US political uncertainty weighs on markets

Political uncertainty in the US weighed heavily on markets yesterday with equities selling off (US and European stocks shed around 2%), core bond yields falling on a ‘flight to safety’ (10-year yields in the US fell by 10bps), and the dollar weakening further, falling to over $1.11 against the euro. The markets have also scaled back the chances that the Fed will now raise interest rates at next month’s meeting

A special counsel has been appointed by the US deputy Attorney General to investigate Russian interference in last year’s presidential election and possible collusion with Trump’s campaign team, while a number of Congressional committees are looking into related matters, which may help to calm markets for the time being at least

The unemployment rate in the UK fell further in the three months to March to stand at 4.6%, a half a percentage point lower than a year ago. Despite this, though, underlying annual earnings growth has slowed recently and is running well below the current rate of inflation, implying a squeeze on households incomes

ECB member Coeure says the growth picture in the Euro area has improved but cannot yet be sure that inflation is on a ‘sustainable and self-sustained’ path back towards target

Data due today include retail sales for April  in the UK. They fell very sharply in March, by almost 2% on February,  so some payback is likely to have occurred last month – the consensus expects an increase of just over 1%

Other data scheduled include jobless claims in the US