Political risk premia in Europe have fallen slightly this week as investors continue to gauge how likely the far-left or far right-parties are to gain the absolute majority in this month’s French general election. Implied volatility remains elevated, though.
Lower yields and disinflation have supported US equity benchmarks to record highs. As it stands, the S&P has not experienced a 2% drop in 334 days, the longest streak since 2017-2018.
Evidence of a cooling consumer spending story is mounting after the 0.1% m/m rise in US retail sales missed the 0.3% consensus. April’s figure was also revised to show a 0.2% contraction rather than the 0% outcome initially reported.
The BoE voted 7-2 in favour of keeping rates at 5.25% for another month just a day after the annual inflation rate fell to 2% for the first time in almost three years. While services inflation remains elevated, markets see two rate cuts by the end of 2024.
The Eurozone composite PMI edged down to 50.8, sharply missing the market consensus of 52.5, indicating a softening in the bloc’s private sector conditions. The print marked a fourth month of expansion but was the lowest reading since March.
The options market highlights traders are the most bullish on USD in over a year. Safe haven flows and rising risk premia in Europe remain the best explanatory factors for US dollar resilience, as well as relatively hawkish Fed signals. Inflation prints around the world and European soft data will be key events next week.