Preliminary April PMI data from Eurozone and the UK coupled with GDP data from China and inflation data from Canada and New Zealand will garner attention in the week ahead of us.
USD
CPI in March fell a full percentage point to 5% y/y from 6% y/y in February. Expectation was for it to drop to 5.2% y/y. Energy component was most responsible for the huge fall with -3.5% m/m out of which gasoline was -4.6% m/m. CPI rose 0.1% m/m vs 0.2% m/m as expected. Core CPI came in at 5.6% y/y as expected, ticking up from 5.5% y/y the previous month. Shelter category rose 0.6% m/m vs 0.8% m/m in February. Shelter has the biggest weighting o all the goods and services used to calculate inflation. Fed will continue raising rates with another 25bp in May, but after that they may pause. FOMC minutes showed that forecasts were made considering mild recession starting later this year and several participants considered leaving rates unchanged.
Retail sales fell -1% m/m in March vs -0.4% m/m as expected. Control group came in at -0.3% m/m as expected hurting the Q1 GDP reading. Ex autos and ex autos, gas also declined coming in at -0.8% m/m and -0.3% m/m respectively. Looking at the details sales at gasoline stations fell by 5.5% m/m and 14.2% y/y while only increase in retail sales came from nonstore retailers (online) which rose 1.9% m/m and 12.3% y/y. High inflation is killing disposable income as consumers restrict their spending.
Board of Governors member Waller, who is considered voice of the hawks, delivered a hawkish message in his speech. He stated that Fed’s job is not done and that rates will need to rise further. He added that extent of future rises will depend on the incoming data. He hammered the remark that monetary policy will need to remain tight for longer than markets anticipate. Yields have risen on his remarks.
The yield on a 10y Treasury started the week and year at around 3.37%, rose to 3.53% and finished the week at around the 3.52% level. The yield on 2y Treasury reached at around 4.13%. Spread between 2y and 10y Treasuries started the week at -57bp then widened to -61bp. FedWatchTool sees the probability of no change in May at 17.8% while probability of a 25bp hike is at 82.2%.
EUR
Retail sales in February fell 0.8% m/m as expected and -3% y/y. The drop was caused by drops in automative fuels, non-food and food, drinks and tobacco categories. Mail orders and internet was a positive input rising 2.6% m/m. Industrial production rose 1.5% m/m in February vs 1% m/m as expected and January reading was revised up to 1% m/m from 0.7% m/m. Strong industrial production numbers will boost Q1 GDP. Divergence between production and consumption is strong, but with inflation being so high ECB will continue with rate hikes and markets are currently pricing in 3.75% as the terminal rate, meaning 75bp more rate hikes to come.
This week we will have preliminary April PMI readings.
Important news for EUR:
Friday:
S&P Global Manufacturing PMI (Eurozone, Germany, France)
S&P Global Services PMI (Eurozone, Germany, France)
S&P Global Composite PMI (Eurozone, Germany, France)
GBP
February GDP figure came in flat vs 0.1% m/m as expected. Services sector and production output notched declines which were covered up by an increase in construction sector. January figure was revised up to 0.4% m/m from 0.3% m/m as previously reported.
This week we will have employment and inflation data as well as preliminary April PMI readings.
Important news for GBP:
Tuesday:
Claimant Count Change
Unemployment Rate
Wednesday:
CPI
Friday:
S&P Global Manufacturing PMI
S&P Global Services PMI
S&P Global Composite PMI
AUD
Employment report in March was another strong one. Employment change came in at 53k vs 20k as expected. The unemployment rate stayed at historically low level of 3.5% while expectations were for it to tick up to 3.6%. Participation rate ticked up to 66.7% giving another star to the report. Finally, to finish off a great report, all of the jobs added were full-time jobs (72.2k). Part-time jobs declined (19.2k) indicating that they have been switched to the full-time jobs. Higher rates are not having negative impact thus far on labor market which remains incredibly tight. Chances of a 25bp rate hike in May have surged after the employment report.
Chinese inflation continued to decline in March as it came in at 0.7% y/y vs 1% y/y as expected and in February. On the other hand, PPI came in at -2.5% y/y as expected and down from -1.4% y/y the previous month. Baring short stops in November and December of 2022 PPI has been declining every month since November of 2021. Additional fiscal stimulus can be added into the economy without fear of pushing inflation out of the hand and it seems necessary in order to stimulate the economy. This should support AUD. Trade balance data for March saw a huge jump in exports. They came in at 23.8% y/y in CNY terms and 14.8% y/y in USD terms.
This week we will get Q1 GDP, production and consumption data from China.
Important news for AUD:
Tuesday:
GDP (China)
Industrial Production (China)
Retail Sales (China)
NZD
Electronic card retail sales, they amount to almost 70% of overall retail sales, came in at 0.7% m/m and 15.5% y/y in March vs 1.5% m/m and 9.5% y/y as expected. Finance Minister Robertson said in an interview with CNBC that New Zealand may experience a recession, but it would be a shallow one adding that economy is resilient and robust.
This week we will get Q1 inflation data.
Important news for NZD:
Thursday:
CPI
CAD
BOC has left interest rate unchanged at 4.50% while continuing their quantitative tightening policy as was expected. The bank says that global growth surprised to the upside and it now sees global GDP at 2.6% in 2023, 2.1% in 2024 and 2.8% in 2025. “In Canada, demand is still exceeding supply and the labor market remains tight.” The statement shows that “As more households renew their mortgages at higher rates and restrictive monetary policy works its way through the economy more broadly, consumption is expected to moderate this year. Softening foreign demand is expected to restrain exports and business investment.” As a result of that GDP is seen rising 1.4% in 2023 and 1.3% in 2024. Inflation is seen falling to around 3% of 2023 and Governing Council remains prepared to raise further if need arises to return inflation to 2% target. Markets were pricing in some cuts in the Q4 but Governor Macklem dismissed them as they firmly in the pause mode with a slight lean toward more rate hikes.
This week we will get inflation data.
Important news for CAD:
Tuesday:
CPI
JPY
Newly appointed BOJ governor Ueda met with Prime Minister Kishida and they agreed that there was no immediate need to change joint statement from 2013 with government while they discussed the need to for flexibility in monetary policy given the economic uncertainty. Governor Ueda reiterated BOJ’s commitment to achieve price stability while characterizing current monetary policy as “intense”. Ueda is expected to return monetary policy to normality, but it will not happen in the near future as he stated that it is appropriate to continue with negative rates for now and that changes in policy may come in December if data supports it.
CHF
SNB total sight deposits for the week ending April 7 came in at CHF532.2bn vs CHF563.3bn the previous week. After two weeks of rising sight deposits, new data points to a resumption of a downward trend. SNB chairman Jordan stated that they cannot exclude the possibility that further tightening will come. Markets are now leaning toward the 25bp with above 60% probability of the move.
