Macroeconomics: The Day Ahead for 7 May

The day’s data schedule is heavily front loaded, with the UK BRC Retail Sales, German Orders and Trade, French Wages and Trade and Australian Retail Sales to digest, along with the stand pat RBA rate decision. Ahead lie the UK Construction PMI, Eurozone Retail Sales, Canada Ivey PMI and US Consumer Credit. BP heads a busy day for corporate earnings, with UBS and Italian Banks, Infineon and Walt Disney likely to be among the headline makers, while the US EIA publishes its monthly Short Term Energy Outlook. A reasonable volume of central bank speakers accompany govt bond auctions in Austria (10 & 47-yr) and US (3-yr). The RBA opted to keep a neutral stance on rates, rather than indulging in the sort of quick-fire pendulum swings on rate expectations that financial markets continue to indulge in. That said, its CPI forecasts for 2024 (3.8% at year end) imply little scope for a rate cut this year. The UK BRC Sales slide (-4.4% y/y) was largely down to Easter timing effects, but the aggregated March/April increase of 0.2% y/y underline that consumer goods spending remains weak, and this along with the drop in inflation more than supports the BoE embarking on rate cuts. German Orders once again serve as a reminder that while there has been some improvement in business sentiment, as per the PMIs and Ifo, the economy is at best troughing rather than signalling ‘green shoots’ of recovery, as should come as no surprise given that much of the weakness is structural, rather than cyclical. France’s Q1 Wages at 1.3% q/q will keep the ECB somewhat cautious on rate cuts after an initial move in June, though the drop in the y/y rate to 3.3% from 3.9% offers some comfort.

RECAP: The Week Ahead – Preview:  

The new week is very short on major US data, with only Michigan Sentiment set to attract any attention, but elsewhere a busy week for the UK has provisional Q1 GDP and the usual run of activity indicators, BRC Retail Sales, RICS House Price Balance, Construction PMI and REC Employment survey. China looks to Trade, Aggregate Financing and Saturday’s CPI & PPI, Germany to Factory Orders, Trade and Industrial Production, France to Q1 Wages, Japan has key wages and Household Spending, and Canada awaits labour data, while India has Industrial Production. The RBA and BoE are both expected to hold rates, but possibly signal a rate cut is close at hand, as well as updating their forecasts, while Sweden’s Riksbank is expected by a small majority to follow the SNB in initiating a rate cut cycle (-25 bps 2.75), though a weak SEK might stay its hand. Brazil’s BCB is expected to slow rate cuts to just 25 bps and Banco de Mexico and Poland’s NBP to hold, while the Fed publishes its quarterly Senior Loan Officers survey, the ECB its April minutes, and there will be a goodly volume of central speakers, as the BIS holds it annual Innovation Summit. In the commodity space, the US EIA publishes its monthly Short Term Energy Outlook (STEO) and the week ends with the monthly USDA WASDE and China CASDE reports, while Singapore hosts its annual Ferrous Week conferences. Corporate earnings are again plentiful, though more in Asia than Europe or the USA, and the focus likely to be on Saudi, Aramco and Occidental Petroleum.

– USA: Monday’s Fed Senior Loan Officers survey is likely to show that banks continue to tighten lending standards (both consumer and C&I loans) against a backdrop of lower net interest margins, rising delinquencies and defaults, even if the pace of tightening eased. Friday’s Michigan Sentiment is seen edging lower (76.2 vs prior 77.2), echoing the recent drop in Consumer Confidence, as labour demand softens, and mortgage rates and gasoline prices rise. 

– UK: The BoE is expected to hold rates at 5.25%, but there may be one or other voters joining Dhingra in voting for a cut, especially with a number of MPC speakers playing down the upside surprises on prices and wages. Given the very weak BRC Shop Price data, and the fact that the reduction in the household energy price cap will likely see April CPI close to, or perhaps even below the BoE’s 2.0% target, the forecast update may well imply a sharper fall in rates in 2024 than markets are assuming. Tuesday’s BRC Retail Sales are expected to slow to just 2.0% y/y after like for like sales posted a stronger than expected (Easter timing related) in March, while the RICS House Price Balance is seen edging up to -2 from -4. But the focus will be on Friday’s Q1 & March and the accompanying run of activity indicators. Q1 GDP is forecast to post a relatively solid 0.4% q/q recovery and is predicated on March GDP matching February’s 0.1% m/m increase that followed January’s 0.3% increased. This would reverse the Q3 & Q4 declines and leave GDP little changed in level terms vs Q2 of 2023, and this recovery to hold at this pace in Q2, but not accelerating. In the details, Private Consumption (exp. 0.4% q/q) and Govt Spending (0.6% q/q) are seen offsetting a -0.3% q/q drag from Gross Fixed Capital Formation, and another modest negative contribution from Net Exports. The KPMG/REC Employment index will garner particular attention having presaged the recent weakness in official labour market metrics. 

