Key insights
- Bank of America points to fiscal risks in Germany and the UK due to budget constraints and potential political shifts. Rising borrowing risks in the UK and tighter budget conditions in Germany could weigh on economic growth. European GDP data and the German ZEW indicator this week will provide further insight. These factors could indirectly influence US equities through global economic sentiment.
Investing.com - Bank of America has highlighted fiscal concerns in Germany and the United Kingdom as energy price corrections have shifted market attention to other economic issues.
Germany is returning to regular budget planning for the first time since 2023, but the 2027 budget faces challenges. Defence spending is being increased, while economic cycles are also affecting the budget. The peak of monetary easing occurred in 2026, and discussions have now shifted toward tightening.
In the UK, risks of a leadership challenge could increase following the May local elections. If a leadership challenge occurs and results in a left-leaning Labour leader, risks of higher borrowing would rise. A negative market reaction in such a scenario would make breaking fiscal rules less certain.
Bank of America noted that the Riksbank is on hold but flagged upside risks, with a hike to 2.0% in upcoming meetings remaining likely, though risks are tilted toward a delay. Norges Bank's May hike was slightly surprising, increasing the possibility of a consecutive hike in June if inflation data comes in higher than expected.
The second release of Q1 GDP for the euro area is scheduled for Wednesday, with expectations of 0.1% quarter-on-quarter growth. UK Q1 GDP is due Thursday, with forecasts of 0.5% quarter-on-quarter growth. Germany's ZEW indicator is expected to decline in May, with results due Tuesday.