Macroeconomics: The Day Ahead for 22 May

G7 & India PMIs and a host of national business surveys (France Business Confidence, German Ifo, UK CBI Industrial Trends) dominate the statistical run, with UK PSNB and Japan’s Machinery Orders to digest, with Canadian PPI, US jobless claims, Existing Home Sales and KC Fed Manufacturing also due. The G7 Finance Ministers meeting concludes, Turkey’s TCMB publishes its quarterly inflation report, and Egypt’s CBE is expected to cut rates 200 bps to 23.0%, while there is another rash of central bank speakers. Once again geo- and national politics will likely dominate proceedings, as US Republicans look to railroad the tax and spending bill through Congress, which will add $3.8 Trln to the US debt pile, while G7 Finance Ministers look to paper over the cracks.

** G7/Eurozone – May PMIs, Business Surveys **

– UK flash PMIs are seen recovering modestly to 46.0 Manufacturing and 50.0 Services, though that appears to assume that there may be a recovery in Export Orders (which fell quite sharply in April) on the back of the US trade deal, which might take longer to materialize if Eurozone and other foreign orders remain weak due to trade tensions. Flash PMIs, Germany’s Ifo and France’s Business Confidence surveys are all expected to register small month-on-month gains but remain at very subdued or contractionary levels, with the already published French national survey and PMIs sending divergent signals (national survey dragged down by a 3 point fall in Services, PMIs little changed). There will be some interest in the Eurozone Export Orders PMI sub-index as a proxy for whether the 90-day moratorium on US reciprocal tariffs prompted any pick-up in orders to beat tariffs. However, that index has been in contraction territory for some 3 years, and per se any pick-up would need to be seen in that context. The US Manufacturing and Services PMIs are seen little changed at 49.9 and 51.0, perhaps not capturing reaction to the US-China tariff truce due to data collection timing. Though this may also echo Friday’s Michigan Consumer Sentiment message that the rollback does not remove uncertainty, nor allay inflation fears materially. But overall with so much back and forth on the implementation of US trade tariffs, and so many other uncertainties, it is probably wise not to over extrapolate about trends from month-to-month changes.

** Eurozone – April ECB minutes **

– The April ECB minutes (‘account’) will be combed for clues on how much of a ‘dovish’ tilt there has been on ECB policy, given that the statement and press conference removed the prior observation that ‘domestic inflation remains high’ and noted that Services CPI had ‘eased markedly over recent months’, while also noting considerable downside risks to inflation and growth. More recent ECB messaging on the rate outlook has been mixed, with Lagarde sounding an upbeat note on the outlook in a weekend newspaper interview, Schnabel called for a ‘steady hand’ on rates, while the usually more hawkish leaning Wunsch suggested that rates may need to go below 2.0% in an interview with the FT. Kazāks’ comment yesterday that the ECB is likely ‘close to its terminal rate’ looks to be the most likely outcome at the current juncture, suggesting that rates may well be on hold over the summer.