US consumer sentiment falls sharply in May

Preliminary readings from the University of Michigan consumer sentiment survey pointed to a sharp deterioration in US consumer sentintiment in May, dropping from 65.3 in April to 57.7. There were falls in both the current and expected conditions sub-components, possibly on the back of concerns about the debt ceiling. Consumers expectations for 1-year ahead inflation dipped only marginally, falling to 4.5% in May from 4.6% the month prior. In contrast, long-term inflation expectations ticked up to 3.2% from 3% in April, reaching a 12 year high.

The first estimate of Q1 2023 UK GDP suggests that the economy grew in line with expectations, achieving a modest 0.1% q/q gain. A breakdown of quarterly growth points to a significant fall in government consumption, which was offset by an improvement in business investment. The rise in the first quarter comes despite a sizable decline in March, with monthly GDP contracting 0.3%, driven by weak services sector activity. Some of the monthly fall in GDP is however attributable to temporary factors such as public sector industrial action, and unseasonably wet weather dampening retail activity.  In contrast to weaker service sector activity, UK industrial production rose more than expected, increasing 0.7% m/m in March.

Early results from the weekend's elections in Turkey suggest that a runoff in the presidential election is likely, as none of the candidates are likely to exceed 50% of the vote. The runoff will take place on 28 May. President Erdogan's People's Alliance appears on track to maintain its parliamentary majority, which could give him an advantage in the second round. 

Today’s Economic Data and Events

• 10:00 KSA CPI (Apr)
• 16:30 Empire manufacturing (May) Forecast: -4

Fixed Income

• Higher inflation expectations survey results pushed US Treasury yields higher on Friday. Yields on the 2yr UST rose to 3.987% from 3.899% the day before, while the 10yr UST yield rose by just under 8bps to 3.463%.
• Bond yields also rose across European markets on Friday. The 10y Bund yield rose 5bps to 2.272% from 2.222%, while the 10y Gilt yield rose almost 7bps to reach 3.772%.

FX

• The Dollar again ended Friday stronger against both the Euro and Sterling. The EURUSD was down 0.6% to 1.0849, while GBPUSD fell 0.4% to close the day at 1.2458.
• In commodity currencies, USDCAD moved higher by 0.4% to 1.355 while AUDUSD fell 0.8% to 0.6646.

Equities

• Major US equity indices were generally weaker on Friday as negotiations about the debt ceiling continued. The NASDAQ fell 0.4% on Friday but remained 0.4% up over week as a whole, while the S&P 500 fell 0.2% on the day and 0.3% lower over the week.
• European markets fared better on Friday on the back of a set of strong corporate earnings results. The Eurostoxx 50 adding 0.2%, the CAC rising 0.7% and the DAX up 0.5%. The FTSE 100 also rose, up 0.3% on Friday, on news of the UK economy faring better than had been expected in Q1.
• Locally, the DFM lost 0.3%.

Commodities

• Oil prices continued their fall on Friday, with Brent crude closing 1% lower to reach USD 74.17/b and WTI dropping 1.17% to USD 70.04/b. Weakening economic data from both China and the US continues to raise questions around the degree of demand for oil.