– Germany: the ever volatile Factory Orders are expected to post a modest 0.5% m/m rise following February’s 0.2% m/m, and the sharp swings up and then down at the turn of the year, which would if correct signal that Orders are troughing, with base effects boosting the y/y rate to -0.8% from February’s -10.6% . Industrial Production is expected to give back a lot of February’s 2.1% jump, with a drop of -0.9% m/m, while Trade data are anticipated to see Exports little changed, and Imports dropping -1.0% m/m, and assuming no revisions to January and February, this would fit with a relatively robust contribution from Net Exports to Q1 GDP, as reported last week. It is worth noting that as much as last week’s run of Eurozone and national Q1 GDP beat expectations by a notable margin, this was in most cases due to a solid contribution from Exports, while Private Consumption continued to act as a drag.

– China: the Caixin Services PMI is seen easing more modestly than the official NBS PMI to 52.5 from 52.7, while Aggregate Financing and New Yuan Loans are likely to post seasonally typical weak increases after surging in March, and also reflecting PBoC guidance to banks to avoid front loading lending in Q1. Thursday’s trade data will benefit from much less adverse base effects than March, with Exports seen up 1.5% y/y after March’s 7.5% y/y slide, and some upside risks given a typically beneficial trend in seasonal terms, with Imports likely to rebound 4.0% y/y after dropping 1.9% in March. Saturday’s CPI is expected to be unchanged at a very tepid 0.1% y/y as continued weakness in domestic demand keeps inflation very subdued. There are very benign base effects for PPI in Q2, given that PPI dropped from -2.5% y/y in March 2023 to a trough of -5.4% in June 2023, per se the expected improvement to -2.3% y/y in April from -2.8% will not reflect a genuine trend improvement. 

– Elsewhere, it will be interesting to see if the RBA opts to stick with its less hawkish tone or pushes back again on rate cut timelines after somewhat higher than expected CPI, and signs of stronger labour demand. There will be some sensitivity to this week’s Japan Labour Cash Earnings, seen moving up to -1.3% y/y from a revised -1.8% in real terms, as well as an expected sharper -2.3% y/y contraction in Household Spending, but all eyes will continue to be focussed on the JPY, with Japan’s MoF and BoJ likely hoping that the setback in the USD and UST yields may offer them some  breathing space.

There are 51 S&P 500 companies reporting this week, worldwide highlights for the week as compiled by Bloomberg News are likely to include: 3i Group, Acwa Power, Airbnb, Amadeus ITp, Ambev, Anheuser-Busch InBev, ANZ Group, Arista Networks, ARM Holdings, Asian Paints, Avenue Supermarts, BP, Banco do Brasil, Bayerische Motoren Werke, Brookfield, Coloplast, Constellation Energy, Constellation Software Canada, Coupang, Daikin Industries, Datadog, Deutsche Post, Duke Energy, Electronic Arts, Emerson Electric, Enbridge, Enel, Energy Transfer, Ferrari, Ferrovial, Fidelity National Information Services, Fujifilm, Globalfoundries, Henkel, Honda Motor, HubSpot, Infineon Technologies, Intact Financial, Itau Unibanco, Itochu, Japan Tobacco, KDDI, Kenvue, Koninklijke Ahold Delhaize, Kotak Mahindra Bank, Larsen & Toubro, Manulife Financial, McKesson, Mettler-Toledo International, Mitsubishi Heavy, Mitsui Fudosan, Muncih Re, Nintendo, Nippon Telegraph &  Telephone, Nutrien, Occidental Petroleum, Overseas-Chinese Banking, Palantir Technologies, Realty Income, Rockwell Automation, Saudi Arabian Oil, Saudi Telecom, Sempra, Shopify, Siemens Healthineers, Simon Property Group, SoftBank, Sun Life Financial, Takeda Pharmaceutical, Tata Motors, Telefonica, Tokyo Electron, Toyota Motor, Trade Desk, Uber Technologies, UBS Group, UniCredit, United Overseas Bank, Verbund, Vertex Pharmaceuticals, Vistra, Walt Disney, Westpac Banking, Williams.