Macroeconomics: The Week Ahead: 15 to 19 May

The Week Ahead – Preview:

The new week’s data run is dominated by activity data (Retail Sales, Industrial Production and housing/property sector inter alia) from China and the US, the UK and Australia look to labour market readings, Japan has Q1 prov. GDP, National CPI and Trade, while Canada sees CPI and Retail Sales. The events schedule is a case of overload, with the Turkish election results to digest, and a deluge of central bank speakers, while there is the G7 leaders meeting at the end of the week in Japan, though Biden’s participation is not guaranteed if there is no debt ceiling agreement, which will remain ‘front and centre’ for markets, along with China’s lacklustre post-Zero Covid recovery, and concerns about US regional banks. The EU Commission publishes its Spring Economic Forecast update, and there are the Eurozone Finance Ministers and Med-9 group energy meeting, along with an Arab League summit in Saudi Arabia and the OPEC-China High-Level Dialogue. But Commodity and Energy markets will look to the IEA monthly oil market report, France’s Agriculture Ministry crop planting estimates. There are a raft of conferences: London Platinum Week, Graincom, Asia Metals Week, Australian Petroleum Production & Exploration Association (APPEA), Future Food Asia, Bloomberg Non-ferrous Metals Forum, CRU World Aluminium, BofA Global Metals, Mining & Steel Conference and SMM International Zinc & Lead Summit.

While all of those factors will have some influence, it is the myriad of economic and monetary policy related uncertainties (allied with the redundancy of forecasting models in a rapidly transitioning world) which still continue to battle with the legacy of central banks’ excess liquidity, both during the prior decade and above all the Covid ‘whatever it takes’ period, which served to reinforce the array of now unsuitable investing habits and strategies, above all evident in the US regional banks’ woes.

Be that as it may, a familiar Covid-era related friend will be evident in this week’s China activity data, i.e. relatively spectacular base effects. Thus China Retail Sales are forecast to rise 22.0% y/y vs. March 10.6% and Industrial Production 10.6% y/y vs. March 3.9%. The more sanguine elements of this week’s run will be Fixed Asset Investment, seen up 5.7% y.t.d. vs. March 5.1%, but looking so tepid given the boost from a sharp fall in 2022 from March’s 12.2% to April’s 9.3%. Likewise, Property Investment edging up 0.1 ppt to 5.7% y.t.d., despite April 2022 sliding to 0.7% from March 2022 3.7%, and the Surveyed Unemployment Rate seeing no improvement from March’s 5.3%. Monday’s PBoC 1-yr MTLF operation is not expected to see a change in either the 2.75%, or volume, with the expiring CNY 100 Bln expected to be ‘rolled over’ in the latest operation. The one bright spot is overseas travel, but this will not benefit the domestic economy.

This week’s US data run is likely to keep the Fed wary about the inflation outlook, and serves as a reminder to markets pricing a very sharp Fed pivot in H2 2023 that what is being priced in will likely only materialize in the case of a quite possible credit market meltdown, or US debt default, which credit spreads and equity market valuations are definitely not discounting … as the saying goes ‘caveat emptor’. Be that as it may, headline Retail Sales are seen reversing all of the revised -0.6% m/m drop with bounce of 0.8%, and core measures are also seen rebounding, if less vigorously – ex Autos & Gas 0.2% m/m vs. -0.3%, Control Group 0.3% m/m vs. -0.3%. Other activity indicators are seen little changed: Industrial Production flat m/m, NAHB Housing Market unchanged at 45, Housing Starts slipping 1.4% m/m to a still respectable 1.40 Mln, and even Existing Home Sales at 4.30 Mln (down 1.4% m/m) are forecast to hold well above the late 2002 lows. Only the ever more volatile NY Fed Manufacturing index is seen dropping sharply to -4.0 after a wholly unexpected surge to +10.0 in April. The overall picture on the US economy remains extraordinarily noisy, and those sirens of impending gloom or boom are best ignored as nothing more than suffering from the bane of this socially mediated age, namely ‘soundbite-itis’.

After last week’s rather ambivalent and equivocal BoE policy meeting, this week’s UK labour data and GfK Consumer Confidence are unlikely to be gamed changers, if consensus forecasts are correct. April HMRC Payrolls are seen posting another modest rise of 25K, contrasting with a robust 160K rise in Jan-March LFS Employment, while ex-bonus Earnings are forecast to post a fresh 2-yr high at 6.8% y/y, despite a marginally benign base effect. GfK Consumer Confidence is to extend its recovery from -30 to -27, and a low of -49 in September 2022, but still remain far below the 2015-2019 range of -14 to +7. The ugly spectacle of ruling Conservative party internecine warfare is once again rearing its ugly head again in the wake of the hefty local council election losses, with many of the doyennes of the totally incompetent Johnson and short-lived Truss regimes unashamedly sniping at current PM Sunak in a testament to a truly astounding level of arrogance, and a total lack of shame at their all too palpable failures. Sadly, though perhaps fortunately for the UK, the rest of the world has far much on their own plates to really pay any attention to the tragic farce of UK politics.

The Q1 earnings season is winding down, with only 15 S&P 500 companies reporting this week, with Deere & Co and big Retailers, such as Walmart, Home Depot, TJX and Target topping the run in the US, and Alibaba, Baidu, Japan Post and Vodafone featuring elsewhere. Earnings highlights for the week according to Bloomberg News are likely to include: Abu Dhabi National Energy, Alibaba Group Holding, Applied Materials, Baidu, Banco do Brasil, Bharti Airtel, Bridgestone, Cisco Systems, Constellation Software/Canada, Deere, Experian, Home Depot, Japan Post, Japan Post Bank, KBC Group, Keysight Technologies, Mitsubishi UFJ Financial Group, Mizuho Financial Group, Munich Re, National Grid, Nu Holdings Cayman Islands, Recruit, Ross Stores, Siemens, SMC, State Bank of India, Sumitomo Mitsui Financial Group, Synopsys, Target, Tencent, TJX, Tokio Marine, Vodafone Group, Walmart.