Macroeconomics: The Day Ahead for 28 April

A quiet start to the week has a very modest data schedule to contend with little more than Sunday’s China Industrial Profits (weak though somewhat better than February, mostly due to LNY timing effects), with the UK CBI Retailing survey, Indian Industrial Production and US Dallas Fed Manufacturing survey ahead. Canada’s election tops the events schedule, with a smattering of ECB speakers, and no Fed speakers as the FOMC enters its pre-meeting purdah period. Domino’s Pizza, Nucor and Teradyne are among the highlights in terms of US corporate earnings.

The week’s agenda is very busy, with US, Eurozone and other advance Q1 GDP readings, Eurozone CPI, Manufacturing PMIs worldwide, US labour data (Payrolls, JOLTS, ADP), Personal Income/PCE, Consumer Confidence, Q1 Employment Cost Index, Auto Sales and Goods Trade Balance, Japan Retail Sales & Industrial Production, Australian Q1 CPI and Canada monthly GDP among the highlights. The Bank of Japan is expected to hold rates, but continue to signal further tightening though at a later data, and cut its GDP forecast. Aside from Canada, there are also general elections in Australia and Singapore (both Saturday), and UK local elections on Thursday (likely to highlight a very fractured UK political landscape). Amazon, Apple, Meta and Microsoft head a big week for US corporate earnings, with the Q1 season reaching its peak this week with 180 S&P companies reporting. While S&P Q1 earnings growth is currently seen at an impressive 10.1%, the lack of guidance from many companies due to trade tensions is perhaps more striking, even if in some cases this may be somewhat opportunistic, i.e. blaming tariff wars when perhaps there are more fundamental company specific issues.

Risk appetite has clearly improved, when viewed solely through the lens of equity index performance in recent weeks, but there are cracks evident in credit markets, above all private, and private equity. One might also observe that a) the more that risk assets rally, the more the Fed will push back on rate cuts given stress in markets remains manageable – as Hammack noted last week: this is not a time for the Fed to be pre-emptive in policy terms, b) that calm clearly owes much to the fact that for all major central banks continue to be engaged in balance sheet reduction (QT), the outstanding G4 central bank QE total is just short of $20.0 Trillion, and has turned higher in the past two months – see chart. Per see the long-term conditioned market responses of FOMO and BTD are still quite far from being purged, particularly with cash having accumulated on fund balance sheets in the past two months. Equally the constant pendulum swings on what the new administration intends to do in policy terms remain the greatest source of uncertainty, and it should be remembered that trade deals do not get signed in short order, particularly if tariffs are being deployed for non-trade related issues, as they are by the US administration, and by extension the assumption that once a trade agreement has been signed, both parties will act in ‘good faith’, rather than being ‘unreliable’, is anything but assured. Equally analyses that focus on who has the advantage in terms of the primary US/China tensions are misguided, both sides are going to suffer, above all consumers and businesses, and the longer that this remains a ‘Mexican stand-off’, the more likely that public protests and social unrest will escalate.