinds for private consumption. However, we believe that consumer confidence has run ahead of actual developments and will come down rather than retail sales accelerating. The weak GDP growth in Q1 was driven largely by weak private consumption. Hence, if GDP growth is to pick up in Q2, we need a strong print in the retail sales control group for April. The University of Michigan consumer confidence is also due to be released today and in line with the argument above, we estimate a decline.
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