EC Reveals Assessment Of Member State's Budget Plans

The E.U. Commission is due to release its confidence indicators, which we expect to show some improvement in May.

We expect the second release of US Q1 GDP to show a small upward revision to 2.6%, driven by improved personal spending growth, slightly above consensus expectations. U.S. housing data has been strong lately but we see a risk of a pause in pending home sales in April.

Another interesting release is U.S. claims data. Initial jobless claims have been trending downwards since the start of the year, and a further continuation of this trend suggests that the labor market improvement is ongoing.

Danish unemployment could show a modest decline; we expect Norwegian retail sales to have gained in April.

Selected market news

The Federal Reserve's Eric Rosengren said on Wednesday evening that "While we have seen some improvement in labour market conditions, significant accommodation remains appropriate at this time." He also said that modest cuts in Fed bond buying might make sense after "a few months more of gradual improvement in labour markets and improvement in the overall growth rate in the economy." Rosengren is one of the Fed doves, so in that respect the latter comment is particularly interesting, as it seems to increase the likelihood that a Fed announcement that it will begin tapering its bond buying could come as soon as September.

On Wednesday afternoon, the EC revealed its assessment of member state's budget plans, and granted Holland and Belgium an extra year to get their budgets inline with the Maastricht criteria. Spain and France were both granted an extra two years. The shift away from austerity towards growth and job creation was anticipated, and is partly the result of an acknowledgement that the fiscal multiplier during a crisis is much higher than previously thought. It was probably also inspired by the U.S. and Japan's apparently more successful strategies, which have had a clearer focus on growth revivial. While financial markets would have reacted sharply to such an announcement of fiscal relaxation a year ago, the reaction on Wednesday afternoon was very limited.

The more downbeat sentiment has continued throughout both the American and the Asian session, with almost all stock indices sliding down possibly on increased concerns that any reduction in monetary stimulus could dampen growth prospects. The Japanese Nikkei index, which has been very volatile over the past week, was hard hit and fell to a near one-month low after some yen strengthening on Wednesday. The yen has been trading fairly stable since Wednesday's European market close.

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