Macroeconomics: The Day Ahead for 26 May

  • US Debt ceiling negotiations still front and centre, as Tokyo CPI, UK Retail Sales and French Consumer Confidence are digested. US Personal Income, PCE, Durable Goods Orders, Goods Trade Balance and final Michigan Sentiment ahead, as UK and US markets look to long holiday weekend
  • UK Retail Sales ‘beat’ undermined by downward revision to March, and underline sluggish personal consumption profile
  • US Personal Income/PCE: headline deflator seen higher in y/y terms, core unchanged, downward trajectory slow and reinforcing Fed tightening bias even with a June ‘pause’
  • US Durable Goods Orders: aircraft orders to drag after March jump, core CapEx proxy seen edging up, but regional Fed surveys suggest some downside risk


Ahead of the long holiday weekends in the UK and US, there is a relatively busy run of data, which will be overshadowed by the US debt ceiling negotiations, that once again appears to be heading to a conclusion, with the putative X-date of June 1 looming next week. There are Japan’s Tokyo CPI, UK Retail Sales and French Consumer Confidence to digest, with Italian confidence surveys and a busy run of US data – Personal Income/PCE, Durable Goods Orders, Goods Trade Balance and final Michigan Sentiment ahead. The events schedule is quite sparse with some ECB speakers, and very few corporate earnings. The slightly better than forecast UK Retail Sales were offset by the downward revision to March, and still paint a sluggish picture in terms of private consumption. As for Tokyo CPI, while both headline and ex-Fresh Food came in below forecast at 3.2% (vs. April 3.5%), the ‘core core’ reading still edged up to a fresh 41 year high of 3.9%, with Ueda’s comments overnight hinting at shifting the JGB yield curve target to the 5-yr from 10-yr in effect being an invitation to steepen the JGB curve.

In the US, the focus will inevitably be on the PCE Deflators, which are both seen up 0.3% m/m, thus edging headline up to 4.3% y/y and leaving core unchanged at a still rather high 4.6%, and per se underlining why nearly all FOMC members wish to retain a tightening bias, even if they opt to skip another rate hike in June. The ever volatile Durable Goods Orders are forecast to drop 1.0% m/m after an aircraft led surge of 3.2% m/m, but the core Non-defence Capital Goods ex-Aircraft is seen eking out a modest 0.2% m/m rise after dropping -0.6% m/m in March, with downbeat regional Fed surveys hinting at some downside risks, and the focus as much on Shipments, which have been running ahead of Orders since the end of 2022, and implying a rundown in Order backlogs which will eventually be reflected in lower manufacturing output going forward.

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