Macroeconomics: The Day Ahead for 30 April

A bumper day for economic data awaits, with advance Q1 GDP readings from USA, France, Germany, Italy and Mexico the focal points, though the overnight China NBS and Caixin PMIs, Australian Q1 CPI, Japan and South Korea Industrial Production, along with German Unemployment and CPI, and Canada’s monthly GDP will also require some attention. Another very busy day for US Q1 corporate earnings is headlined by Meta and Microsoft, though the likes of Caterpillar, eBay, Qualcomm and Yum! Brands will also be muscling in on the those ‘Magnificent 7’ results, while the outbreak of tensions between Amazon and the White House offers a further test of the new administration’s policies, with reports suggesting Amazon will be highlighting the tariff element in the price of goods it sells. This all follows a further slide in US Consumer Confidence, as expectations continued to plummet to the lowest level since 2011 (see chart), though the falls in both JOLTS Job Openings and the Consumer Confidence Labour Differential (Jobs Plentiful minus Hard to Get) still leave both above their respective 2024 lows.

** Eurozone – Q1 national GDP, Germany April HICP **

– France’s Q1 GDP was in line with forecasts at 0.1% q/q, but the details made for poor reading with a 0.5 ppt contribution from Inventories accounting for the paltry increase, while Household Consumption was (some might argue this could have been worse, but the fact is the trend is weak), while Net Exports deducted 0.4 ppt. Yesterday’s Spanish GDP was slightly below forecast, but still robust at 0.6% q/q, and it remains in a class of its own relative to other major Eurozone economies. Germany’s Q1 GDP is expected to post a gain of 0.2% q/q, paced by an expected rise in Household Consumption, but with a further drag from Business Investment likely, and inventories likely a wild card (details will only be published with the first revision), but overall continuing a trend of fluctuating around zero that has persisted since H2 2022. Any benefit from the changes to the ‘debt brake’ for infrastructure and defence spending is unlikely to provide a boost to the economy before 2026. As previously noted, the spending boost is only part of the equation to get the German economy on a more robust growth path is also contingent on fundamental reforms of planning laws at federal, state and municipal levels. Italian GDP is also seen up 0.2% q/q, following a sluggish H2 2024, and will also likely be led by personal consumption. Per se, if forecasts for Germany and Italy are correct, then there would be a marginal upside risk for Eurozone GDP, also see at 0.2% q/q, but the details will likely suggest that Euro area economy growth remains very weak. German HICP is expected to rise 0.4% m/m, but ease modestly to 2.1% y/y from 2.3%, as upside pressures on airfares, holidays and hotels/restaurants due to Easter timing effects, are offset by lower petrol and household energy prices. On balance this all certainly makes the case for a further ECB rate cut, but those looking for monetary policy to “bail out” the Eurozone in this tense geopolitical and trade environment are in principle barking up the wrong tree, it is politicians who need to step up to the plate, and the EU and the Eurozone must overcome the ghost of the myriad of past and present internal tensions if they are not to be trampled all over in this adverse economic environment, the need for action rather than vacuous rhetoric is both urgent and imperative.

** U.S.A. – Q1 GDP and ECI, Personal Income/PCE **

– Q1 GDP is expected to slow very sharply to just 0.3% SAAR from Q4’s 2.4%, paced above all by a sharp deceleration in Personal Consumption to just 1.2% from an admittedly unsustainable 4.0% in Q4, with a very sharp drag from Trade on a surge in Imports (above all Consumer Goods), aiming to beat tariffs – as can very clearly seen on the attached chart. The risk given that much wider than expected Goods Trade Balance yesterday ($-162.0 Bln vs. expected $-145.0 Bln) looks to be to the downside of the consensus, even if there should be a considerable offset from a jump in Inventories (the question remains whether this ‘voluntary’ rise morphs into an involuntary rise as consumers rein in their spending), while Non-residential investment should also help to provide a sizeable boost, but likely fade sharply in Q2. Eminently not all of the slowdown can be attributed to trade wars, DOGE public sector job cuts or immigration curbs, given the disruption from storms and wildfires in January, though this is perhaps moot given high frequency data suggests April has seen a further notable drop in economic activity. A rise in both the GDP (3.1% vs. 2.3%) and core PCE (3.2% vs. 2.6%) deflators is also expected, further dampening real GDP. By contrast the Employment Cost Index is seen steady at 0.9% q/q, which would see the y/y rate ease to 3.6% from 3.8%.  Monthly Personal Income and PCE are expected at 0.4% and 0.6% m/m respectively, the latter echoing the jump in Retail Sales, while both headline and core PCE deflators are expected to echo CPI with benign m/m readings of flat and 0.1%, pushing y/y rates back down to 2.2% and 2.6% from February’s 2.5% and 2.8%. The Fed will take this with a pinch of salt, given downward pressure from energy prices, as well as core goods prices as retailers looked to shift existing inventories.