Consumption data from the US and China, employment data from Australia and the UK and preliminary Q1 GDP from Japan will highlight the week ahead of us.
USD
Senior Loan Officers Opinion Survey showed that credit is tightening further and it leads to increase in recessionary risks as rising borrowing costs weigh in on companies. Additionally, the report also showed that demand for loans is also waning.
Headline CPI for the month of April came in at 4.9% y/y vs 5% y/y as expected and in March. Monthly reading was 0.4% as expected, which is still high for the 2% y/y target. Energy was down 5.1% y/y. The report shows “The index for shelter was the largest contributor to the monthly all items increase, followed by increases in the index for used cars and trucks and the index for gasoline. The increase in the gasoline index more than offset declines in other energy component indexes, and the energy index rose 0.6 percent in April”. Core CPI slipped to 5.5% y/y as expected from 5.6% y/y the previous month. Inflation is coming down, but some categories that were previously falling are starting to increase again. Core is proving to be stickier than projected and Fed will have hard time bringing it down. One positive is that core services ex shelter category, that is the measure Chairman Powell closely follows, came in at 0.11% m/m.
The yield on a 10y Treasury started the week and year at around 3.43%, rose to 3.53% and finished the week at around the 3.46% level. The yield on 2y Treasury reached around 4.07%. Spread between 2y and 10y Treasuries started the week at -50bp then tightened to -53bp. FedWatchTool sees the probability of a 25bp hike at 25.8% while probability of no change in June is at 74.2%.
This week we will have consumption data.
Important news for USD:
Tuesday:
Retail Sales
EUR
ECB’s uber hawk member Knot, president of Dutch central bank, stated he voted for a 25bp rate hike in May but could see himself supporting further rate hikes. He says he is prepared to go above 5% if that proves to be necessary. ECB board member Kazaks, another hawk, stated that rate hikes may not be over in July and that market betting on rate cuts in Spring of 2024 may prove to be premature. He added that it is possible to ECB to pause or even hike as Fed cuts. ECB’s Kazimir, a more neutral member, stated that there is still a lot of ground to cover and that slowing down of rate hikes allows them to go higher for longer. He added that September is the earliest when they can assess effectiveness of past rate hikes. ECB’s Nagel agreed that meeting-by-meeting approach is the correct one adding that it will take almost 18 months for core inflation to get back close to 2%.
GBP
BOE has delivered a well expected 25bp rate hike and lifted the interest rate to 4.50%. The vote was 7-2 with Dhingra and Tenreyro voting to keep rates unchanged. The statement shows that risks around inflation projections are skewed to the upside as there is uncertainty regarding the pace at which inflation will return sustainably at 2%. Additionally, they see H1 GDP coming in flat, however GDP for Q2 of 2024 was revised from -0.3% q/q to 0.9% q/q for the biggest revision in BOE’s history. During the press conference Governor Bailey reiterated that inflation remains way too high and that outlook for unemployment and growth improved with economic activity, as shown by data, came in stronger than expected. Inflation is projected to drop sharply from April. The bank is data dependent.
Preliminary Q1 GDP came in at 0.1% q/q as expected and as was in Q4 of 2022. The report shows that construction sector grew by 0.7% while services and production sector both grew by 0.1%. Real household consumption was flat on the quarter as high inflation dampened it while business investment grew by 0.7%. Net trade contributed negatively to the print.
This week we will have employment data.
Important news for GBP:
Tuesday:
Claimant Count Change
Unemployment Rate
AUD
Chinese trade balance data for April saw widening of surplus to $90.21bn, but the composition of it was less favourable. Exports have risen 8.5% y/y, a drop from 14.8% y/y in March while imports continued to plunge and came in at -7.9% y/y vs -1.4% y/y the previous month. Declining imports are indicating that domestic demand is weak. Additionally, imports are basis for future exports so their decline poses a big concern for the export sector. April inflation data saw CPI at just 0.1% y/y vs 0.4% y/y as expected and down from 0.7% y/y in March. PPI plunged even further into negative by coming in at -3.6% y/y vs -3.2% y/y as expected and down from -2.5% y/y the previous month. PPI has been declining since November of 2021 and this is the seventh consecutive month of it being in the red. Very low inflation readings have opened the possibility of strong stimulus package from China to stimulate the economy and AUD benefited.
This week we will have employment and wages data from Australia as well as production and consumption data from China.
Important news for AUD:
Tuesday:
Industrial Production (China)
Retail Sales (China)
Wednesday:
Wage Price Index
Thursday:
Employment Change
Unemployment Rate
NZD
Kiwi had a roller coaster week. It managed to gain strength until Wednesday then pause on Thursday and on Friday it weakened after RBNZ published data on inflation expectations. They have revised both 1-year and 2-year expectations down. The numbers showed 2.79% vs 3.3% for 1-year and 4.28% vs 5.11% for 2-year. Lower inflation expectations mean that RBNZ could consider stopping rate hikes.
CAD
Building permits in March recorded a major bounce back increasing by 11.3% while expectations were for a decline of -2.9%. The data shows that some major projects have been undertaken and that moved the numbers toward the high side. Additionally, when BOC stopped increasing rates it sent a positive signal to builders as mortgage costs will stabilise.
This week we will have inflation data.
Important news for CAD:
Tuesday:
CPI
JPY
Final services PMI for April was revised up to 55.4 and now comes up from 55 in March. This marks eighth consecutive month that reading is above 50. Details of report show the biggest jump in rate of output since 2007 helped by international tourists. Services companies are passing their increased costs to the consumers which pushes both output and inflation up. Composite was also revised up to 52.9 and now it sits unchanged from previous month’s reading. Wages data for March saw total wages rise 0.8% y/y, same as in February with inflation adjusted wages falling -1.9% y/y vs -2.9% y/y the previous month. Household spending was abysmal as it fell -1.9% y/y vs 1.6% y/y in February. Expectations were for a moderate increase of 0.4% y/y. Falling wages in real terms must reflect in declining household spending.
BOJ Governor Ueda stated that if price target is reached in a sustainable and stable matter BOJ will end Yield Curve Control. After that BOJ will shrink its massive balance sheet. He added that inflation expectations have risen and that they are at elevated levels.
This week we will have preliminary Q1 GDP data.
Important news for JPY:
Wednesday:
GDP
CHF
SNB total sight deposits for the week ending May 5 came in at CHF525.6bn vs CHF523.9bn the previous week. This may mark the start of rising total sight deposits as inflation is coming down so SNB will not need to proactively strengthen the currency.
