Macroeconomics: The Day Ahead for 23 May

The week ends with a heavily front-loaded run of data, with UK GfK Consumer Confidence and Retail Sales, German Q1 GDP and the collapse in French Consumer Confidence to digest, ahead of Eurozone Negotiated Wages, Canadian Retail Sales and US New Home Sales, which accompanies a smattering of central speakers. The long holiday weekends in the US and UK will likely dampen trading volumes later in the day. The main talking point will likely be the narrow vote (215 vs. 214) to pass the US budget bill in the House, as the Senate looks at modifying the House bill to make many of the tax cuts permanent, as opposed to being ‘sunsetted’ in 5 years. This would take the total cuts to $5.25 Trillion vs. the House’s $4.0 Trln, though there has been little comment on whether the Senate would look to make deeper spending cuts, which created a lot of divisions in the House, and likely encounter similar resistance from fiscal hawks when a ratified Senate version is re-submitted to the House. Next week is relatively light in statistical terms with national Eurozone CPI readings for May, US Personal Income/PCE, Durable Goods Orders and Consumer Confidence, Japan’s Tokyo CPI and Canada Q1 GDP as highlights, the latest FOMC minutes and Nvidia’s corporate earnings, and a further slew of central bank speakers top the events schedule, though G7 bond market trends, national and geopolitics will likely continue to be the overarching influence on market sentiment.

** U.K. – May GfK Consumer Confidence, April Retail Sales **

– As with today’s German data (see below), today’s UK statistics give reason for improved optimism, with Consumer Confidence edging back up to -20, still not far from its recent lows, but paced both by improved outlooks for the economy and the climate for major purchases. The much stronger than expected 1.2% m/m jump in Retail Sales had not only been flagged by the BRC report last week, but also was flattered by Easter timing effects, perhaps most evident in a 3.9% m/m jump in Food sales (March -2.1%), though interestingly Clothing sales actually fell -1.8% m/m, though this follows jumps of 2.7% and 3.6% in prior months, and the y/y reading climbed to 4.3% from 2.9%, while Household Goods posted a likely warm weather related 2.1% m/m rise. The series is very volatile, particularly around major holidays, but this month’s outturn does run counter to the narrative that consumer spending would take a hit from the sharp increase in administered prices and council tax at the start of the month, but caution on extrapolating about underlying trends is advised until data for the whole of Q2 is available.

** Germany – Q1 GDP **

– Whisper it quietly, but there are a few more signals coming from Germany’s ‘hard’ (official) data, with the rare and sharp upward revision to Q1 GDP from a provisional 0.2% q/q to 0.4% q/q, paced both by Personal Consumption 0.5% q/q vs. expected 0.2% (and upwardly revised Q4 0.2% q/q) and Capital Investment at 0.9% q/q (and upwardly revised Q4 0.5% q/q). There was also a strong contribution from Net Exports (Exports +3.2% q/q, Imports 1.1% q/q), though this was likely a case of front loading to avoid tariffs, as well as a mean reversion from Q4, where Exports fell -3.1% q/q and Imports -0.7% q/q. That is all well and good, and not of itself a reason to shift perspectives on the ailing German economy, but accompanying reports that saw the Ifo monthly Exporter Sentiment Index jump to 3.0 from -9.4, following the ‘tariff pause’, and a 17.8% m/m rise in April Construction New Orders, paced by some large Civil Engineering Orders would appear to signal an improving outlook. The question remains whether this short-term momentum can be built upon, with the new Merz government under pressure to deliver on its reform talk, above all in terms of government planning.