Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
The Week Ahead – Preview:
The new week is quite light in statistical terms, featuring G7 & India flash PMIs and UK CPI and Retail Sales, accompanied by US New & Existing Home Sales, Durable Goods Orders, FOMC Minutes and final Michigan Sentiment, Japan Trade and Private Machinery Orders, Canada CPI and Retail Sales, while the Eurozone has ECB Q1 Negotiated Wages, provisional Consumer Confidence and French Business Confidence, with PSNB, GfK Consumer Confidence and CBI Industrial Trends also on tap in the UK. There will again be plenty of central bank speakers, RBA minutes, China monthly Loan Prime Rate (LPR) fixings, while rates are seen no hold in New Zealand (5.50%), Indonesia (6.25%), South Korea (3.50%) and Turkey (50.0%), and the Fed and RBA publish policy meeting minutes. In the commodity space, divisions within OPEC+ will be eyed as the early June production quota decision gets ever closer, while there are monthly reports from Brazil’s Conab on Coffee and Unica on Sugar, as the USDA publishes Meat Production and Cold Storage data. Monday sees many countries closed in Europe for Whitsun, while a number of Asian countries will celebrate Buddha’s Birthday (aka Vesak Day) on Wednesday or Thursday.
U.K.: The lowering of the household energy price cap will be the key factor behind a modest 0.1% m/m rise in CPI, which would see the y/y rate tumble to just 2.1%, with Core and Services CPI also seen falling quite sharply to 3.6% and 5.4% y/y respectively from 4.2% and 6.0%, but remaining elevated. Food prices should also continue to moderate (as per the BRC’s Shop Price Index), and the extent to which there is further evidence that pass through of cost pressures is easing, and in that context PPI measures are expected to remain modest, with energy prices likely accounting for most of the 0.4% m/m increases seen on PPI Input and Output. Friday brings Retail Sales, which will likely underline continued weakness in consumer goods spending, with headline seen down 0.6% m/m after a flat reading in March, and down 0.8% m/m ex-Auto Fuel, after falling 0.3% in March; wet weather will account for some of the weakness. The open question is whether the 10% rise in the National Living Wage offers support for spending going forward. Meanwhile, GfK Consumer Confidence is seen edging up to -18, breaking out of the -19 to -22 range that has prevailed since December.
– Flash PMIs are expected to see a further improvement in the Eurozone, whereby Manufacturing will still be contracting, above all in Germany and France, while Services expand at a healthy pace, with a similar picture in the UK, while both measures are seen easing somewhat in the US, and India continues to expand at a very robust pace. Given rises in a good many input prices, above all energy, there will be particular interest in sub-indices for prices paid and received.
U.S.A.: The FOMC minutes will likely be of great significance than the modest run of data. The message from Powell’s press conference and statement was that a further rate hike is not on the table (and a discussion about the ‘neutral rate’ deemed to be rather moot), but inflation still needs to turn lower again, and growth to moderate and the labour market to loosen to put a rate cut on the table. As noted on Friday, last week’s run of inflation and activity data “implies that the short-term risk on the US economy is in fact stagflation, perhaps all the more so given the latest Smoot-Hawley type tariffs imposed on China, though a good deal more monthly data will be needed to confirm that”. New and Existing Home Sales are seen flat to lower on the month, with higher mortgage rates continuing to restrain demand, while Durable Goods Orders are expected to fall 1.8% m/m on the sharp reversal in Boeing Orders, with core Orders metrics again seen little changed at 0.1% m/m, echoing sluggish CapEx intentions metrics seen in regional Fed, PMI, ISM and CEO surveys.
Eurozone: the ECB’s Q1 data on negotiated Wage Settlements will be the only item of real policy significance this week, and may only ease very slightly (? -0.2 ppt) from Q4’s 4.5% y/y, primarily due to a near 5.0% increase in Germany, against much lower settlements (ca 3.5%) in France, Italy and Spain. Of itself, this would preclude an immediate follow-up in July on the expected 25 bps ECB cut in June.
