Macroeconomics: The Day Ahead for 22 April

The week gets off to a relatively subdued start in terms of the data and events schedule, with as expected unchanged China LPR rates, trade data from South Korea and Indonesia, and the US House passage of the Ukraine, Israel aid funding and TikTok ultimatum bill to digest, along with the ostensible dialling back of Iran/Israel tensions, at least for the time being to digest. Ahead lie industrial activity and labour data from Poland, Taiwan Export Orders and the UK CBI Industrial Trends survey, along with some ECB speakers, with Cleveland-Cliffs, Verizon and Zijin Mining topping the modest run of corporate earnings. Per se trading activity may be muted, after a tempestuous week last week, and the significant data and events starting tomorrow with the run of flash PMIs, along with a much busier run of corporate earnings.

RECAP – The Week Ahead:
Markets are facing a complex mix of influences, with geopolitics by way of heightened tensions in the Middle East and Ukraine. and associated threats of higher energy prices and supply chain disruptions, as well as national electoral cycles, are pitched against the Fed’s pushback on rates, while other central banks signal rate cuts, and a big test of equity valuations as the Q1 earnings swings into full gear, amid growing concerns over global debt levels. The week’s data schedule is relatively light, featuring the run of G7 and India PMIs, Germany’s Ifo and a raft of other surveys, above all in the Eurozone and UK, with the US looking to Q1 advance GDP, Personal Income/PCE and Durable Goods Orders, as Japan and Australia look to CPI, and South Korea to Q1 GDP. The Q1 earnings season cranks up to full speed, above all in the US with likes of Alphabet, Boeing, Caterpillar, Chevron, Colgate-Palmolive, ExxonMobil, Ford, GM, Microsoft, Meta, Tesla and UPS among the highlights. The BoJ meets, with no change in policy expected, but a lot of interest in its forecast update, while rates are expected held in Turkey, Ukraine and Russia, as are China’s 1 & 5-yr Loan Prime Rate fixings, a 50 bps cut is seen in Hungary, and a 25 bps cut in Paraguay, while there is some speculation that Bank Indonesia could spring a surprise 25 bps rate hike to prop up the ailing Rupiah (down ca 5.0% year to date. Fed, ECB and BoE speakers will again be plentiful, and the Bank of Canada issues the minutes of its most recent meeting. Govt bond supply is quite light outside of the US which sells $183 Bln of 2, 5 & 7-yr and $30 Bln of 2-yr FRN, while Germany offers EUR 9.0 Bln total of 2 & 10-yr, Italy EUR 2.5 Bln each of 2-yr & I-L, and Japan auctions JPY 2.6 Trln of 2-yr. In commodity markets, energy prices will likely remain volatile and hypersensitive to Middle East developments, even if supply looks more than ample in the event of no major disruptions. The EU MARS crop bulletin, various USDA livestock monthly reports accompany a busy run of conferences, which include major Copper and Aluminium events in China and Commodity Trading Week in London, and World Energy Congress in Rotterdam.

U.S.A.: Advance Q1 GDP is expected to slow to 2.5% SAAR, from Q4’s 3.5% and H2 2023’s 4.2%, but remaining well above the Fed’s assumed potential rate of 1.8%. Solid if somewhat slower Personal Consumption at 2.5% vs. prior 3.3%, and strength in Housing investment are expected to offset a drag from Net Exports, while Business Investment will likely be mixed, with strength in Intellectual Property Products (aka IPP) offsetting sluggish Equipment and Structures CapEx, and ever present wild card of Inventories expected to be largely flat. The advance GDP data will pre-empt Personal Income and PCE on Friday, though as ever the focus will be on the PCE deflators, and both expected to rise 0.3% m/m, which would see headline y/y edge up 0.1 ppt to 2.6%, and core edge down 0.1 ppt to 2.6%, which will keep the Fed cautious, but still leave the door open to one or two rate cuts in H2, at least if energy prices do not see a surge. Headline Durable Goods Orders (exp. 2.5% m/m) are likely to get a big boost from a jump in Boeing Orders, but ex-Transport and core Non-defence Capital Goods ex-Aircraft are seen up a still tepid 0.2% m/m. New and Pending Home Sales are forecast to be up 1.3% and down -0.2% m/m respectively. Following the House passage of the various hugely delayed and divisive funding bills for Ukraine and Israel, the focus will be on the backlash on House Speaker Johnson from the right wing of the Republican party, which also serves as a reminder that as the year progresses, the election will move front and centre.

Japan: Just ahead of the BoJ policy meeting on Friday, Tokyo CPI is forecast to edge down a further 0.1 ppt to 2.5% y/y, as is core CPI to 2.2% y/y, while core-core CPI is seen down 0.2 ppt to 2.7% y/y. There are however some upside risks given that the companies, which have agreed wage increases of 5.0% or even more, may use the start of the new fiscal year to put through off-setting price increases. The BoJ is seen holding rates, but all eyes will be on a fresh set of forecasts, with some risk of an upward revision to core CPI forecasts, though given its latest regional survey results GDP forecasts may be shaded lower. Of particular interest will be the extent to which Ueda sounds a hawkish note on the rate outlook given the persistent weakness of the JPY, and perhaps also suggests the start of what will likely be a very gradual and protracted QT process.

