UK inflation will be the most watched data point in a week that will also bring us RBNZ meeting, preliminary May PMI data from the Eurozone and the UK, inflation from Canada and retail sales from the UK and New Zealand.
USD
Fed Chair Powell described the current policy stance as restrictive by many measures and added that it is unlikely that the next move would be a hike, It is more likely that the Fed would keep rates unchanged. He pointed out that uncertainty remains and that confidence is lower than it was when heading into 2024. Powell added that he sees signs of gradual easing in the jobs market and he also expects inflation to move back down on a monthly basis.
April CPI came in line with expectations. Headline number was 3.4% y/y, tick down from 3.5% y/y in March while core CPI printed 3.6% y/y, down from 3.8% y/y the previous month. Monthly number was 0.4%, when taken to decimals it printed 0.313% vs 0.359% in March. Shelter component printed 0.4% m/m, same as in March while it declined to 5.5% y/y from 5.7% y/y the previous month. Services less rent and shelter, closely watched by the Fed, rose by 0.2% m/m vs 0.65% in March.
Retail sales disappointed in April as they came in flat vs 0.4% m/m increase as expected. Core group, excludes volatile categories and is used for GDP calculation, came in at -0.3% m/m vs 0.1% m/m as expected and down from 1% m/m in March. Consumer is off to a rough start in the second quarter. Ex autos category came in at 0.2% m/m as expected while ex autos & gas declined by 0.1% m/m.
The yield on a 10y Treasury started the week at 4.50%, rose to 4.51% and finished the week at around 4.42%. The yield on 2y Treasury started the week at 4.87% and reached the high of 4.88%. Spread between 2y and 10y Treasuries started the week at -37bp then widened to -41bp as curve proceeded to invert further after the CPI report. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at June meeting at 91% while probability of a rate cut is around 9%. Probability of a July rate cut sits at around 30% while September is at around 68%.
This week we will be getting minutes from the May FOMC meeting.
Important news for USD:
Wednesday:
FOMC Minutes
EUR
Second estimate of Q1 GDP came in unchanged at 0.3% q/q and 0.4% y/y while Q4 GDP was revised down to -0.1% q/q thus showing that Eurozone was in a technical recession as growth was negative in both Q3 and Q4. ECB officials are pushing for a June cut but are very cautious of future rate cuts. Final April inflation reading saw no changes with headline number printing 2.4% y/y and core printing 2.7% y/y.
This week we will get preliminary May PMI data which should show small changes up as economic activity continues to improve in the Eurozone.
Important news for EUR:
Thursday:
S&P Manufacturing PMI (Eurozone, Germany, France)
S&P Services PMI (Eurozone, Germany, France)
S&P Composite PMI (Eurozone, Germany, France)
GBP
April employment report saw payroll change decline by 85k after March reading was revised up to show a decline of 5k. ILO unemployment rate for the month of March ticked up to 4.3% while wages were unchanged at 5.7% 3m/y and 6% 3m/y when bonus is excluded. Labor market is softening which increases chances of a June rate cut.
BoE Chief Economist Pill spoke and reiterated that there is more work to be done on bringing inflation down but that there is good progress on it. He added that focus is on labor market, wages and services inflation and that BoE can cut rates and still stay restrictive. He characterized decision around June rate cut vs August rate cut as a close call.
This week we will get inflation and preliminary May PMI data. Markets are split 50:50 regarding June cut and this week’s CPI report will be of great importance as it can turn odds to the either side.
Important news for GBP:
Wednesday:
CPI
Thursday:
S&P Manufacturing PMI
S&P Services PMI
S&P Composite PMI
AUD
April employment report saw the unemployment rate jump to 4.1% from 3.8% in March. There was a slight increase in the participation (66.7% from 66.6%) rate but it was overshadowed by the big increase in the unemployment rate. Economy added 38.5k jobs but when we look at the composition of those jobs we can see that all of it was part-time jobs (44.6k) while full-time lost 6.1k jobs. Wage price index for Q1 saw wages continue to increase, although at a softer pace than expected. The numbers printed 0.8% q/q and 4.1% y/y vs 0.9% q/q and 4.2% y/y as expected and in previous quarter.
Over the weekend China CPI data for the month of April was published and it saw price increases of 0.3% y/y vs 0.1% y/y in March. Core CPI rose 0.7% y/y vs 0.6% y/y the previous month. PPI has remained in the negative as it printed -2.5% y/y, slower decline than -2.8% y/y in March, but markets were expecting stronger reading of -2.3% y/y. PPI has been in negative territory since October of 2022. Credit growth in China fell for the first time since 2017 as more government bonds were repaid than sold in the month indicating weak demand. These two factors, weak CPI and demand for credit, could spur PBOC into further easing. PBoC has left 1-year MLF rate unchanged at 2.5% as expected and injected additional injection of 125bn yuan. PBoC will lower rates on home loans by 25bp in order to spur up falling real estate market.
April activity data from China showed industrial production rise by 6.7% y/y, up from 4.5% y/y in March on the back of big increase in production of high tech products. Retail sales, on the other hand, came in at 2.3% y/y, down from 3.8% y/y the previous month. Auto sales were the biggest drag while sports & recreation category saw biggest increase. This composition indicates that growth will not come from consumption, from inside, but that China will focus more on production and exports to achieve its 5% growth target for 2024.
NZD
RBNZ has published new inflation projections for Q2. They see it coming down to 2.73% from 3.22% in one year’s time and to 2.33% from 2.50% in two year’s time. RBNZ sees two year period as a good representation of time period in which changes in policy have impact on the economy.
This week we will have RBNZ meeting and retail sales data. No changes are expected to the OCR as inflation is still running too hot for RBNZ liking.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
Thursday:
CAD
Building permits plunged in March by 11.7% while housing starts dipped 1.6% m/m. Manufacturing sales in March posted a decline of 2.1%.
This week we will have inflation data and further declines are expected.
Important news for CAD:
Tuesday:
CPI
JPY
Q1 GDP data were abysmal. The economy shrank 0.5% q/q and 2% annualized compared to expected declines of 0.3% q/q and 1.3% annualized. In addition, Q4 reading was revised down so it showed no growth q/q and no growth annualized. Private consumption felt for the fourth straight quarter and printed -0.7% vs -0.4% in the previous quarter. Business investment dropped by 0.8% after it rose by 1.8% in Q4 of 2023. Net trade deducted 0.3pp from the GDP reading as exports fell by more than imports (-5% and -3.4%).
CHF
SNB total sight deposits for the week ending May 10 came in at CHF468.9bn vs CHF473.2bn the previous week. Deposits continue to hover in a well-established range.
