Morning Update – 18/05/16 – by Arjun Lakhanpal

Morning all.. Wall St had a bad session as data and Fed speakers seemed to suggest markets were too pessimistic regarding a potential hike. S&P closed down nearly 1%. Asia was more mixed with Nikkei flat on the day but HK and China lower. Nikkei held up after stronger than expected GDP data. . Japan’s Q1 GDP printed at +0.4% qoq after expectations were for just +0.1% growth and it means the annualized pace has been lifted to +1.7% qoq from -1.7% previously. There’s also been data out of China this morning too in the form of the latest house price data. April new house prices were reported as climbing in 65 of the 70 cities tracked, compared with 62 in March. It’s the most since December 2013. Fedspeak seemed to be a driver of some dollar strength and falling stocks and it was interesting to see the US 2′ s & 10’s curve hit its flattest level since 2007. Specifically it was the joint comments from Atlanta Fed President Lockhart and also San Francisco Fed President Williams that sparked interest after both suggested that they continue to see two to three rate hikes this year. Lockhart also added that markets are currently more pessimistic than he is, while Williams made mention of June being a live meeting and even went as far as to say that his view of gradual hikes also means 3-4 hikes in 2017. The probability of a hike next month has now risen to 12% from 4% on Monday while a July hike has increased to 28% from 19%. The December meeting odds are now sitting at 65% from 56%. Looking at the day ahead, this morning in Europe the primary focus is likely to be on the CPI print for the Euro area where expectations are for a flat MoM headline reading in April. Away from that we’ll also get more data out of the UK with the latest monthly employment indicators. There’s no data due out in the US this afternoon so the focus will be on the FOMC minutes at 7.00pm (BST).. Good luck.