Japan: In seasonally adjusted terms, the Trade Balance is seen marginally wider at Y-735 Bln, with Exports expected to be boosted to 11.0% y/y on the back of solid external demand for autos and semiconductors, with Imports reversing March’s -5.1% y/y decline with a rise of 8.8% on a combination of base effects and higher energy prices. The ever volatile Private Machinery Orders are forecast to decline 2.3% m/m after jumping 7.7% in February, but of more interest will be National CPI, which is expected to echo Tokyo CPI with headline easing to 2.4% y/y from 2.7% and core measures down to 2.2% and 2.4% y/y respectively, still above target, but to a certain extent undermining the case for a further rate hike.
Canada: In contrast to the US, Canadian CPI has been surprising on the downside this year, and while energy prices (above all gasoline) and Housing related prices will give a boost, the latter being more of a concern for the BoC, the combination of base effects and downward pressure from autos and perhaps health care and clothing should limit the m/m rise to 0.5% m/m. That would see headline y/y edge down to 2.7% y/y, and a more meaningful 0.2 ppt dop in median and trimmed mean Core CPI measures to 2.7% and 2.9% y/y respectively. If correct, then the door to a July BoC rate cut would be pushed that little bit wider.
Rate decisions: Indonesia, New Zealand, South Korea & Turkey: RBNZ – On hold at 5.50%, Q1 CPI data while slowing to a still high 4.0% y/y in headline terms, but the key Non-Tradeable CPI sub-index accelerated sharply to 1.6% q/q from Q4’s 1.1%, underlining still considerable domestic inflation pressure, and while Q1 Private Sector Wages eased to 0.8% q/q (from Q4 1.0%), they are still running well above the pre-pandemic range of 0.4%-0.6%. Guidance will likely be hawkish, with the consensus not looking for a rate cut before Q4. Bank of Korea – On hold at 3.50%. Inflation has been steadily falling, but with headline still at 2.9% y/y, well above the BoK’s 2.0% target, and core at 2.3% y/y, and with the labour market still very tight, and the KRW still weak, despite the recent upturn, and a great deal of uncertainty about when US rates may drop, the BoK will continue to err on the side of caution. Bank Indonesia – after succumbing to the weakness of the IDR last month and hiking rates 25 bps to 6.25% (rather less of a surprise than many suggested), BI will hold this time around, taking some comfort from the recovery in the IDR since the April hike, and some relatively strong foreign inflows into local bond markets, as well as the dovish turn in market expectations for US rates. It would for choice like to see the IDR hold below the 16,000 level, and trend back towards the Q1 range of 15,400-15,600. Solid GDP and a further easing in inflation will also be of some comfort, but without a clearer picture on the US rate outlook, it is going to be primarily focussed on fending off potential inflation pressures from a weaker IDR. Turkey TCMB – Also on hold at 50.0%, governor Karahan will welcome the steady performance of the TRY since the 500 bps hike in March, but continue to stress that TCMB stands ready to hike again if inflation continues to rise, it is expecting that May CPI will rise to 75-76% y/y (from April’s 69.88%), but for that to be the peak, having raised its forecast for CPI to end 2024 around 38% vs. a prior expectation of 36%, and only sees rates dropping marginally by year end to 47.5%. It is however likely to continue to tighten financial conditions further, by adjusting reserve requirements, caps on credit growth, and shifting bank funding to its overnight facility and away from the repo window.
– There are just 17 S&P 500 companies reporting this week, with worldwide highlights for the week as compiled by Bloomberg News likely to include: Analog Devices, Assicurazioni Generali, AutoZone, Fubon Financial, Intuit, ITC, Keysight Technologies, Kuaishou Technology, Li Auto, Lowe’s, Malayan Banking, Medtronic, MS&AD Insurance, National Grid, NetEase, Nvidia, Oil & Natural Gas, Palo Alto Networks, Ross Stores, Singapore Telecommunications, Snowflake, Synopsys, Target, TJX, Tokio Marine, Toronto-Dominion Bank, Trip Group, Workday, Xiaomi.
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