Macroeconomics: The Day Ahead for 13 May

The euphoric reaction to the US and China 90 day ‘truce’ on trade tariffs was no surprise, even if heavily driven by short covering. It does offer a lot of hope that much feared ‘worst outcomes’ on these trade tensions will be avoided, particularly with US officials suggesting that the truce can be extended to allow for further negotiations. On the other hand, the sheer complexity of such issues as technology transfer and security concerns, and the scale of the trade imbalances are eminently antithetical to a rapid resolution, and per se rely on a continued high level dialogue between the two countries being maintained (in a proper diplomatic fashion), and not being stymied by the sort of vacillation on policy execution that the current US administration has frequently fallen prey to. The latter will dictate where his renewed bout of risk appetite gets some traction, or trips up over its own boots laces or some other fact such as the US debt ceiling or EU trade negotiations, though those waiting to buy the dip are now morphing into the FOMO (fear of missing out) camp. Be that as it may the day has a busier as UK BRC Retail Sales and labour markets indicators are digested ahead of Germany’s ZEW  US NFIB Small Business Optimism surveys, and the obvious highlight US CPI. On the central bank front, there are the latest BoJ ‘summary of opinions’ to digest, along with a rash of ECB and BoE speakers, while President Trump starts a 4 day visit to the GCC region as the US administration looks to drum up investment into the US from the GCC sovereign wealth funds and energy behemoths.

** U.K. – March/April labour data **

– UK labour data essentially confirmed what has been clear for a number of months that labour demand continues to deteriorate, with a further 33K fall in HMRC Payrolls, a modest rise in the Claimant Count and another drop in Vacancies, once again a stark contradiction to the discredited Labour Force Survey employment rise of 112K. As for wages, these were higher than expected headline (5.5% vs. expected 5.2%) contrasted with slightly larger than expected falls in ex Bonus and Private Sector (5.6% vs. expected 5.7%), still too high for any MPC comfort, but trending lower albeit slowly, though pay settlement surveys consistently imply a much slower pace. Leaving aside ongoing uncertainty about the global economy, the big picture on the UK labour market is that the MPC divisions are perhaps not surprising, given that it is a case of either half empty or half full in perspective terms. While posting impressive rebounds (BRC like for like 6.8% y/y, Barclaycard Consumer Spending 4.5%), the consumer spending surveys were heavily distorted by Easter timing and warm weather effects (above all noticeable in clothing spending), with the underlying trend probably only marginally better than Q1.

** U.S.A. – April CPI **

– CPI is forecast to rise 0.3% m/m on both headline and core, leaving y/y rates unchanged at 2.4% and 2.8% respectively. There will be particular focus on items most likely to be impacted by tariffs that have been in place since February, e.g. household furnishing, apparel and other recreational goods, which in March implied that retailers are absorbing rather than passing through price increases, with the surge in imports implying that pre-tariff inventories can temporarily obviate the need for steep price increases. Ahead of CPI, NFIB Small Business Optimism which has dropped from a December peak of 105.1 to 97.4, mostly due to a sharper slide in Economic Optimism, is expected to dip further to 95.0, but the survey responses will pre-date the latest trade tariff developments, per se only offering a benchmark on which together how ‘Liberation Day’ tariffs impacted small business sentiment – the question is how much of a rebound will it see (or not as the case may be) on the back of the latest developments. Overall the latest developments are only likely to steel the Fed’s determination to ‘wait and see’ on policy moves, particularly given the deafening volume of noise in policy and statistical distortions.