SECURITY: Hamas Likely To Reject New US-Brokered Gaza Ceasefire Proposal

Spanish Q1 flash GDP was slightly weaker-than-consensus at 0.6% Q/Q (vs 0.7% cons). Q4’s reading was also revised a tenth lower on a rounded basis to 0.7%. While Spain will likely remain the Eurozone growth outperformer in Q1 (German, French and Italian prints are due tomorrow), there are some signs of softening domestic consumption. This may limit sequential growth rates going forward, particularly against a backdrop of heightened uncertainty. Analysts current expect steady 0.5% Q/Q prints through Q3 2026, according to forecasts submitted to BBG. Annual GDP growth was 2.8% Y/Y, below the 3.1% consensus and 3.3% prior.

• Domestic demand contributed 0.4pp to the Q1 quarterly rate, with external demand the remaining 0.2pp.
• Consumption growth was 0.4% Q/Q (vs 0.9% prior), the softest sequential rate since Q4 2023. This is consistent with somewhat softer retail sales momentum in recent months.
• Gross fixed capital formation was 1.1% Q/Q (vs 3.5% prior), but this is a volatile category. Government consumption rose 0.2% Q/Q for the second consecutive quarter.
• On the external side, exports grew 1.0% Q/Q, but this was solely driven by 3.5% Q/Q growth in services exports – likely tourism related as parts of Spain recovered from the devastating floods in Q4. Goods exports fell 0.3% Q/Q, so no signs of tariff front-running there.
• Imports rose 0.7% Q/Q, with services growth at 2.7% and goods growth at 0.2%.
• Looking at the production breakdown: Industry value added was 1.1% Q/Q, while services slowed by six tenths to 0.3% Q/Q.
• Total hours worked fell 0.5% Q/Q in Q1, allowing real productivity per hour worked to grow 1.1%. 

Johnson Redbook retail sales slowed slightly in the latest week, but growth remained robust overall, telling a more positive story than the "soft" survey data showing an ongoing collapse in consumer sentiment (including April's UMichigan and Conference Board reports).

• On a Y/Y basis, retail sales were up 6.1% in the week ending April 26 - a slowdown from 7.4% the week prior, but that still kept overall month-to-date sales up 6.7% (vs retailers' targeted rise of 6.4%).
• Redbook Research comments: "Sales results were impacted by the closure of some stores on Easter Sunday, leading to a comparison of six shopping days this year versus seven last year. Now that Easter has passed and with warmer weather settling in across much of the country, there are early signs of "spring fever" in sales of lawn and garden items, as well as spring apparel. Weather conditions have varied greatly; some regions enjoyed sunny and warm weather, while others experienced rain and storms. Stores relying on spring-driven apparel sales reported mixed results for the week, depending on their specific regional circumstances."
• We will wait until the coming week's sales data for a full March-April retail growth assessment (which helps mitigate the shifting Easter calendar effect), but in general it looks as though retail sales were solid through the first month of the second quarter.
• We don't get April retail sales data from the Census Bureau until May 15 (Redbook says their index captures 80% of the "official" series).

House Speaker Mike Johnson (R-LA) has reiterated to reporters that the House of Representatives intends to complete work on its portion of the Republican reconciliation bill by Memorial Day (May 26), long considered by Hill reporters to be an optimistic target. Johnson also commited to preserving safety net programmes like Medicaid, which many observers believe must be cut if the spending reduction targets outlined by the Republican budget blueprint are to be met. 

• Johnson says on potential cuts to Medicaid, which could be marked up by the House Commerce and Energy Committee next week: "We're going to preserve the programmes, we're not gutting Medicaid. We're going to reduce fraud, waste, and abuse... We're going to make sure it works better..."
• The GOP budget blueprint calls for USD$880 billion from the budget overseen by the Energy and Commerce committee. Politico reported yesterday that, at a preliminary meeting, the "size and shape of those cuts have emerged as a major flash point for Republicans on the committee and across the larger conference."
• Politico notes that Committee Chair Brett Guthrie (R-KY), "has said he expects overhauling existing health care programs could account for $500 billion to $600 billion of the committee’s deficit reduction target, with the rest coming from energy and telecom policies."
• If the E&C markup includes any significant cuts to Medicaid it will expand a flashpoint between moderates and conservative House Republicans, and more broadly with the Senate, potentially derailing the timeline for the Republican agenda.