RBNZ meeting with almost certain rate hike, preliminary PMI data from the Eurozone and the UK as well as inflation data from the UK and the US will be the highlights of the week ahead of us.
USD
Retail sales in April posted a gain of 0.4% m/m after a -0.6% m/m loss in March. Expectations were, however, for a stronger 0.8% m/m increase. Miscellaneous store retailers and nonstore retailers were the biggest contributors while the biggest drops were seen in sport goods. Control group, the one going into GDP calculation and excludes automobiles, gasoline, building materials and food services, came in at a strong 0.7% m/m vs 0.3% m/m as expected and it points to strong start of Q2.
The yield on a 10y Treasury started the week and year at around 3.48%, rose to 3.65% and finished the week at around the 3.46% level. The yield on 2y Treasury reached around 4.27%. Spread between 2y and 10y Treasuries started the week at -51bp then widened to -62bp. FedWatchTool sees the probability of a 25bp hike at 37.8% while probability of no change in June is at 62.2%.
This week we will have FOMC minutes, second reading of Q1 GDP and Fed’s preferred measure of inflation PCE.
Important news for USD:
Wednesday:
FOMC Minutes
Thursday:
GDP
Friday:
PCE
EUR
Over the weekend, ECB Vice President de Guindos gave an interview in which he accentuated that the bank is now in the final stretch of rate hikes and therefore it is normal for them to go back to the pace of 25bp rate increases. European Commission came out with latest grown and inflation projections, revising them both up. GDP in 2023 is seen at 1.1% vs 0.9% in February while in 2024 it is seen at 1.6% vs 1.5% in February. Inflation in 2023 is at 5.8% vs 5.6% in February while in 2024 it is seen at 2.8% vs 2.5% in February. Higher than expected inflation will keep ECB on a rate hike path and could provide support for EUR. Final inflation reading for April was unchanged printing 7% y/y for headline and 5.6% y/y for core.
This week we will have preliminary PMI data for May.
Important news for EUR:
Tuesday:
HCOB Manufacturing PMI (EU, Germany, France)
HCOB Global Services PMI (EU, Germany, France)
HCOB Global Composite PMI (EU, Germany, France)
GBP
Employment report for April showed first cracks in the labour market. Payroll change was negative and it showed first decline in over two years. Claimant count continued to increase and almost doubled from the previous month’s figure by printing 46.7k. The unemployment rate ticked up to 3.9%, still at a very low level. Average wages ticked down to 5.8% 3m/y while ex bonus wages ticked up to 6.7% 3m/y but lower than expected 6.8% 3m/y. With inflation still running in the double digits, real purchasing power of workers continues to deteriorate. This report will push the needle for BOE towards a pause in June.
This week we will have preliminary PMI data for May and April inflation data. BOE Governor Bailey emphasized importance of this inflation report.
Important news for GBP:
Tuesday:
S&P Global Manufacturing PMI
S&P Global Services PMI
S&P Global Composite PMI
Wednesday:
CPI
AUD
Wage price index for Q1 increased by 0.8% q/q as in previous quarter and 3.7% y/y vs 3.3% y/y in Q4 of 2022. Consumer price inflation expectations in May jumped to 5.2% from 4.6% in April. Employment report for April was a miss. Employment change showed a decline of 4.3k jobs while increase of 25k jobs was expected. The unemployment rate jumped to 3.7% from 3.5% the previous month while participation rate remained unchanged at 66.7%. All of the jobs lost were full-time (-28.7k) while part-time added 22.8k. RBA pays close attention to wages and it may lead them to further tightening, however after such a week employment report everything points to a pause at the June meeting.
PBOC has left 1-year MLF rate unchanged at 2.75%. MLF (Medium-term Lending Facility) rate is the rate that PBOC charges to commercial banks when they want to borrow funds from the PBOC. MLF loans are backed by collateral which means that PBOC can get back their funds if the borrowing bank defaults on their loan. The rate remained the same, but PBOC has injected CHN25bn of liquidity into the system in order to stimulate economic growth. Industrial production in April rose by 5.6% y/y vs 3.9% y/y in March but expectations were for a 10.9% y/y increase. Retail sales rose by astonishing 18.4% y/y, but with expectations for a 21% y/y increase markets were left disappointed as both readings fell short of the target.
NZD
GDT price index for the second auction in May saw prices decline -0.9%. PPI output for the first quarter came in at 0.3% q/q vs 1.3% q/q as expected while PPI input came in at 0.2% q/q vs 1.5% q/q as expected indicating that price pressures eased in Q1 as shown by the Q1 CPI report. Despite this, NZD was rallying throughout the week on the back of rate hike expectations by RBNZ next week.
This week we will have RBNZ meeting. Markets are pricing in 85% probability of a 25bp rate hike.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
April inflation report provided one unpleasant surprise with headline number coming in at 4.4% y/y vs 4.3% y/y in March, thus making it a first increase since July of 2022. Expectations were for a drop to 4.1% y/y. Monthly increase was 0.7% vs 0.4 as expected. Core measures continued to decline and came in at 4.2% y/y for Median and Trim and 5.7% y/y for Common. BOC should not get pushed out of the pause regime by a single report, but this makes May reading all that much more interesting.
JPY
Preliminary Q1 GDP reading showed a strong rebound as data printed increases of 0.4% q/q vs 0.1% q/q as expected and 1.6% y/y vs 0.7% y/y as expected. Private consumption was up on the quarter 0.6% with business spending unexpectedly rising 0.9% q/q. Net external demand deducted from the reading as exports fell 4.2%, more than imports which were at 2.3%. It is a positive reading and it spurs talks about widening of YCC band at BOJ’s June meeting and overall policy normalisation in the future. April CPI data for all of Japan continued to run hot. Headline number came in at 3.5% y/y vs 2.5% y/y as expected and up from 3.2% y/y in March. Core reading, excluding fresh food increased to 3.4% y/y from 3.1% y/y the previous month while ex fresh food, energy component, so-called core core, increased by 4.1% y/y from 3.8% y/y in March. BOJ continues to state that inflation is transitory and that it will start coming down in Q4.
CHF
SNB total sight deposits for the week ending May 12 came in at CHF520.1bn vs CHF525.6bn the previous week. One week up and another week down for the total sight deposits but overall trend is to the downside as SNB keeps selling EUR and USD to strengthen the value of its currency and help fight inflation.
