This week we will have Fed, ECB and RBA meetings with first two delivering rate hikes while later standing pat, additionally, there will be inflation data from the Eurozone and employment data from Canada and New Zealand.
USD
Preliminary A1 GDP reading rose by 1.1% annualized vs 2% annualized as expected. Consumer spending rose by 3.7% vs 1% as in previous quarter, contributing 2.48pp to the GDP number, with great majority of this being spending on durables (16.9% vs -1.3% in Q4). GDP deflator rose again as core PCE increased by 4.9% vs 4.7% as expected and up from 4.4% in Q4. The biggest drop was caused by inventories. USD has rallied on report due to the details showing strong demand as described by spending on durables. Inflation running hotter adds more credibility to future rate hikes. Ultimately, if there was no such big drop in inventories, indicating strong demand, GDP reading would be much higher and most likely beat the expectations. Once concerning factor is that fixed investment contributed negatively 0.07pp to GDP thus marking fourth consecutive quarter of falling investments.
PCE inflation in March continued to decline, now at a faster pace, as headline number came in at 4.2% y/y vs 5.1% y/y in February. Core inflation ticked down to 4.6% y/y but it stays stubbornly high and comes down slowly. This may nudge Fed toward raising 25bp next week and then deciding to pause.
The yield on a 10y Treasury started the week and year at around 3.56%, fell to 3.4% and finished the week at around the 3.46% level. The yield on 2y Treasury reached at around 4.17%. Spread between 2y and 10y Treasuries started the week at -62bp then tightened to -51bp and finished the week around -60bp. FedWatchTool sees the probability of a 25bp hike at 87.4% while probability of no change in May is at 12.6%.
This week we will have ISM PMI data, Fed meeting and NFP on Friday. Markets are pricing in a 25bp rate hike so much more attention will be paid to Fed’s language and whether they will continue hiking or pause. Headline NFP is seen at around 190k with the unemployment rate staying at 3.5%.
Important news for USD:
Monday:
ISM Manufacturing PMI
Wednesday:
Fed Interest Rate Decision
ISM Non-Manufacturing PMI
Friday:
NFP
Unemployment Rate
EUR
German Ifo survey in April showed that business climate continues to improve by coming in at 93.6 vs 93.2 in March. The data has been improving for seven consecutive months. Current conditions declined to 95 from 95.4 the previous month while expectations continued to improve to 92.2 from 91 in March. Ifo economist Klaus Wohlrabe noted that although industry export expectations have risen and that there is a smaller number of companies wanting to increase prices, German economy still lacks momentum.
ECB executive board member Isabel Schnabel stated in an interview that headline inflation is coming down quickly but given the developments around the core inflation it is still far too early to declare victory. Core inflation is expected to peak soon, but they are more concerned with direction of it, they want to see it coming down. She highlighted several times that ECB is fully data dependent and that 50bp rate hikes in May cannot be ruled out. ECB Chief Economist Philip Lane confirmed ECB’s data dependence and that hikes after May meeting will depend on incoming data.
Preliminary Q1 GDP came in at 0.1% q/q vs 0.2% q/q as expected. French, Italian and Spanish reading helped to keep it in positive while German reading came in flat, barely escaping recession since it printed -0.4% q/q in Q4. Still German reading printed -0.1% y/y. Inflation in France in April increased to 5.9% y/y from 5.7% y/y in March with a 0.6% m/m reading. German inflation slipped to 7.2% y/y from 7.4% y/y in March and monthly reading showed a much lower increase at 0.4%.
This week we will have preliminary April inflation data and ECB meeting. Another 25bp rate hike is the market consensus but a 50bp rate hike is sill on the table as a realistic possibility.
Important news for EUR:
Tuesday:
CPI
Thursday:
ECB Interest Rate Decision
GBP
BOE Chief Economist Huw Pill sparked the outrage by stating that people in the UK should accept that they are worse off and that their real spending power is declining, basically that they are poorer, and avoid bidding up prices through demands for higher wages. This just follows remarks stated by BOE Governor Bailey in 2022 that people should not be asking for higher wages. Blatant lack of empathy is coming out as a result of their incompetence to reign in inflation that is still running in double digits despite “best” efforts from monetary authorities.
AUD
Q1 inflation data saw headline CPI print at 1.4% q/q vs 1.3% q/q as expected and 7% y/y vs 6.9% y/y as expected. The numbers came down from 1.9% q/q and 7.8% y/y in Q4 of 2022 but the decline was not as big as expected. Trimmed mean measure, that is core CPI, slowed down to 1.2% q/q and 6.6% y/y. This is the second consecutive quarter that shows slower inflation on a quarterly basis. Although both headline and core reading are well above bank’s target range of 2-3% RBA will be satisfied with core coming down faster than expected.
This week we will have RBA meeting where no change to the rate is expected.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
NZD
Trade balance data for March saw big increases in both exports (NZD6.51 vs NZD5.06 in February) and imports (NZD7.78bn vs NZD5.86bn in February) indicating return of strength to the New Zealand economy. ANZ business confidence survey saw another decline as April figure printed -43.8 vs -43.4 in March. The report showed increases in wage expectations and export intentions as well as improvement in commercial construction and activity and employment on a yearly basis. The biggest declines are seen in residential construction and profit expectations. Inflation expectations continue to decline but are still very elevated at 5.7%. Still they are at the lowest level since March of 2022.
This week we will get Q1 employment data.
Important news for NZD:
Wednesday:
Employment Change
Unemployment Rate
CAD
February GDP number came in at 0.1% m/m vs 0.2% m/m as expected. January reading was revised up to 0.6% m/m and March reading is projected to be negative 0.1% m/m which in total would put Q1 GDP at 0.6% q/q. Both goods and service producing sectors made a 0.1% growth while wholesale trade and retail trade contracted -1.3% and -0.5% respectively. CAD has been hammered this week and falling alongside oil.
This week we will get employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
We had a slew of economic data published before the BOJ interest rate announcement and they were painting a picture of slowing economy with increasing inflation. Headline CPI number for Tokyo area in April printed 3.5% y/y vs 3.1% y/y as expected and up from 3.3% y/y in March. Excluding fresh food category also rose by 3.5% y/y vs 3.2% y/y the previous month while “core core”, ex fresh food, energy, increased by 3.8% y/y, up from 3.4% y/y in March and highest since 1982! The unemployment rate unexpectedly rose to 2.8% from 2.6% the previous month while retail sales continued to increase but at a slower pace both on monthly and yearly readings.
BOJ decided to leave interest rate unchanged at -0.10% and there were no tweaks to the Yield Curve Control. They have, however, make changes to the forward guidance. Changes include removing references to Covid-19 and pledge to keep rates at current or lower levels. The decision on not changing YCC was unanimous and the bank is not in a rush to change it. BOJ will spend 12 to 18 months to conduct a review of monetary policy guidance. This is a way to long period and overall the message from the meeting was dovish thus JPY suffered. This was Ueda’s first meeting as a Governor and he may prove to be more dovish than Kuroda.
CHF
SNB total sight deposits for the week ending April 21 came in at CHF538.4bn vs CHF544.1bn the previous week. The decline continues as SNB sells EUR and USD. Retail sales in March declined by -1.9% y/y as sales for food, beverages and tobacco continued to decline.
