French consumer confidence lowest since 2014

Chris Scicluna
Emily Nicol

Asian stocks stable, USTs a touch firmer, but Kiwi yields up on RBNZ announcements
Despite yesterday’s losses in the US, and with little economic news of major significance from the region, Asian markets have steadied today, with stock indices largely edging higher. While Japan’s government maintained its assessment that the economy is showing signs of “picking up”, but was more upbeat about the labour market, the Topix closed essentially unchanged. But while the Chinese port city of Tianjin locked down its city centre in response to a pickup in Covid-19 cases, the CSI300 is currently up 0.4% with the Hang Seng up a similar amount too. US and European stock futures are also ¼-¾% higher.

In fixed income, following yesterday’s rally in the wake of very weak new home sales data, yields on USTs are roughly 1-2bps lower with 2Y yields close to 2.50%, and JGBs by and large having firmed too. Euro govvies are a touch firmer too following some mixed consumer confidence surveys from the region (see below). New Zealand govvies bucked the trend, with 2Y yields some 12bps higher and 10Y yields up 5bps, as the RBNZ delivered on its expected second-successive hike in the cash rate of 50bps, to 2.00%, but updated its projections to signal another 200bps of tightening by H223.

Despite a modest improvement in May, German consumer confidence signals subdued household spending in Q2
While yesterday’s flash PMIs and the ifo survey earlier in the week flagged a possible strengthening of German GDP growth this quarter, today’s GfK consumer confidence survey suggested that German household spending is likely to be subdued over the near term. Admittedly, the headline index increased, however, the rise of just 0.6pt came from the prior month’s series low (-26.6). This still remained some 19pts lower than before the Russian invasion and 27pts below the recent peak reached in November. Within the detail, there was a modest improvement in economic expectations this month, albeit the relevant index still remained around 50pts lower compared with May 2021, with consumers still concerned that the economy will slip into recession. And the income expectations balance remained close to April’s near-20-year low not least due to high inflation. So, households’ willingness to buy edged even lower in May, with the index down a further 0.5pt to -11.1, the weakest since 2008.

French consumer confidence down to lowest since 2014
Meanwhile, today’s French INSEE consumer survey suggested a further loss of confidence in May, with the headline index down a further 1pt to 86, the lowest since September 2014. And there was little improvement in the share of households judging it a good time to make major purchases in May, with the respective balance up just 1pt above April’s near-2-year low and well below the long-run average.

German Q1 GDP growth unrevised at 0.2%Q/Q, underpinned by solid construction investment
There were no surprises from today’s German national accounts data, which confirmed that the economy avoided a contraction in Q1, but that the outlook for Q2 remains extremely uncertain. In particular, GDP growth was unrevised at 0.2%Q/Q in Q1, to leave output up 3.8%Y/Y (a touch firmer than the initial estimate on the back of a downwards revision to growth in Q221) but still 0.9% below the pre-pandemic level in Q419. Despite supply-side constraints and elevated prices, growth was underpinned by construction investment (4.6%Q/Q) as well as investment in machinery and equipment (2.5%Q/Q). In contrast, household consumption slipped back slightly (-0.1%Q/Q) for the second successive quarter, with government spending little changed too. And with exports down 2.1%Q/Q as supply bottlenecks continue to impact exports of autos, and total imports up 0.9%Q/Q as international travel resumed, net trade subtracted a sizeable 1½ppts from growth in Q1.

ECB to publish financial stability review; Lagarde, Lane and Panetta speaking
Beyond the economic data, the ECB will publish its latest bi-annual Financial Stability Review, from which yesterday the Bank flagged risks posed by unbacked crypto assets. In addition, various Governing Council members are due to speak publicly, including ECB President Christine Lagarde at Davos, and the moderately dovish ECB Chief Economist Philip Lane in Madrid. The most dovish Executive Board member, Fabio Panetta, is currently talking in Frankfurt and, according to type, has just argued that monetary policy normalisation should not mean removing stimulus outright. He also stated that addressing fragmentation risks - by inference, not least through buying more BTPs if and when necessary - should be central to the normal conduct of ECB policy. Expect further clear signals of rate lift-off in July, albeit with the message more consistent with an increment of 25bps rather than the 50bps touted by Austrian Governor Holzmann and Latvian Governor Kazaks.

US durable goods data to come ahead of Fed minutes
After yesterday’s exceptionally weak new home sales figures, the US economic data focus today will be April’s advance durable goods orders. Daiwa America’s economic team look for growth of 0.8%M/M, the same (revised) pace as March, supported by a pickup in commercial aircraft orders. This evening will bring the minutes from the 4 May FOMC meeting, when the Fed raised the FFR target range by 50bps to 0.75-1.00%, signalled further increases of 50bps at the coming two meetings, and provided details of its QT plans. With no shortage of commentary from FOMC members, including Chair Powell, since that meeting, the minutes might be light on insightful new information. 

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