Macroeconomics: The Day Ahead for 9 May

A much busier day awaits, with the BoE policy meeting and Q2 Monetary policy Report heading up the run of central bank rate decisions, with no change also seen in Poland (5.75%), and Mexico (11.0%), following the unchanged decision in Malaysia. There are China Trade, Japan’s Labour Cash Earnings and April BoJ ‘summary of opinions’ (which saw a notable more hawkish pivot), UK RICS House Price and KPMG/REC Employment surveys and Philippines Q1 GDP to digest, while US weekly jobless claims (stuck in a tight range since end of February) and Mexico’s CPI (headline expected to edge up, core to edge down) lie ahead, along with a plentiful run of central bank speakers, and the BoC’s Financial System Review. Another busy day for corporate earnings in Asia and Europe features amongst others Nippon Steel, Nissan Motor, EDP Renovaeis, Enel, Ferrovial and Telefonica, while the US looks to Tapestry and Warner Music. Govt debt sales feature Spanish 5, 8 & 15-yr, Irish 10 & 17-yr, and the US rounds off this week’s quarterly refunding with $25 Bn of 30-yr. It’s also the Ascension Day holiday in a number of countries in Europe and elsewhere. 

** China – April Trade **
As noted in the weekly preview, the risks for today’s Trade data were skewed to the upside, both due to benign base effects (above all Iron Ore) and seasonal factors tend to give a strong boost to shipments in April. As such the 1.5% y/y increase in Exports and the 8.4% y/y rise in Imports are not per se a signal of strengthening domestic demand, even if they at least signal no further deterioration. Indeed, the strength in Crude imports, despite rising prices is more likely to signal a pick-up in demand from refiners for product exports, rather than in anticipation of stronger domestic demand, while weak prices dictated stronger Iron Ore Imports, which will likely fade in May if the drop in late April shipments from Australia are any guide.  

** UK – MPC rate decision, Q1 & March GDP **
The BoE is expected to hold rates at 5.25%, but there may be one or other voters (Ramsden?) 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 currently assuming. There has also been some speculation that the BoE is looking to reduce its balance sheet reduction programme, initially via ending outright sales of its Gilt holdings, which would offer some relief to Chancellor Hunt, given the indemnification agreement with the BoE in regards to realized losses on its Gilt holdings is proving very costly for the UK Treasury. Tomorrow morning’s 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% increase. 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.