Macroeconomics: The Day Ahead for 31 May

Month end brings a deluge of statistics, and a busy events schedule, which includes the House of Representatives US debt ceiling vote, ECB Financial Stability Review, Fed Beige Book, a rash of central bank speakers and an expected 25 bps rate hike in Thailand. There are China’s NBS PMIs, Australia CPI, Japan & South Korea Industrial Production, Japan, Retail Sales and Consumer Confidence, and French HICP and Consumer Spending to digest. Ahead lie German unemployment, German, Italian and Polish CPI, Indian GDP & GVA, Canada GDP and US Chicago PMI and JOLTS Job Openings. Outside of the already published warning on market liquidity, the ECB’s semi-annual Financial Stability review requires attention in terms of bank balance sheet strength given the sharp rise in rates, and housing and commercial real estate finance.

 ** China – May NBS PMIs **

China’s NBS PMIs served to reaffirm broad based concerns that the post “Zero Covid” recovery is already losing most of its moment, with Manufacturing dropping to 48.8, while Services lost more traction with a drop to 54.5 from 56.4, and the Construction PMI also falling (see chart). The question now is what the authorities in China can do to get the recovery back on track, or more precisely to boost confidence in both the consumer and business sectors, which is likely to prove to be a tough task.

** France, Germany & Italy – May CPI, Germany – May Unemployment ** 

Following on from sharper than expected y/y falls in Spain’s headline and core CPI, French HICP also dropped more than expected (-0.1% m/m 6.0% vs. April 6.9%), and with NRW state CPI also dropping more than expected (-0.2% m/m), German CPI looks also set to undershoot forecasts, with Italian HICP seen sliding to 7.5% vs. 8.7%. Per se, the Eurozone reading is likely to drop further than the expected 6.3% from 7.0%. Core CPI is looks also set to drop back a lot more than the projected 5.5% y/y from 5.6%, but still remain high, but thanks to pressure from package holidays (which are weighted higher this year) this will likely be reversed in June and July. German Unemployment is seen rising a further 15K after an unexpected 25K jump in April, and with anecdotal evidence from the Ifo and DIHK surveys suggesting that the optimism around the turn of the year on the back of lower energy prices and easing supply chain issues have evaporated, the risks of a sharper jump should not be underestimated.

** India, Canada – Q1 GDP **

India’s Q1 GDP and GVA are both forecast to pick up to 5.1% and 4.9% y/y respectively, from 4.4% and 4.6%, on the back of strong demand for back office services, a boost to agricultural output from a good harvest, and a round of govt subsidies for the manufacturing sector, though net exports may be a drag. Given that India remains one of the few economic bright spots in the G20, a downside miss would only add to concerns about the global economic outlook. Canada’s Q1 GDP is forecast to expand at a respectable 2.5% q/q SAAR, thanks wholly to the 0.6% m/m jump in January, with March monthly GDP expected to contract -0.1% m/m, signalling a sharp loss of momentum going into Q2.

** U.S.A. – April JOLTS Job Openings / Fed Beige Book

Job Openings are seen easing further to 9.40 Mln from March’s 9.590 Mln, but will still be quite far above pre-pandemic levels, but with the Consumer Confidence Jobs Plentiful sub-index taking a rather sharp 4 point m/m dive to 43.5, there would appear to be some downside risks relative to the consensus. The Fed’s April Beige Book was hardly encouraging, noting “Overall economic activity was little changed in recent weeks. Nine Districts reported either no change or only a slight change in activity this period while three indicated modest growth. Expectations for future growth were mostly unchanged as well; however, two Districts saw outlooks “deteriorate”, and the focus will above all be on expectations not only for growth, but also labour markets and prices.