Week In Review
Retail sales grew by 0.3% in April, matching expectations. March sales were revised higher, from 0.6% to 0.8%. The retail sales control group, used to calculate GDP, increased 0.4%.
Weak consumer spending helped keep first quarter GDP in check. Revisions to previous reports now show that spending was better than originally reported, potentially due to tax cuts and a tight labor market. Strong consumer spending would likely lead to a significant uptick in GDP growth.
After months of negotiations following an inconclusive election, the two populist parties announced a contract for a governing coalition. The coalition between Five Star and the Northern League will commit to slashing taxes, large spending increases, and reversing structural pension and labor market reforms. This program would put Italy in violation of the “fiscal compact” that Merkel insisted on as part of the ESM and the ECB’s bond buying program. Spreads on Italian government bonds relative to Bunds widened, and Italian bank stocks fell.
Several steps remain before the populist coalition can take power and begin implementing the above program, but the agreement between the two parties was the biggest hurdle to clear. Implementation of the program would likely cause Italian bond yields to spike and severely stress Italian banks. In this scenario, Germany and Italy would be brought into open confrontation over the conditions under which fiscal transfers and ECB support would be available. Without this support, the dormant European peripheral debt crisis would return with the key debtor being Italy instead of Greece.
The U.S. Supreme Court ruled on Monday that the Professional and Amateur Sports Protection Act was unconstitutional. PASPA was passed into law in 1992 and banned states (unless the state already had an exemption) from regulating sports betting. New Jersey had filed a lawsuit which challenged the ban which led to this week’s ruling. Individual states will now have the ability to draft legislation to legalize sports betting.
Some states already have passed bills or have started the legislation process which will open the door for sports betting in the coming weeks. Each state will have the ability to set its own regulations including the tax structure. Sports betting is a small percentage of gambling as a whole. It will take time to see how popular legalized sports betting will be and how much new tax revenue states will receive.