Daily Economic Outlook: May 22nd, 2015

Yesterday's larger-than-expected softening in preliminary May PMI readings for Germany suggests some downside risk to the mild expected pullback in the IFO balances; analysts look for 108.1 on the overall business climate index. Unless particularly stark, however, a fall would not at this stage change the view that the Eurozone recovery dynamic remains broadly intact.

Meanwhile, the morning's domestic focus will be on public finance data for April, the first of the 2015/16 fiscal year. While the first month provides comparatively little insight into the glide path for the public finances over the course of a full year, at this early stage Lloyds Bank look for net borrowing of £8.8bn on the ex-banking measure, only slightly lower than the £9.3bn recorded for April 2014 as belt-tightening before a pre-election year-end eases up. Comments from the BoE's Carney and Shafik may also provide some colour on the UK policy tightening debate.

"Attention in the afternoon is likely to turn to US CPI data for April. Despite firmer oil prices, the headline inflation rate is expected to ease to -0.2% from -0.1% in March. Of greater interest for the FOMC will be trends in the 'core' rate, which is expected to dip to 1.7%", according to Lloyds Bank. 

Any impression of marked or durable weakness would undermine the Fed's 'reasonable confidence' criterion for the return of inflation to its 2% target in the medium term. Comments from Fed Chair Yellen at the end of the day will also be keenly watched for clues on the policy stance.