Macroeconomics: The Day Ahead for 24 May
- PMIs and other surveys in focus, Mexico and Brazil inflation and US New Home Sales also on top; busy run of central bank speakers as ECB hawkish tilt gets further traction, Indonesia & Nigeria rate decisions; more US retailer and homebuilder earnings
- G7 PMIs seen falling modestly across the board; German Ifo and French Services confidence suggest some upside risks; businesses perhaps more inured to shocks post pandemic peak shock
- Brazil/Mexico inflation seen stabilizing at high levels, central banks likely wary of calling ‘peak inflation’
- US New Home Sales expected to echo other housing indicators as rising rates and household inflation pressures bite
A busier day for statistics is dominated by the flash G7 PMI readings and other national confidence surveys, accompanied by UK PSNB Budget, Mexican mid-month CPI, Brazilian IPCA-15 inflation and US New Home Sales. There is more from Lagarde, Powell and other central bank speakers, which accompany expected no change rate decisions in Indonesia and Egypt, while the Davos WEF continues. There are govt bond auctions in the UK and US, while the US earnings schedule has more retailers (Best Buy, Nordstrom) and home builder Toll Bros as its topical focal points. While hardly seismic, and to a large extent already discounted by markets, Lagarde’s comments yesterday on the ECB policy trajectory marked yet a further shift to a rather hawkish bias (https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.ecb.europa.eu%2Fpress%2Fblog%2Fdate%2F2022%2Fhtml%2Fecb.blog220523~1f44a9e916.en.html&data=05%7C01%7CSimrat.Sounthe%40admisi.com%7Cc500fcc55ac64731642c08da3d55a2d9%7C2f55bf3242d444b3a8c2930ac8b182b2%7C0%7C0%7C637889735279483672%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=U1DBA8UvBmv4TrI2x2tUnfKHGZn4i50xvIdvWdlGams%3D&reserved=0 ), even if she continued to emphasize ‘gradualism, optionality and flexibility when adjusting monetary policy.’ The latter has in many respects less to do with creating policy ‘wiggle room’, and far more to do with marshalling a majority consensus on what remains a divided ECB council, the word that is missing is ‘compromise’. Both Mexican and Brazilian inflation data are expected to stabilize at very high levels, and offer the respective central banks some hope that a peak is being reached, but in both cases they will be wary of prematurely taking their foot off the pedal of policy tightening. Last but not least, US New Home Sales are expected to post a fourth consecutive fall of 1.7% m/m to a still respectable 750K SAAR pace, but way off the January 2021 pace of 993K, and clearly feeling the heat from rising mortgage rates and broader inflation pressures.
** G7 – May ‘flash’ PMIs **
– Following on from yesterday’s upside “surprise” on Germany’s Ifo Business Climate, the focus turns to flash PMIs. These are all expected to remain in expansion territory, but they are also all expected to fall vs April, albeit modestly, though markets will be wary of upside surprises following that Ifo outturn. There is a danger that markets have swung the pendulum perhaps too far from fretting about inflation to assuming that ‘hawkish’ central banks will push their respective economies into recession, as they attempt to rein in inflation. While wholly understandable, there is one element which the consensus view may be overlooking, namely that the array of shocks that have hit the world economy since Q1 2020 have fostered a degree of resilience, with many businesses and consumers learning lessons about flexibility and adaptability, and far more inured to shocks than they were in Q1 2020. This does not mean that the extant array of inflation pressures and central banks’ belated reaction thereto will not result in recession, but the loss of confidence may prove to be rather more muted than would normally be anticipated, due to the conditioning wrought by the pandemic. This is a well-established and proven phenomenon within psychology, which should be born in mind, and one which leans very heavily against the all too ubiquitous binary and monochrome thinking and perspectives that have taken root, and obviously not helped by social media or the indolence of current political narratives and thinking.
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