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US consumers enter Q2 in good form

Edward Bell - Senior Director, Market Economics
Published Date: 30 May 2022


  • The US consumer appeared to start Q2 on a strong foot with a 0.9% month/month increase in personal spending in April. The figure for March was also revised upward to 1.4% m/m. Consumers have been protected from inflation to a degree by savings that were built up during the Covid-19 pandemic thanks to government support programmes but those are now showing evidence of being run down. The savings rate as a share of personal income fell to 4.4% in April compared with almost 13% a year earlier.
  • Related to the consumer data, the PCE deflator rose by 6.3% y/y in April and was up 0.2% m/m. The PCE deflator is the level of inflation targeted by the Federal Reserve and on an annual basis it slowed in April from the 6.6% y/y level recorded for March. While the slightly slower pace of inflation is likely to be welcomed by the Fed, prices are still high and we don’t expect any derailment to the Fed’s intention to hike by 100bps by the end of July.
  • The EU has revised its proposal on banning imports of Russian oil to target seaborne cargoes, not pipeline volumes. That may help to get some member states that had so far resisted a wholesale ban over the line in terms of supporting the more stringent economic action against Russia. EU leaders will meet early this week to discuss the proposal.
  • ADQ will manage a USD 10bn fund for facilitating sustainable investment between the UAE and Egypt and Jordan. Areas of focus include petrochemicals, textiles, pharmaceuticals and agriculture. President His Highness Sheikh Mohamed bin Zayed Al Nahyan received the Egyptian and Jordanian prime ministers, Moustafa Madbouli and Bisher al-Khasawneh, over the weekend, and the three hailed the Industrial partnership for Sustainable Economic Growth as an important step towards greater cooperation in the region.

Today’s Economic Data and Events

  • 13:00 EC Economic Confidence May: forecast 104.8
  • 16:00 GE CPI y/y May: forecast 7.5%

Fixed Income

  • US Treasuries rallied last week as markets price out some more aggressive Fed action later this year. The 2yr UST yield dropped by more than 10bps to close at 2.4758% while the 10yr yield fell by 4bps to 2.7378%. The tone was more mixed in European bond markets as the ECB has an open debate about how fast it needs to carry on policy normalization. Yields on the 2yr Schatz were modestly higher on the week while the 10yr bund yield ticked up by barely 2bps to 0.96%.
  • In emerging markets, South African 10yr bonds rallied modestly last week with a greater than 1bp drop in yields to 10.165% while the same maturity Indian yield fell by less than 1bp. A broad index of USD-denominated EM bonds rallied for a second week running, adding 1.7% with spreads over USTs falling by almost 20bps.
  • In central banks this week, the Bank of Canada is set to hike by 50bps on June 1st having already hiked by 75bps so far this year.


  • A strong pull higher in risk assets along with easing expectations for how far the Federal Reserve will go in tightening policy helped to sink the dollar for a second week running. The broad DXY index fell 1.4% to 101.668 as markets price out sustained hikes from September onward. EURUSD added 1.6% over the week to close at 1.0735 while GPBUSD added more than 1.2% to settle at 1.2631. USDJPY pulled lower by 0.6% over the week to 127.11.
  • In commodity currencies NZD was the standout, gaining from the 50bps hike by the RBNZ. NZDUSD added more than 2% to settle at 0.6532 while AUDUSD rose 1.7% to 0.7162 and USDCAD dropped by 0.9% to 1.2724.


  • Robust gains on Friday saw global equity markets close up over the week, recouping some of the recent losses but still down markedly since the start of the year. In the US, the NASDAQ closed up 6.8% w/w after adding 3.3% on Friday. The Dow Jones gained 6.2% w/w and the S&P 500 6.6%.
  • European equity markets saw similarly strong gains as the STOXX 600 closed up 3.0% w/w. The FTSE 100, the DAX and the CAC added 2.7%, 3.4% and 3.7% respectively. Nevertheless, the FTSE 100 is the only one of those indices to be up since the start of the year (2.7%) compared with losses of between 8% and 9% in the others.
  • Asian markets saw more modest gains last week. The Nikkei added 0.2% w/w and the Hang Seng 1.7%, but the Shanghai Composite closed down -0.5%.


  • Oil prices pushed steadily higher last week with Brent futures closing at USD 119.43/b, a 6% gain, while WTI added 1.6% to USD 115.07/b. markets may get more clarity on whether the EU will impose some kind of restriction on trade in Russian oil though it’s likely to fall short of a full ban.
  • The G7 also issued a communique to push OPEC countries to increase output at a faster pace to help stave off the elevated cost of living across many economies. The next OPEC+ meeting will take place this week on June 2nd.

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