Macroeconomics: The Day Ahead for 17 April

The week gets off to a relatively subdued start statistically, with Indonesian and Singapore Trade and Indian WPI to digest, with the US NY Fed Manufacturing and NAHB Housing Market surveys the highlight of the schedule ahead. There are a modest net liquidity injection at the PBOC’s monthly 1-yr MTLF operation to digest, with a smattering of central bank speakers, mostly regulatory oriented outside of Richmond Fed’s Barkin, with financials dominating the US corporate earnings run for the day, while the 3-day Platts Global Power conference kicks off in the USA. There appears to be an air of paralysis around financial markets, predicated by the still extraordinarily high array of uncertainties over the economic and monetary policy outlook, above all in G7 countries, geopolitics and a good deal of wariness about the Q1 earnings season, per se a recipe for continued spikes in trading activity and volatility.

 The US NY Fed Manufacturing is seen recovering to a still very weak -18.0 from an unexpectedly sharp drop to -24.6 in March, with the focus on Orders and the 6-mth Outlook, which was despondent in March. The NAHB Housing Market Index is seen rising for a fourth month, albeit marginally to 45 from 44; while lower mortgage rates should offer a boost, lending conditions are likely to have tightened due to the SVB and Signature Bank collapses, and with affordability still presenting a major headwind, the risks looks to be slightly to the downside of the consensus.

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A relatively week kicks off with China’s Q1 GDP and March activity and property sector indicators, with a light schedule in the US featuring housing indicators and the Fed’s Beige Book, while the UK looks to labour and inflation data, and Retail Sales. G7 flash PMIs are accompanied by a rash of national and regional business and consumer surveys, while Japan and Canada await CPI, and Japanese trade data is also due. A modest run of central bank speakers accompanies the ECB and RBA minutes, while the US Q1 earnings season starts to kick into gear, with 62 S&P 500 companies reporting. In the commodity space, Q1 production reports from mining behemoths BHP and Rio Tinto, and earnings from the likes of Alcoa, Freeport-McMoRan and Schlumberger, along with Brazil’s Conab monthly report on Cane, Sugar and Ethanol output data will be among the highlights, as the communique from the weekend G7 meeting on Climate, Energy and Environment is digested. In the agricultural space, the threat of an end to the Black Sean Grain Corridor comes at the same time as the likes of Poland and Hungary are banning grain imports from Ukraine as local farmers protest due to rising inventories. A busier week for govt bond supply sees auctions in the US, UK, EU, Germany, France, Italy, Spain, Australia and Canada.

Statistically China’s Q1 GDP, monthly activity and property sector data are expected to improve across the board, but not at a pace that signals a sharp and robust post-Zero Covid recovery, which so many had hoped for. After flatlining in Q4, Q1 GDP is seen up a solid 2.1% q/q, which would see the y/y pace pick up to 3.9% from 2.9%, which would be best described as ‘good but no cigar’. Both Industrial Production (exp. 2.6% y/y vs. 2.4%) and Retail Sales (3.7% y/y from 3.5%) will underline a distinct lack of real underlying momentum, as would the acceleration in FAI (Fixed Asset Investment) to 5.8% y/y from 5.5%, with the Unemployment Rate seen posting a marginal 0.1 ppt drop to 5.5%. Property sector data should show a more marked improvement, even if benign base effects will be a significant contributor. Rates at the PBOC’s 1-yr MTLF operation and the monthly benchmark 1 and 5-yr LPR (Loan Prime Rate) fixings. This is not to say that Q2 and H2 2023 will not see a further acceleration, but it will not be enough to offset concerns about the deceleration being observed in Europe and North America, above all given the sharp rise in interest rates over the past 12-18 months.

