Macroeconomics: The Day Ahead for 17 May

The end of the week finds its focal point in the monthly run of Chinese activity data, even if the press conference after the high level meeting to discuss the proposal for local governments to purchase some of the overhang of unsold homes may prove to be the greater point of interest. Outside of China, the calendar is rather more meagre, with Singapore Exports to digest ahead of final Eurozone CPI (with its detailed core CPI readings) and the generally ignored US Leading Index. There are plenty of Fed and ECB speakers, while Engie, Richemont and Scor are the highlights of a modest run of corporate earnings. Yesterday’s US Import Prices, echoing the higher than forecast PPI data, served as a timely reminder that the marginally below forecast CPI was anything but a signal that inflation pressures are once again easing. Taken in conjunction with the 0.3% m/m setback in Manufacturing Output (with March revised down to 0.2% m/m/ from 0.5%) implies that the risk on the US economy is in fact stagflation, perhaps all the more so given the latest Smoot-Hawley type tariffs imposed on China, though a good deal more monthly data will be needed to confirm that. Be that as it may, next week features G7 and India flash PMIs and UK CPI and Retail Sales, accompanied by US New & Existing Home Sales, Durable Goods Orders, FOMC Minutes and final Michigan Sentiment, Japan Trade and Private machinery Orders, Canada CPI and Retail Sales, while the Eurozone has provisional Consumer Confidence and French Business Confidence, with PSNB, GfK Consumer Confidence and CNI Industrial Trends also on tap in the UK. There will again be plenty of central bank speakers, RBA minutes, China monthly Loan Prime Rate (LPR) fixings, while rates are seen no hold in Indonesia (6.25%), South Korea (3.50%) and Turkey 50.0%, and the RBA publishes May policy meeting minutes. In the commodity space, divisions within OPEC+ will be closely monitored as the early June production quota decision gets ever closer, while there are monthly reports from Brazil’s Conab on Coffee and Unica on Sugar, as the USDA publishes Meat Production and Cold Storage data. Monday sees many countries closed in Europe for Whitsun, while various Asian countries will celebrate Buddha’s Birthday (aka Vesak Day) on Wednesday or Thursday). While market volatility (above all FX and equities) has once again dropped away, it is fairly clear that a lot of price action is being driven by short-term momentum trading, while continued uncertainty about the economic outlook allied with enormous geopolitical tensions undermines the commitment from longer-term investors, perhaps all the more so given the relatively attractive returns on “risk-free” short-dated debt and assets.

** China – April Activity and Property Indicators **

Monthly activity indicators confirmed what has been obvious for quite some time, namely that the recovery is very uneven, even lop-sided, with continued strength in Production (accelerating sharply to 6.7% y/y vs. forecast 5.5%), paced by solid export demand and infrastructure, high tech and energy transition related activity, while private consumption remains very weak (Retail Sales 2.3% y/y vs. forecast 3.7%), as weak wage growth and a worsening property sector heavily undermine confidence. Per se, the question is whether the latest property sector measures will revive confidence. The measures are certainly significant, and less piecemeal than previous initiatives, but they are not of the ‘shock and awe’ variety’, which seen through the lens of the abject property sector data published today gives plenty of room for doubt. New and Used Home Price falls accelerated in both m/m (-0.58% and -0.94% m/m) and y/y (-3.51% and -6.79%) terms, as did Property Sales (-31.1% y/y) and Investment -9.8% y/y), whereby Sales remain challenged by adverse effects until June when they start to ease sharply, though the opposite is true for Investment. The jury is out on whether these measures will work, but the fact that the array of prior measures have proved largely ineffective underlines just how depressed confidence is, and makes restoring it all the more challenging.