Inflation data from the US and Australia, BoJ meeting, preliminary PMI data from the Eurozone and the UK and Q1 GDP from the US will highlight the week ahead of us.
USD
March retail sales report was scorching hot. Headline number saw increase of 0.7% m/m vs 0.3% m/m as expected and it comes after a positive revision to February reading which now shows increase of 0.9% m/m. The biggest increase was made in the non-store retailers while biggest drop was seen in sale of sporting goods. Ex autos category rose 1.1% m/m vs 0.5% m/m as expected. Control group, used for GDP calculation, smashed expectations and printed 1.1% m/m increase with February reading being revised higher from 0% to 0.3% m/m. Thanks to great March reading and positive revision to February number, consumption will be a positive input for Q1 GDP.
Fed Chairman Powell spoke during the week and stated that recent data showed a lack of progress on inflation. He added that restrictive policy needs more time to work and that current situation is not the standard case of inflation driven by overheated demand. NY Fed President Williams added to Powell’s hawkish remarks stating that he does not see urgency for Fed cuts and that eventually interest rates will need to be lowered. He the proceeded to state that although Fed hikes are not base case Fed is prepared to hike if data warrants it. S&P500 has dropped below 5000 for the first time since mid-February as risk off mood gripped markets after Israel fired strikes on Iran.
The yield on a 10y Treasury started the week at 4.53%, rose to 4.69%, a new high for the year and finished the week at around 4.60%. The yield on 2y Treasury started the week at 4.91% and reached the reached 5%. Spread between 2y and 10y Treasuries started the week at -38bp then tightened to -37bp as curve proceeded to bear steepen. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 96% while probability of a rate cut is around 4%. Probability of a June rate cut sits at around 17%.
This week we will have preliminary Q1 GDP and Fed’s preferred inflation metric PCE. Headline number is expected to tick up while core number is expected to continue declining. Recent comments made by Fed members coupled with stronger than expected CPI readings this year give additional importance to this PCE report.
Important news for USD:
Thursday:
GDP
Friday:
PCE
EUR
ECB Chief Economist Philip Lane stated that deceleration in wage growth is needed to return inflation back to target. He added that they are seeing moderation in wage growth but they are still elevated. Service inflation is expected to come down but but it will remain elevated during the year. German ZEW Survey for April saw current conditions improve, but at lower rate than expected. Outlook, on the other hand, showed much bigger improvement than it was expected indicating that investors are optimistic when assessing the impact of future rate cuts on the economy.
ECB President Lagarde spoke with CNBC during the week and clarified that barring any major surprises ECB will cut rates soon. She added that disinflationary process is moving according to the estimates but that they are not pre-committing to a path of rate cuts. Lagarde stated that there is still a lot uncertainty surrounding outlook and that is why data-dependent approach is necessary. She emphasized that they are data-dependent and not Fed dependent. ECB Nagel, a hawk, said that price pressures may continue for some time in the Eurozone while ECB Holzmann, also a hawk, stated that geopolitics is the biggest threat to rate cuts adding that increase in oil prices will be considered a “major, major shock”.
This week we will have preliminary April PMI data expected to show further improvements.
Important news for EUR:
Tuesday:
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
The latest employment report showed cracks in the UK labor market. Payrolls change for the month of March saw 67k jobs lost while February reading was revised down and now shows a loss of 18k jobs. February unemployment rate has jumped to 4.2% from 4% the previous month while no change was expected. Wages are still holding high though with average weekly earnings at 5.6% 3m/y and ex bonus at 6% 3m/y. A drop in employment numbers should bring rate cuts closer, but still strong wages will most keep first rate cut in August.
March CPI report showed headline inflation drop to 3.2% y/y from 3.4% y/y in February while core inflation fell to 4.2% y/y from 4.5% the previous month. Both inflation numbers were expected to drop even further 3.1% y/y and 4.1% y/y respectively. Food prices were the main reason for drop in prices while motor fuels saw biggest price increases. Services inflation remains at 6% y/y, It proves to be stickier and in combination with smaller than expected declines in inflation numbers markets are still seeing August as the right timing for the first rate cut.
This week we will have preliminary April PMI data expected to show further improvements.
Important news for GBP:
Tuesday:
S&P Global Manufacturing PMI
S&P Global Services PMI
S&P Global Composite PMI
AUD
March employment report showed loss of 6.6k jobs which came after a stellar February number of 117.6k jobs added. The unemployment rate ticked up to 3.8% from 3.7% while increase of 3.9% was expected. Participation rate ticked down to 66.6%. Looking into composition of jobs we can get a much brighter picture as full-time jobs increased by 27.9k while all of the decline in jobs came from part-time jobs which recorded a loss of 34.5 jobs.
Q1 GDP data from China showed that economy grew by 5.3% y/y and 1.6% q/q. The report shows investment as the main driver of growth, mainly public investment, while consumption moderated. Economic activity details for the month of March were not encouraging. Industrial production came in at 4.5% y/y vs 5.4% y/y as expected while retail sales printed 3.1% y/y vs 4.8% y/y as expected.
This week we will get Q1 CPI data from Australia. This will be the most important data point influencing further RBA decisions.
Important news for AUD:
Wednesday:
CPI
NZD
Inflation for the first quarter came in at 0.6% q/q and 4% y/y, both as expected. The yearly figure is the lowest since Q2 of 2021. Digging into the details we see that non-tradeable inflation, inflation that is driven by domestic demand, came in at 5.8% y/y which is very elevated. It has prompted some analysts to move first RBNZ rate cut to 2025 from November of 2024. RBNZ sectoral model of inflation eased to 4.3% y/y from 4.7% y/y.
CAD
March headline CPI came in at 2.9% y/y, up from 2.8% y/y in February due to higher gasoline prices. Rent and mortgage interest costs remain biggest contributors to the CPI increase. All three of the core numbers have declined witch common and median below 3% y/y while trim printed 3.1% y/y. Services inflation surprised negatively as it came in at 4.5% y/y, up from 4.2% y/y the previous month. Governor Macklem stated that he wants to see more good data on inflation so the question remains will he be satisfied with core inflation continuing to decline. Manufacturing sales for the month of February showed a 0.7% m/m increase as expected. Wholesale trade was flat on the month in February.
JPY
Core machine orders, a highly volatile data series, rebounded in February and printed 7.7% m/m after a drop of 1.7% m/m in January. They are used as a proxy for CAPEX six to nine months ahead so this bodes very well for business investment and thus GDP. National inflation for the month of March ticked down to 2.7% y/y from 2.8% y/y in February. Ex fresh food slipped to 2.6% y/y while ex fresh food, energy dropped below 3% for the first time since November of 2022 as it printed 2.9% y/y.
This week we will have BoJ meeting and no change to interest rates is widely expected. The bank will publish its quarterly outlook report where an upward revision to inflation is expected.
Important news for JPY:
Friday:
BoJ Interest Rate Decision
CHF
SNB total sight deposits for the week ending April 12 came in at CHF477.8bn vs CHF460.9bn the previous week. That is a decent jump but still within a well-established range.
