Eurozone investor confidence improves unexpectedly
Investor morale in the eurozone surprisingly picked up in May, indicating that investors do not expect further escalation to the US-Iran conflict. One notable exception was Germany, with the index falling further to -30.9 from -27.7 in April.
Inflation expectations remained negative across the eurozone. Although lower interest rates could benefit economies, particularly Germany, the European Central Bank (ECB) would need to address the foreseeable failure to meet its inflation target by raising rates, Sentix said. Investors expect a moderately restrictive response from the ECB.
This combination of weak growth and ongoing inflation risk highlights a difficult backdrop for the ECB. With the Sentix fiscal barometer already at -29.5, fiscal dynamics are adding to the challenge, pointing to mounting government debt pressures which could potentially push interest rates higher.
US trade deficit grows in March
The US trade deficit widened to $60.3 billion in March, jumping 4.3% from the revised $57.8 billion gap in the previous month, marking the widest deficit so far this year. Imports rose up to $381 billion up by $8.7 billion, or 2.3% from the previous month as more automotive vehicles, parts and engines were imported and Trump threatening to increase tariffs.
In the meantime, exports jumped by $6.2 billion, or 2%, to $320.9 billion, due to the turnover from higher energy costs and raw materials since the start of the war in March. With imports outpacing exports, the Commerce
Department released a report showing that the US trade deficit widened roughly in line with economist estimates in the month of March.
UK PMI remains in expansionary territory
The S&P Global UK Composite PMI rose to 52.6 in April from 50.3 in the previous month, higher from prior estimates of 52 and well above the initial market expectations of 49.8.
Faster expansions were recorded for both manufacturers and service providers, reflecting resilience to macroeconomic headwinds from the Iran war, as firms reported the sharpest rise price for fuel and raw materials costs since November 2022.
New orders and business at the aggregate level inched higher from the previous period as orders were not placed due to higher demand but to avoid potential war disruptions.
The Bank of England is watching closely of prices charged by businesses to try to assess whether the inflation impulse from the Iran war will last long enough to require interest rate hikes.
This article does not constitute legal and,/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap. 370 of the Laws of Malta).
