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  • The headline figure for US Q1 GDP significantly beat expectations at 3.2% q/q annualized. Although President Trump was eager to accumulate credit for the positive release some of the underlying components provided pause for concern. A buildup in inventories and better export figures impressed however, consumer spending (the real driver of the US economy) and non-residential investment disappointed. Excluding Q1’s traditional seasonal distortionary issues we do not expect US GDP growth to match or better last years but nor do we expect an imminent recession. Positive but slowing growth remains our default view.
  • On Friday evening S&P released their credit assessment on Italy. In spite of the concerns associated with the populist government, the continuing spread of the Italian sovereign benchmark versus its German peer and expected slowing growth S&P reaffirmed their existing rating of BBB with a negative outlook. Did S&P take into consideration the political consequences of a downgrade prior to the EU parliamentary elections?
  • The initial Spanish general elections results provided positive news for investors although as with the last election it is not without complications. One of the main center parties (The Socialists) improved in their number of parliamentary seats but will require coalition partners to create a majority government, which may present difficulties.
  • Eurozone government debt/GDP came in at 85.1% at the end of 2018. An improvement from 87.1% at the end of 2017 and it continues to fall from its peak of recent years (see graph). Overachievers on debt reduction include the Netherlands (52.4%) and Germany (60.9%) whilst the traditional laggards remain Greece (181.1%), Italy (132.2%) and Portugal (121.5%)