All eyes turn to the US core PCE release

• French stocks lag once again.

• French and Italian inflation below expectations as UK Q1 GDP rises to 0.8%.

• All eyes turn to the US core PCE release.

French stocks have once again found themselves at the bottom of the pile, as traders continue to fear the worst ahead of an election that has already sparked a relative rise in French borrowing costs. With Sunday’s election expected to whittle down the field down to just two parties, Macron’s roll of the dice could backfire spectacularly given the fact that the polls put his party in at third place. Should we see next Sunday’s election provide a run-off between the Far-Right and Far-Left, traders will have plenty to mull over in the coming week.

This morning saw a mixed bag for eurozone inflation, with lower-than-expected French (2.1%) and Italian CPI (0.8%) offset off by a lofty 3.4% Spanish figure. This disparity highlights the difficult job faced by the ECB who need to set policy that is appropriate for both ends of the spectrum. In the UK, a better-than-expected GDP release saw first quarter growth rise to the highest level since 2021 (0.8%). Improved services sector output helped overshadow a weaker production expansion. With the UK election shaping up to be a relatively orderly transition, and the Bank of England expected to start cutting rates, there is a clear sense of optimism that UK growth will soon start to pick up.

Looking ahead, all eyes turn to the Fed’s favoured US core PCE inflation metric which should shed some light on the chance of a September rate cut currently being priced by markets. With CPI and core CPI both well above 3%, it is the core PCE figure (currently 2.8%) which has the potential to embolden the FOMC into taking action. Yesterday’s disappointing core durable goods orders decline (-0.1%) highlighted the somewhat concerning economic data emerging from the US of late, and early forecasts for a sharp decline in ADP and headline payrolls next week could further strengthen calls for a more proactive Fed stance. With the economic data starting to wane, bulls will be hoping to see inflation follow suit to provide a pre-weekend boost.