Macroeconomics: The Day Ahead for 21 May

After a rather rocky ride in markets, above all commodities and crypto, the week concludes with the run of G7 & Australia ‘flash’ PMIs, accompanied by Japan’s National CPI, UK Retail Sales & GfK Consumer Confidence, US Existing Home Sales and Canada’s Retail Sales. There is another rash of central bank speakers, mostly Fed, along with an Eurozone Finance Ministers meeting and the G20 Global Health Summit. On the earnings front SK Innovation, Richemont and Deere & Co will be amongst those making headlines.  Next week’s schedule sees mix of hard data and surveys, with the US looking to Durable Goods, Consumer Confidence, Personal Income/PCE, New and Pending Home Sales and revised Q1 GDP and regional manufacturing surveys; Japan has Tokyo CPI and Unemployment; Eurozone awaits German Ifo, French HICP and various national and EC confidence surveys; UK has PSNB and CBI Retailing, and Australia Q1 CapEx and Construction Output; Monday is also the Whitsun/Pentecost holiday in many European countries.

** G7 – May ‘flash’ PMIs **

– G7 PMIs are forecast to show Manufacturing readings at very robust levels, though the details on Prices, Supplier deliveries and inventories will be closely scrutinized, with Output sub-indices perhaps restrained by the array of well documented supply chain disruptions; employment indices also require scrutiny, above all in the US. The other risk as with all diffusion indices is that there is some mean revision as companies report output as unchanged from high prior month’s levels. Services PMIs are forecast to remain robust in the UK and US as reopening gets further traction, while Eurozone readings should pick up quite significantly as restrictions start to unwind (as seen in the French Services PMI surge 56.6 from 50.3), with June readings likely to see a bigger boost, supply chain bottlenecks will also need to be monitored closely. Eminently strong surveys may not necessarily result in strong official data, even if the increasing or solid outlook optimism that they reflect is of course to be welcomed.

** U.K. – April Retail Sales **

– As has been seen in the U.S., the chances of major outliers in data where either govt stimulus or re-openings are under way is very large, thus the 9.2% m/m surge vs. expectations of 4.5% m/m should not really come as any big surprise, with the y/y rate of 42.8% rendered meaningless by base effects. Further strength in May seems probable, but the real question is what happens once the pent-up demand has been largely exhausted, particularly if the furlough scheme does end in September as currently scheduled. The numbers on the furlough scheme have dropped, but at 10.0% of the working population, and with companies in the service sector then needing to address the scars of the pandemic, a pick-up in layoffs and a concomitant ‘hit’ to consumer spending looks highly probable – how large this might be is very much written in the stars.

** U.S.A. – April Existing Home Sales **

– A relatively modest 0.9% m/m bounce to a 6.07 Mln SAAR pace after March’s drop to a 7 month low of 6.0 Mln is expected, and would keep sales running at an historically robust pace. While seasonality should alleviate some of the headwinds from very low inventories (last 1.07 Mln), the strong gains in prices and the likelihood that price and supply chain disruptions will continue to stymie New Home Sales, imparts some downside risks in coming months. However the strong 1.9% m/m rise in March Pending Home Sales implies scope for a better than expected outturn today.