PMIs, surveys: If forecasts for Tuesday’s G7 & India provisional PMIs, which assume little or no change relative to March, are correct, then they are unlikely to prompt much market reaction, though forecasts may be reflective of a good deal of agnosticism about the short-term trajectory for growth. They would effectively confirm that India continues to expand at a rapid pace, US growth remains resilient, UK Manufacturing is eking out small gains as the Services sector sees a solid expansion, while France contracts, and German Manufacturing remains desultory, with Services at best tepid. Wednesday’s Ifo is seen picking up for a 3rd month to 88.8 from 88.1, which would be very weak on any historical comparison, but still the best reading since June 2023, with Thursday’s GfK Consumer Confidence expected to post a more meaningful pick up to a still depressed -26.0 from -27.4, while in France both Business and Manufacturing Confidence are seen 1 pt higher, and the UK CBI Industrial Trends Orders sub-index is called slightly higher at -16, though the point of focus will be the quarterly Business Optimism index. Given the protracted run higher in energy prices, all surveys will need to be monitored closely for accelerating price pressures.

Australia: The falls in monthly CPI (seen unchanged at 3.4% y/y) have already flagged a sharp fall in the quarterly CPI, that is forecast see a 0.7% q/q rise translate into a fall in y/y headline to 3.4% from 4.1%, and core Trimmed Mean to 3.7% from 4.2%, per se making further meaningful progress back to the RBA’s 2.0-3.0% target range. Indeed if the q/q projection is correct, then 6-mth annualized CPI would drop to 2.6%, and thus allow the RBA to completely step back from the lingering threat of a further rate hike at its early May meeting. That in turn would likely open the door to an initial rate cut in Q3, assuming that current CPI trends persist.
There are 159 S&P 500 companies reporting this week, and a further 141 reporting next week. and with the 1-yr forward P/E ratio on a very lofty 19.9, there is a lot of good earnings news priced in, so results will have to do quite a bit more than just beat estimates. Indeed it is worth keeping in mind that S&P 500 earnings excluding the 7 Megacap tech companies have actually been negative on a yr/yr comparison in the previous four quarters, according to analyst estimates. Worldwide highlights for the week as compiled by Bloomberg News are likely to include: AbbVie, Advantest, Agnico Eagle Mines, Airbus, Alphabet, Altria, Ameriprise Financial, Amphenol, Aon, Arthur J. Gallagher, ASM International, Assa Abloy, AstraZeneca, AT&T, Atlas Copco, Atlassian, AvalonBay Communities, Bajaj Finance, Bajaj Finserv, Baker Hughes, Bank of Communications, Barclays, BASF, Bioge, BNP Paribas, Boeing, Boston Scientific, Bristol-Myers Squibb, Cadence Design Systems, Canadian National Railway, Canadian Pacific Kansas City, Canon, Capital One Financial, Carrier Global, Caterpillar, Centene, CGN Power, Charter Communications, Chevron, China Pacific Insurance, China Shenhua Energy, China Telecom, Chipotle Mexican Grill, Chubb, Chugai Pharmaceutical, Citic Securities, CME, Cnooc, Colgate-Palmolive, Comcast, CoStar Group, Daiichi Sankyo, Danaher, Dassault Systemes, Denso, Deutsche Bank, Deutsche Boerse, Dexcom, Disco, DNB Bank, Dow, Dr Ing hc F. Porsche, DSV, Edwards Lifesciences, Eni, Equinor, Evolution, Exxon Mobil, Fanuc, Fiserv, Ford Motor, Fortive, Foshan Haitian Flavouring & Food, Freeport-McMoRan, Fujitsu, GE Vernova, General Dynamics, General Electric, General Motors, Gilead Sciences, Great Wall Motor, Halliburton, Hartford Financial Services Group, HCA Healthcare, HCL Technologies, HDFC Bank, Heineken, Hess, Hexagon, Hilton Worldwide, Hindustan Unilever, Hitachi, Honeywell International, Hong Kong Exchanges & Clearing, Humana, Iberdrola, Icon, Imperial Oil, Intel, IBM, Keurig Dr Pepper, Keyence, Kimberly-Clark, KLA, Komatsu, Kuehne + Nagel International, L3Harris Technologies, Lam Research, Lloyds Banking Group, Lockheed Martin, Luxshare Precision Industry, Luzhou Laojiao, LyondellBasell, Maruti Suzuki India, MediaTek, Merck, Meta Platforms, Microsoft, Mitsubishi Electric, Mobileye Global, MSCI, Murata Manufacturing, Muyuan Foods, Nari Technology, Nasdaq, NatWest Group, Nestle India, Newmont, NextEra Energy, Norfolk Southern, Northrop Grumman, Novartis, Nucor, O’Reilly Automotive, Old Dominion Freight Line, Orange, Oriental Land, Otis Worldwide, PepsiCo, PG&E, Philip Morris International, Phillips 66, Ping An Insurance Group Co. of China, Raymond James Financial, Renesas Electronics, ResMed, Roper Technologies, Royal Caribbean Cruises, RTX, S&P Global, Samsung Biologics, Sandvik, Sanofi, SAP, ServiceNow, Shaanxi Coal Industry, Shanxi Xinghuacun Fen Wine Factory, Shenzhen Mindray Bio-Medical Electronics, Sherwin-Williams, Shin-Etsu Chemical, SK Hynix, Skandinaviska Enskilda Banken, Spotify Technology, STMicroelectronics, T-Mobile US, T. Rowe Price Group, TE Connectivity, Tesla, Texas Instruments, Thermo Fisher Scientific, TotalEnergies, Toyota Industries, Tractor Supply, Truist Financial, Union Pacific, United Parcel Service, United Rentals, Vale, Valero Energy, Verizon Communications, Vertiv, Visa, Wal-Mart de Mexico, Waste Connections, Waste Management, West Pharmaceutical Services, Westinghouse Air Brake Technologies, Willis Towers Watson, WW Grainger, Xcel Energy and Zijin Mining.