Macroeconomics: The Day Ahead for 14 May

The day’s data schedule is unlikely to stir markets’ animal spirits with only Japan’s PPI and Australian Q1 Wages to digest and a run of final CPI European readings. There’s a much busier run of BoE, ECB and Fed speakers, even though they are unlikely to offer any genuinely fresh insights into their respective policy outlooks, and there will be greater focus on this week’s Trump’s tour of Saudi Arabia, Qatar and UAE. The IEA’s annual EV outlook will garner attention as will OPEC’s monthly Oil Market Report, while earnings highlights are likely to include Tencent, Porsche Automobil and Telefonica.

After Monday’s initial rush of short-covering in risk assets, above all equities and accompanied the rush or corporate bond issuance, markets have reverted to a more wary stance, with the re-pricing of rate expectations, above all in the US, serving as a reminder that the easing of trade tensions will only serve to reinforce the Fed’s ‘wait and see’ stance. There are a number of debates emerging, for example: if where US trade negotiations above all with China are now, was the objective, then what was the point of all the April turmoil? This is in truth somewhat redundant, the US administration’s stance and tactics are one element in the current uncertainty which were essentially baked in the cake ‘known knowns’, wishing or hoping for anything else is a fruitless and likely time consuming ‘what if’ exercise that goes nowhere. More importantly while the average US tariff burden reduces significantly to ca. 15%, from the initial 27%, it is not zero, and even with an extensive array of new trade deals, it will not be less than 10%, as made clear by the trade framework agreement struck with the UK – so S&P 500 net income growth, which for 2025 is currently assumed to be above +10%, is actually likely to be negative, estimates suggest -5.0 to -8.0% – there is a gaping chasm between what is priced and the likely reality in terms of real economy corporate profits. Constructive dialogue between the US and China about trade, and the myriad of other divisive issues is good, but as previously noted it will take a very long time to reach any tangible results, also likely to be the case with the rest of Asia’s major economies, and in the meantime the risk of tensions with the EU escalating should in no way be dismissed. The outlook for the global economy therefore remains very uncertain; businesses will therefore remain very cautious in their investment and hiring; trade flows will remain heavily disrupted by businesses and countries rushing to complete shipments in the 90 day moratorium periods for both China and ‘reciprocal tariffs’, creating very sharp fluctuations in trade volumes and broader economic activity measures, which will not conform with typical seasonal patterns, thus making any analysis of incoming economic data extraordinarily difficult. The question then is: are risk premia at appropriate levels for this level of volatility in activity, and broader uncertainty.