Macroeconomics: The Day Ahead for 30 May

There is something of a blockbuster run of data to contend with, as the curtains close on the week and month, which will be accompanied by a number of Fed and ECB speakers, while the flow of Q1 corporate earnings gradually draws to its close. There are the usual end of month rush of data from Japan: Tokyo CPI, Industrial Production (also from South Korea), Retail Sales and Unemployment, along with UK Lloyds Business Barometer, Australian and German Retail Sales, and Swedish GDP to digest. Ahead lie German, Italian and Spanish CPI, along with a slew of Q1 GDP readings from Brazil, Canada, Czechia, India and Turkey, while the US looks to Personal Income & PCE, Chicago PMI and final Michigan Sentiment. Tomorrow will also see the release of China’s official NBS PMIs, and the OPEC+ decision on July Production (a further 411K is expected), and Sunday the run-off in the Polish Presidential election, which is too close to call, but should marginal front runner Warsaw Mayor Trzaskowski fail to win, then PM Tusk’s reform efforts are likely to face very stiff resistance. Unsurprisingly the White House is expressing confidence that it will win its appeal against the US Court of International Trade ruling that some of the trade tariffs via executive order exceeded the President’s authority, though others have expressed some doubt, while acknowledging that even if the ruling does stand when the case is heard in the Appellate Court, there are other means for the tariffs to be imposed, even if they will take somewhat longer to implement. Per se, any relief on tariffs will need to rely on trade deals being brought to a conclusion, with the 91 day moratorium set to end in early July. However do bear in mind how Section 899 of the current tax & spending bill, which targets ‘unfair foreign taxes’ could also very easily be weaponised, potentially leading to assets held in the US being frozen, or perhaps even seized, the fear of which not only casts doubt on the US as a ‘reliable’ partner, but also prompt some investors to transfer assets out of the US. More poignantly perhaps, above all if the appeal is not successful, one should expect a dialling up of populist rhetoric assaulting domestic institutions and the constitution, which will only serve to intensify already very deep social and political divisions.

Next week brings the usual start of month run of data – Manufacturing & Services PMIs worldwide, US labour indicators (JOLTS, ADP, Payrolls), Eurozone CPI), Auto Sales & Construction Spending, Japan Q1 CapEx & Corporate Profits, Household Spending & Labour Cash Earnings, German Orders, Production & Trade, Australian & South Korea Q1 GDP. All 3 major central bank meetings in Canada, Eurozone and India are expected to see rates cut by a further 25 bps to 2.50, 2.25% and 5.75% respectively, though their messaging on further rate cuts will above all be in focus, with both the ECB and BoC getting ever closer to likely terminal rates for the current cycle.

With regards to the overnight run of statistics, Japan’s core CPI proved to be slightly more stubborn than expected, once again adding to the pressure on the BoJ to hike again, as well as adding to pressure on long-dated JGB yields, while Industrial Production fell less than expected on the back of tariff uncertainty. Rather more remarkable was sharp rebound in the UK Lloyds Business Barometer on the back of a much improved view of the economic outlook, with price expectations also easing. German Retail Sales continue to be horribly erratic, and frequently totally divorced from GDP Private Consumption, as such the m/m fall is best ignored. Spanish HICP echoed the lower than expected reading from France earlier in the week, and this may well also be seen in Italian and German readings later in the day, thus reinforcing expectations of an ECB rate cut next week, and a further cut in Q3, as inflation risks increasingly look tilted modestly to the downside of the ECB’s 2.0% target.

** India – Q1 GDP/GVA **

– Q1 GDP is expected to accelerate to 6.8% y/y from Q4’s 6.2%, though the more representative GVA measure is seen edging up to 6.4% y/y from 5.2%, which would translate to FY 2025 growth of just 6.3%, a very far cry from the 9.2% recorded in FY 2024, and way below the 7.5% that many had expected at the start of the fiscal year. The consensus looks for little improvement in the current fiscal year, in no small part to due to global trade tensions, and despite the likelihood of further rate cuts in response to modestly below target inflation.

** U.S.A. – April Personal Income & PCE, Goods Trade Balance **

– Yesterday’s marginal revision to Q1 GDP was most notable for a much sharper downward revision to Personal Consumption (1.2% from prov. 1.8%), which also saw Final Sales to Domestic Buyers revised down to 2.0% from 2.3%. Today’s April data will offer some clues on the extent of any rebound in Q2. Personal Income and PCE are forecast to rise 0.4% and 0.2% m/m respectively echoing Retail Sales and Average Hourly Earnings, but all eyes will be on the PCE deflators, with both seen up a modest 0.1% m/m to bring headline y/y down 0.2 ppt to 2.1%, and core -0.1 ppt to 2.5%. That will be of some comfort, but as Fed speakers have noted retailer capacity to absorb the impact of higher tariffs thus far may have already run its course, i.e. the Fed is focussed on May and June, and above all on what happens with tariffs once deferrals are lifted (or not as the case may be). Also very material to the Q2 GDP outturn will be the advance Goods Trade Balance, with the deficit expected to narrow from March’s record $-163.2 Bln to a still very outsized $-143.0 Bln, and predicated on a relatively sharp drop in imports (above all from China). Final Michigan Sentiment will also bear some scrutiny, given that in sharp contrast to Consumer Confidence, the provisional reading edged lower to 50.8 (from 52.2), with a modest upward revision to 51.5 expected predicated on that jump in Consumer Confidence, even though the two surveys are frequently very poorly correlated. Inflation Expectations which hit fresh highs in the preliminary survey are also expected to be revised modestly lower to 7.1% (vs. 7.3%) 1-yr and 4.5% (vs. 4.6%) 5-10-yr.