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Good Morning: The Long & the Short of it and The Bigger Picture - 24 May 2019 - ADM ISI


Ostwald, Marc
08:39 (7 minutes ago)

to Marc

- Modest run of data to focus on UK Retail Sales, CBI Retail survey ahead
of US Durable Goods as UK and US look to long holiday weekend; Nowotny
the only central bank speaker of note; politics and trade still front
and centre; UK PM seen expected to announce resignation

- UK Retail Sales: expected to drop modestly after 3 consecutive gains,
Easter related spending seen offering prop, but risks downside

- US Durable Goods: headline seen dropping back after March jump, Boeing
737MAX a major wildcard; core orders seen easing after solid Q1 run

- EU Parliament elections: Dutch exit poll suggests anti-EU party trailing
in third behind opposition Labour and PM Rutte's conservatives; Italy
result expected to boost Salvini's Lega, and raising coalition tensions

- Charts: IMF charts on US/China imports of tariffed goods; USD/CNY and
China-Hong Connect equity flows


UK Retail Sales and US Durable Goods Orders top the day's data and events schedule, with both countries looking forward to a long weekend due to holidays on Monday. Outside of these there are the national CPI readings from Japan to digest, while ahead lie the UK CBI Distributive and Retail Trades surveys and final Q1 GDP from Mexico, along with a speech from ECB's Nowotny. Eminently the UK's political dramatics and in the US the renewed focus on Trump's finances amid impeachment chatter (above all with reference to alleged obstruction of justice) will be further points of focus, but barring any snippets on these and/or US/China trade, the week could end with something of a whimper. On the political front, exit polls for the Dutch European Parliament elections suggest a surprise win for the Labour Party with PM Rutte's party in second, with the anti-EU Forum for Democracy only managing third place. Elsewhere the key point of focus will be Italy, where Salvini's League is expected to win up to 30% or more of the vote, and M5S to be at least 10 points behind, leading some to speculate how long the current coalition may last, perhaps the more so given Salvini's comments today that he expects the coalition to get on with implementing key elements of Lega's agenda, as of next week.

** U.K. - April Retail Sales **
- Expectations of a -0.3% m/m for headline and -0.5% m/m for ex-petrol Retail Sales are primarily predicated on the quite unusual phenomenon of Sales having risen in m/m terms for three straight months (the last time was June through August 2017), and per se assumes a reactive correction. Personal Consumption was of course the primary driver of Q1 GDP, and if forecasts are correct will likely make a much smaller contribution to Q2. It should be added that were it not for this year's 'late' Easter and expectations that this should act as a prop, forecasts would probably be discounting a rather larger setback, which may still happen given that this remains a highly erratic series.

** U.S.A. - April Durable Goods Orders **
- Yesterday's data and survey news flow seeing sharp falls in both PMIs, with the Manufacturing PMI at a nearly 10-yr low of 50.6 vs. expectations of 52.5, and predicated above all on a sharp drop in New Orders to 49.7 from April's 53.5, with the Output index at 50.8 from 52.5 has clearly revived concerns about a sharper US economic outlook slowdown, and are eminently are not auspicious for today's Durable Goods Orders. That said PMIs are notoriously subject to sentiment effects, which do not reflect actual order flows, with the breakdown in US/China trade talks the obvious 'mood dampener'. The key question at the headline level, which is forecast to fall 2.0% m/m after an aircraft led rise of 2.6% in March, will be how much fall-out there will be from the Boeing 737MAX debacle, which could prove to be considerably sharper than forecasts assume. Core Non-defence Capital Goods Orders had a good run during Q1 with m/m gains of 1.4%, 0.3% and 1.0%, though the ex-Transport measure was rather less impressive 0.1%, -0.3% and 0.2% during Q1.