Good morning!

S&P 500 reached during yesterday’s trading session new highs after investors resisted the disappointment in the bottom Q1 GDP growth figure and focused on the changes that underpinned the revision to -1% from 0.1% (expectations were for a review to -0.6%). That is, the fact that the contraction was driven to a large extent by the drop in business inventories’ growth is deemed to provide a boost for this quarter’s growth. This apparently sufficed to make equity investors disregard the almost 10% quarterly fall in corporate profits and the slower growth in spending (excluding services). What’s more, the below expectations growth in pending home sales (0.4% MoM versus 1.1% expected) also failed to tamper optimism in the stock markets. In contrast, the treasuries appeared categorical in continuing to discount below expectations growth. Hence, the 10 year US Government bonds remained below 2.5%

As the ECB meeting approaches there are also signs that the FX market is following the other assets in incorporating expectations of additional monetary easing. This tendency consolidated after the dismal data on private loans and monetary aggregates that came out on Wednesday and which points to below expectation inflation data next Tuesday. As such, the Euro has been hovering close to 1.36 yesterday and early today. Reflecting the same expectations, peripheral yields remained near all-time lows. Meanwhile, the European stocks were almost unchanged yesterday with the futures pointing to a similarly uneventful trading session today.

Moody’s announced yesterday that it is revising its rating outlook for 81 European banks to negative so as to reflect the lower likelihood of government support in the aftermath of the European resolution regulation. The release will probably be non-material for the markets given that the move has been contemplated for some while and that it follows a similar decision taken by S&P about a month ago. A more negative piece of news coming from the banking sector is the possibility of BNP facing a USD10 billion fine following the US Authorities’ investigation; the previous figure circulated by the media was USD5 billion.

Today we will be looking into a series of US statistics that are deemed to provide an insight into the consumption outlook; specifically, today’s calendar includes personal income growth, personal spending growth and consumer confidence. In Europe, German, Portugal and Greece are scheduled to release the retail sales data whereas the Italian statistics office will release the preliminary inflation figure. This string of data will likely highlight yet again the persisting growth discrepancies in the Eurozone and make the case for strong ECB action next week.

Have a nice day!