Macroeconomics: The Day Ahead for 10 May

A busy end to the week statistically, with UK GDP and monthly activity indicators headlining a run that also has Japan’s Household Spending and Economy Watchers (services) survey, Norwegian CPI, Swedish monthly activity indicators to digest, while ahead lie India’s Industrial Production, Canada jobs and wages, and US Michigan Sentiment and Treasury Budget, while tomorrow brings China’s CPI and PPI. The events schedule is equally replete, with the April ECB minutes, numerous Fed, ECB and BoE speakers, with agricultural commodity markets homing in on the USDA’s monthly World Agricultural Supply & Demand Estimates (WASDE), while Italy holds its regular mid-month auction of 3, 7 and long-dated BTPs. Next week has a deluge of major economic data from the US (CPI, PPI, Retail Sales, Industrial Production, NAHB, Housing Starts), and China (Retail Sales, Industrial Production, FAI, Property Investment, House Prices), with the UK looking to labour data, Japan to Q1 GDP, Australia to Unemployment, and Eurozone to final CPI, revised Q1 GDP and Germany’s ZEW survey. China will have its monthly 1-yr MTLF operation and there are again a lot of central bank speakers, though no major central bank policy meetings.

** U.K. – Q1 GDP and March activity indicators

Q1 and March GDP were much stronger than expected at 0.6% q/q and 0.4% m/m respectively, and indeed broad based in contribution terms. The Index of Services at 0.5% m/m and 0.7% q/q vs. expectations of flat m/m and 0.4% was the key contributor, but Trade was also a key contributor though the underlying picture in demand terms was negative with Exports falling -1.0% q/q and Imports down -2.2% q/q. Nevertheless, Business Investment (often heavily revised in the final iteration) at +0.9% q/q and Fixed Capital Formation at 1.4% q/q vs. expected -0.3% q/q, and better than expected March Industrial Production (0.2% m/m vs. forecast -0.5%), notwithstanding weak Construction Output (-0.4% m/m vs. forecast +0.5%), the overall picture was much better than most had expected. Per se, the data suggest that the BoE is under no pressure to cut rates in June, and could delay a rate cut if wages and CPI were to turn out higher than expected.

U.S. Michigan Sentiment is seen edging lower (76.2 vs prior 77.2), echoing the recent drop in Consumer Confidence, as labour demand softens, and mortgage rates and gasoline prices rise. 

** China – April CPI & PPI **

Tomorrow’s CPI is expected to be unchanged at a very tepid 0.1% y/y as continued weakness in domestic demand keeps inflation very subdued. There are very benign base effects for PPI in Q2, given that PPI dropped from -2.5% y/y in March 2023 to a trough of -5.4% in June 2023, per se the expected improvement to -2.3% y/y in April from -2.8% will not reflect a genuine trend improvement.