The array of UK data are likely to offer mixed signals for the Bank of England rate decision in May. Labour data are expected to show a slightly slower 50K increase in HMRC Payrolls and LFS Employment, with the Unemployment Rate seen unchanged at 3.7%. Average Weekly Earnings are also expected to slow to 5.1% y/y headline and 6.2% y/y ex-Bonus, both largely reflecting benign base effects, but at least confirming that the underlying pace of wage growth is not accelerating, with Vacancies also likely to ease, but remain well above pre-Covid peaks. Inflation data are expected to see a reversal of the unexpected rebound in February, with a more modest 0.5% m/m rise enabling a base effect driven fall in headline CPI to 9.8% y/y from 10.4%, and a more modest dip in core CPI to 6.0% y/y from 6.2%. That trend of sharper falls in headline than core CPI will accelerate in coming months and persist through year end, above all due to energy, and to some extent food base effects, while core Services prices remain sticky. PPI is expected to underline that pipeline pressures are easing quite rapidly, with Input seen down 0.3% m/m to bring y/y down very sharply to 7.0% from 12.1%, and Output down 0.2% m/m to take y/y to 8.5% from 12.1%. As with the US, Retail Sales are forecast to reverse the largely unexpected strength of January (0.9%) and February (1.2%) with a drop of -0.5%, while GfK Consumer Confidence is seen at -35 from -36, still very weak but continuing its recovery. In truth, the BoE’s May rate decision is a judgement call rather than being genuinely data driven, given that last week’s Q1 Credit Conditions confirmed a further tightening in financing conditions, fiscal policy remains restrictive, and indeed unpredictable and erratic (and per se very unconducive to much needed investment), and with 390 bps of tightening in this cycle still working its way through the economy with a lag (above all property), and the economy hardly firing on all cylinders, with the tightness of the labour market owing largely to structural rather than cyclical factors, a case for pausing can certainly be made. In passing it is probably worth noting that the GBP’s unexpected relative strength since the start of the year is primarily about changing interest rate differential expectations relative to other G10 currencies, and to a lesser extent more stable politics and better than expected, but a hardly robust economic performance; FX traders at the end of the day are always focussed on rate expectations.

The week ending G7 PMIs are expected to confirm prior trends for manufacturing (contracting) and Services (expanding at a healthy if not robust pace), with UK and Eurozone Manufacturing improving fractionally, while US eases marginally, and Services easing relative to February across the board, but more sharply in the US. There will inevitably be one or more surprises, but it will be the details on Orders and Output, and Services’ New Business which should attract most attention. Canada’s CPI is expected to see headline ease to 4.3% y/y from 5.2% headline, but see core measures decelerate a more modest 0.4 ppt to 4.5% and 4.4%, per se supporting the BoC’s rate pause, even if the economy has proved rather more resilient than it had anticipated. Japan’s Trade data are expected to see Exports slow to the slowest pace since February 2021 at just 2.5%, while Imports rise to 11.5% from February’s 2-yr low of 8.3%, while National CPI is seen edging up in headline terms, but edging down in core terms. But the focus for Japan is already firmly on Ueda’s first policy meeting on 28 April, and as much as he has been at pains to signal that there will be no change in policy at that meeting, markets remain very wary about any signals on a future shift from its ultra-accommodative policy stance.

Given the relatively light macro schedule, the primary market moving factor for the week may come largely via the details of this week’s array of earnings reports, be that more from major financials, or from the real economy, and the focus will be on margins as much as profits, as well as outlooks, perhaps most especially the tech sector with likes of TSMC, IBM, Netflix, SAP and Tesla all reporting. Overall earnings highlights for the week, as suggested by Bloomberg News are likely to include: Abbott Laboratories, Alcoa, American Express, ASML, AT&T, Baker Hughes, Bank Mandiri Persero, Bank of America, Bank of New York Mellon, Blackstone, Charles Schwab, China State Construction Engineering, China Telecom, China United Network Communications, CATL, Crown Castle, CSX, Discover Financial Services, DR Horton, East Money Information, Elevance Health, Freeport-McMoRan, Goldman Sachs, Great Wall Motor, HCA Healthcare, HCL Technologies, HDFC Bank, Heineken, Hygon Information Technology, IBM, Intuitive Surgical, Investor, Jiangsu Hengrui Pharmaceuticals, Johnson & Johnson, Lam Research, Lockheed Martin, Marsh & McLennan, Morgan Stanley, Nasdaq, Netflix, Nokia, Nucor, Philip Morris International, Poly Developments & Holdings Group, PPG Industries, Procter & Gamble, Prologis, Sandvik, SAP, Sartorius, Sartorius Stedim Biotech, Schlumberger, Shanghai Pudong Development Bank, State Street, Taiwan Semiconductor Manufacturing (TSMC), Tesla, Travelers, Truist Financial, Union Pacific, US Bancorp, Volvo.