Europe May Manufacturing & Services PMI (07:00-08:00 GMT). Markit’s preliminary May purchasing manager indices will be reported for France (07:00 GMT), Germany (07:30 GMT) and the Eurozone (08:00 GMT). The consensus expects small declines in both the manufacturing and service sector indices for all three countries. After a surprise jump in March, the French indices are now expected to fall near the 50-level, suggesting that the country’s economic recovery has yet to begin. This could further deteriorate the German and French co-operation in Europe.
On May 5, the French Prime Minister Manuel Valls said the euro was too strong and that the European Central Bank (ECB) should introduce “more appropriate” monetary policy. In Germany, Angela Merkel’s aide rebutted the complaint and said the rate of exchange for the EUR was “not an issue for national politicians”, and that the ECB should “not be given advice on how to behave.”
On May 7 the French economy minister Arnaud Montebourg countered and said the political leaders have the right to assess the right level for the currency, also mentioning a report stating a 10 percent drop in the EUR would boost the French economy by 0.6 percent over a year and 1.2 percent over three years.
The former French president Nicolas Sarkozy just released a letter calling for the end of the visa-free Schengen area and creation of a Franco-German economic bloc. This might be a last-minute attempt to steal some European parliamentary votes from the far-right Front National – or an escalation of economic rhetoric mainly targeted at Germany.
Perhaps France will be to Europe what some people feared (or hoped) Greece would be? In the end, Greece was too small and the big countries were too exposed for it to be a game changer. In the coming weeks and after the June ECB meeting, I would pay close attention to the French rhetoric.
UK Q1 Gross Domestic Production, second estimate (08:30 GMT). After a first estimate of 0.7 percent growth from the fourth quarter, or 3.1 percent from year ago, the consensus expects the second estimate to be lowered slightly to 0.7 percent quarterly and 2.8 percent annually. As the monetary policy minutes indicate, the Bank of England is seriously pondering the need for a rate hike, and some moderation from the initial estimate could easily alleviate interest rate hike fears, opening up the GBP to some short-term losses.
US April Existing Home Sales (14:00 GMT). The existing home sales are finally expected to show a month of increasing activity. After the mortgage rates begun climbing last summer, the euphoria in the sales numbers diminished, and since mid-2013 the sales have been falling to levels more appropriate with the lacklustre new home sales. Now that the existing home sales have remained unchanged since January and the terrible winter is over, sales are expected to start increasing again. The mortgage rates have been falling for some time now, which would support the housing market in the coming months. Note that April new home sales will be published tomorrow.
