German Retail Sales Missed Forecast

German Retail Sales Missed Forecast
On the final day of the month, one practice which is very common among portfolio managers is rebalancing of their portfolios. This usually brings some sort of volatility in the market. Given the record high we have seen this month in the equity market, a healthy correction may not hurt at all. The German retail sales data released this morning has shown a little weak side as the retail sales fell by -0.2% when the forecast was for 0.3%.The softness in the economic number is pulling the European markets lower. Given the political risk is in mainly in the rear view, we must see the hard economic numbers to pick up steam. It will be only that element which could help the ECB to ease off from its quantitative easing program.

Steel Sector Boosted The Manufacturing PMI
More compelling economic data came out of China, the manufacturing sector expanded more than expected in May, and provided much comfort to investors about the health of the second biggest economy in the world. The PMI data came in at 51.2 while the forecast was at 51.0. Thanks to the improving activity in the steel sector which has helped this number to print a more inspiring number as the sector nurtured at its fastest pace. Thanks to the rising new orders.

This daubs much more encouraging tone for the commodity sector in the longer term. Robust fixed investment in China means that the odds are sturdy that the Q2 GDP is more likely to be more optimistic. Investors would remain calmer as long as the data continue to show the more consistent picture as the Chinese economy is going through a period of transition. Therefore, all we need from the Chinese economic data is a more steady number.

YouGov Poll Shows A Possibility of A Hung Parliament
In the currency market, it is the British Pound which has attracted the most attention as the latest polls from YouGov shows that the big gamble by Theresa May could cost her majority lead in parliament. This is not something which she has pictured but again, the same story goes for David Cameron when he took the gamble for the Brexit vote. The YouGov poll shows that her party could lose as much as 20 seats and Labour could gain nearly 30 additional seats. So much for all the rhetoric "making her hand strong in the parliament".

This has taken a toll on the British pound, and it has lost ground against a basket of currencies. Investors are worried about a hung parliament, and if we get more polling data which confirms that the possibility of a hung parliament is more real, we could see the British pound losing ground against the dollar and the Euro. We do think that the sterling-dollar pair could drop all the way to 1.26 mark if we break the support of 1.2752.

The weakness in the sterling usually helps the FTSE 100 index move higher and we do expect this trend to continue.

Inflation Data Could Support Draghi's View
As for the Euro, Mario Draghi's stance that the Eurozone still needs a support of the ECB could gain more attraction when the inflation number for the Eurozone will be released. It is expected that the inflation problem may persists. The headline number is expected to slow in May to 1.5% while the previous reading was at 1.9%. Similarly, the core inflation digit may also have slipped to 1% from its previous number of 1.2%.

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