Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management. It's seven o'clock in the morning London time on Monday the 1st of June. Despite last week's reports on the Axios newswire, there seems to be little progress on an Iran-US agreement.
Oil prices have edged higher as a result, but, as with the reaction to talk of an agreement last week, the moves have been muted. A rather jaded cynicism has settled over financial markets, and until there is a clear signal of progress from Iran, markets are not likely to put too much weight on comments from the US administration. And, at this stage, reports on the Axios newswire would seem best interpreted as a reverse indicator of what's actually happening.
Japan's first quarter investment spending data was much weaker than had been hoped for. Even including software spending and the investment related to the nice shiny new toy of artificial intelligence, spending growth was non-existent. Uncertainty is being blamed, and this is hardly confined to Japan.
The Biden-era factory building boom in the United States has continued to fizzle away in the wake of a series of areas of policy uncertainty. German retail sales for April fell slightly less than expected in month-on-month terms, and with the inevitability one associates with any German data release, the previous month's data was revised stronger. Notably stronger, in fact.
The German retail sales data adjusts for inflation, so this is not a price effect coming from oil prices. The pattern of developed economy consumers absorbing higher energy prices through changing savings behaviour continues in Europe as much as it does in the United States. This allows for the growth damage of the Gulf War to be at least somewhat mitigated.
Consumers expect inflation to be higher. The ECB's Inflation Expectation Survey is due today, but they generally lack the pay bargaining power to follow through on that expectation. Weaker real income growth therefore places additional emphasis on the use of savings to sustain non-oil consumption.
There is some business sentiment data polling due out in the United States today. The value of this is really very limited. There may be market attention given to the prices paid sub-component of the data, but one of the characteristics of the oil price moves, in this cycle at least, has been the ease with which companies seem to be able to pass on the higher costs.
This seems especially so in the United States where supply chains have been conditioned by costs associated with tariffs which were also passed on relatively swiftly. The dominant narrative of the war also tends to make the next stage in the supply chain more accepting of the price increase. That's all for today.
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