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Americans like their cars   

Aziz Sunderji, Zoso Davies, Juan Prada

  • Risky assets generally fell yesterday amid swirling headlines relating to the usual culprits: geopolitics and trade. As Mexico reportedly offered some concessions in NAFTA negotiations, President Trump directed Commerce Secretary Wilbur Ross to initiate an investigation into protecting the auto sector on national security grounds. The US’s NAFTA partners would be most affected by any action on autos, and this complicates an already tricky and time pressured negotiation process. We think a NAFTA resolution is at risk of being delayed until next year.
  • Central bank minutes from the prior meetings – from both the ECB and the Fed – were uneventful. The Fed signaled another hike in June, evinced a tolerance of a small overshoot of the 2% inflation target, and debated the wisdom of inverted yield curves. We continue to forecast another rate hike in June and four hikes in total this calendar year.
  • On the European side, the ECB noted that risks to the growth outlook were still broadly balanced and that weaker data was due to temporary factors. On inflation, the GC continues to consider that the situation is slowly improving but that underlying price pressures are still weak. The trade-off between weaker growth prospects and a higher inflation outlook is likely to trigger a lively discussion about the future course of monetary policy in June. 
  • There is one notable data release today: US durable goods orders: We look for a 1.5% m/m rise in durable goods orders for April on stronger-than-expected nondefense aircraft orders based on order data from Boeing. Ex-transportation, we expect a more modest 0.5% m/m increase and, at the core orders level, we forecast a 0.3% m/m rise.
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