Written Commentary
Modest run of data and events to start busy week for major data, as Middle East conflict heatmap gets hotter; digesting Japan Q1 final GDP, UK Employment survey and German Orders; US NY Inflation Expectations ahead.
- AI euphoria at a crossroads as equity flow balances shift, energy and structural inflation challenges become hard to ignore.
EVENTS PREVIEW
The myriad of actual and potential market moving factors remains complex and, in many cases, ambiguous in outcome terms. Reaching a US/Iran deal looks to be even more elusive, given both sides remain quite far apart on many issues (nuclear, Strait of Hormuz traffic, reparations), and with Israel US relations more than strained, above all as the Israeli government is clearly not in any mind to agree to a deal that ties its conflict with Hezbollah in Lebanon to any US/Iran deal.
AI euphoria is being confronted with a series of reality checks, though, as noted last week, the tidal shift in equity market capital flows, which will be tested by this week’s SpaceX IPO, is probably the most significant insofar as the imbalance between issuance and investor demand has been a key factor for more than two decades (along with central bank QE).
The week’s ‘regular’ diet of macro data and events is busy with US, China and Indian inflation, an expected ECB rate hike, UK monthly GDP and activity data, China Trade (still expected to hold at robust levels), an anticipated rate hold from the Bank of Canada. In the commodity space, there are the USDA’s monthly WASDE, and crop S&D reports from China and Brazil, along with EIA and OPEC monthly oil market reports, as low inventory levels in oil and other resource sector pose a mounting concern, with no immediate end to supply chain disruptions in sight, but equally requiring some consideration of the potential for gluts if a more normal situation returns, most notably in Natural Gas.
Today’s event run has a much smaller than expected downward revision to Japan’s final Q1 GDP, the UK REC/KPMG Employment survey highlighting caution on hiring intentions (hardly surprising given domestic and geopolitical headwinds), and a larger than expected downward correction in German Factory Orders to digest. The only other item of note will be the NY Fed’s US Inflation Expectations survey, seen inching up to 3.7% y/y from April’s 3.64%, still a far cry from the steep rise seen in 2021/2022, but nevertheless uncomfortably high for the FOMC.
Wednesday’s CPI is forecast to see a gasoline led 0.4% m/m 4.1% y/y rise headline, and core posting a very average 0.2% m/m edging up the y/y rate to 2.9%; PPI is, however, expected to show stronger pipeline pressures (0.8% m/m headline, 0.5% m/m core).
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