Good morning, this is Paul Donovan, Chief Economist at UBS Global Wealth Management at 7 o'clock in the morning London time on Friday the 30th of May. There is yet more uncertainty over the US economy, if that were possible. US President Trump appealed against the ruling that half their trade taxes are illegal.
The appeal has allowed the existing tariffs to remain in force. There are now three levels of uncertainty. In the first place, will these taxes ultimately survive?
Second, if they are illegal, will US companies and US consumers get their money back if they've paid their taxes? And third, which seems to be overlooked a little, are these taxes actually being collected? In the chaos of the current trade tax policy, and with random losses in government employment, that's not necessarily certain.
Added to which is the general uncertainty of how US firms react, especially with their pricing, to all of this uncertainty. We do get some inflation data from the US today in the form of the personal consumer expenditure deflator, and of course we'll also get consumer spending numbers. This is all for the month of April, and so comes well before any direct trade tax impact is going to be felt.
The consumption data is perhaps of some interest, as there has been evidence of Democrat-leaning states front-loading more expensive purchases earlier this year in anticipation of the tariffs. The thing about front-loading consumption is that there is a payback of weaker consumer spending later on, and that could well be showing in the April numbers. We also have the timing of Easter to contend with with the consumer data, however.
In addition, we've also got final Michigan consumer sentiment polls for May coming out today. This is not useful data in and of itself, but looking at how partisan and unreliable data has evolved over the course of the month is possibly helpful. Comparing the final with the preliminary data gives a limited sense about how US consumers have responded to Trump's trade tax retreats.
Europe has some more May inflation data. Italy and Germany are both expected to give evidence of disinflation this time. This reinforces the idea that Europe has few obvious obstacles to further interest rate cuts.
Indeed, not to cut headline interest rates in Europe would effectively be a tightening of policy, as the real cost of borrowing would be rising. Outside of the United States, advanced economies are generally in a disinflation mode. German retail sales were in theory weaker than expected, but the massive positive revisions to previous month's data, as is so often the case with German numbers, left us with a stronger overall level of German consumer activity.
Japan came out with a range of data releases, none of it terribly surprising. The labour market was stable and as expected. Tokyo inflation was also basically in line with the market consensus, remaining at a relatively high level, however.
The only slight surprise was a somewhat stronger industrial production data set for the month of April. That's all for today. Have a good day.
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