Written Commentary
- Digesting Japan GDP, Singapore Exports and French Unemployment, awaiting US Housing Starts, Import Prices and Michigan Sentiment; risk appetite clearly improved but still very fickle given uncertainty remains high; smattering of central bank speakers
- Japan: persistent weakness of domestic demand the striking feature of Q1 GDP, increasing pressure on BoJ to hold on rates and PM Ishiba to fashion another stimulus package
- USA: downside risks for Import Prices given PPI fall, with container freight rates and energy set to drag
- USA: Michigan Sentiment expected to recover very modestly from sharp fall, but heightened inflation concerns seen unchanged
EVENTS PREVIEW
The week ends with a relatively busy run of data, though outside of the overnight weaker than expected Japan Q1 GDP and US Michigan Sentiment, the market impact may be little more than transitory. There are also Singapore’s Exports and French Unemployment to digest, while ahead lie Eurozone Trade, US Housing Starts, NY Fed Services, Import Prices and TIC Portfolio Flows. These are accompanied by further central bank speakers, but it is the myriad of trade related news, including clear signs of deep divisions within APEC on how to respond to US tariffs, and yesterday’s conclusion of Trump’s tour of GCC states, with the barrage of relatively loose commitments to GCC investments was probably less significant than the ending of US sanctions on Syria, and the seeming proximity of a US agreement with Iran on its nuclear programme. Next week is light on US data (New & Existing Home Sales), while China kicks off the week with its monthly run of activity and property sector indicators, the UK awaits CPI, Retail Sales and Consumer Confidence, the Eurozone looks to the minutes of the last ECB meeting and German PPI, Japan has Trade, Machinery Orders and National CPI, and there are G7 flash PMIs and a number of national business and consumer surveys. Trade developments will remain front and centre, and likely to feature at a two day meeting of G7 finance ministers and central bankers in Canada. Poland holds the first round of presidential elections on Sunday, with Romania holding its second round.
** Japan – Q1 GDP **
While headline GDP missed forecasts modestly at -0.2% q/q, the details highlight that a surge in Business CapEx (1.4% q/q) and a related somewhat higher than expected 0.3 ppt contribution from Inventories offset yet another very weak quarter for Personal Consumption (flat q/q after 0.1% in Q4) that continues to defy optimism of a boost from rising real wages, and a large -0.8 ppt drag from Net Exports, even before any US tariff impact. This will not only serve to push back on BoJ ambitions to raise rates again, but also increase pressure on PM Ishiba to fashion some form of stimulus package given that domestic demand remains so weak.
** U.S.A. – April Import Prices, May Michigan Sentiment **
Following on from yesterday’s much lower than expected PPI readings, which imply that importers are for the time being absorbing price increases (from tariffs), rather than passing them onto consumers, today’s Import Prices (which do not include tariffs) are expected to fall 0.3% m/m, pressure lower by a sharp drop in China to US container freight rates and energy prices, with the ex-Petroleum measure seen up 0.1%. The inflation expectations of the preliminary Michigan Sentiment survey are expected to be unchanged at lofty readings of 6.5% (1-yr) and 4.4% (5-10 yr), and per se suggesting that the anticipated troughing in headline Sentiment at 53.5 vs. April 52.2, amid a modest improvement in Expectations (48.6 vs. 47.3) on easing tensions with China has done little to assuage consumer price concerns, which is more than understandable given the pendulum swing messaging on tariffs and other policy signals.
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