- MON: US
Memorial Day, UK Late May Bank Holiday. - TUE: Japanese
Labour Market Report (Apr), EZ Sentiment Survey (May). - WED: Japanese
Retail Sales (Apr), Chinese Official PMIs (May), Australian CPI (Apr), French,
Italian, German Prelim CPI (May), German Unemployment (May), Canadian GDP (Q1). - THU: ECB
Minutes, CBRT Minutes, South Korea Import/Exports Growth (May), Chinese Final
Caixin Manufacturing PMI (May), German Retail Sales (Apr), EZ/UK/US Final
Manufacturing PMIs (May), EZ Flash CPI (May), US ADP National Employment (May),
US ISM Manufacturing PMI (May), New Zealand Terms of Tade (Q1). - FRI: US Labour
Market Report (May).
NOTE: Previews are listed in day-order
Japan Retail Sales (Wed):
Japanese Retail Sales are seen slowing to 5.8%
Y/Y in April from 7.2% the month before. In March 2023, Japan saw increases in
most sectors of wholesale and retail sales compared to the previous year, with
particularly strong growth in food and beverage wholesaling and automobile
retailing. Department stores and supermarkets also saw sales growth, albeit at
a slower rate. However, some sectors such as miscellaneous good wholesaling and
machinery, and equipment retailing saw decreases. Nonetheless, from the BoJ’s
standpoint, Governor Ueda said we are beginning to see good signs in the
economy, but there is still some distance before stably and sustainably hitting
the inflation target, and the BoJ will patiently sustain easy monetary policy
as a result.
China Official PMI (Wed):
The official NBS PMIs are due on Wednesday,
whilst the Caixin Manufacturing PMI is expected on Thursday. Both Manufacturing
prints are forecast to return to expansion territory, with the NBS expected at
51.4 (prev. 49.2) and the Caixin expected at 50.3 (prev. 49.5). In April,
China’s manufacturing sector experienced an unexpected contraction for the
first time this year. This downturn, which appears to be more than a transient
setback, has primarily been driven by a weakening export market, reflected in a
decline in export orders and import rates. This has resulted in reduced wages
and employment in export-related industries, affecting the broader jobs market,
including the service sector. Although the non-manufacturing sector witnessed a
predictable slowdown in April due to the impending long holidays in May, the
contraction in manufacturing could exert downward pressure on wages and
subsequently slow retail sales growth, according to ING, which adds that in response
to these challenges, China’s government is expected to introduce stimulus
measures to bolster both manufacturing and service sectors, potentially through
initiatives like reinstating electric vehicle subsidies and fast-tracking
infrastructure investments.
Australia CPI (Wed):
The monthly CPI for April is expected to tick
higher to 6.4% Y/Y from 6.3% in March. Last month saw an uptick in food prices,
notably the 1.1% increase in fresh fruit & vegetables, and a 1.8% rise in
dairy products. Meat and seafood prices saw a slight dip of 0.2%. Other sectors
contributing to the rise included a 0.2% gain in clothing and footwear, and
2.6% hike in healthcare costs, counterbalanced by a 2.2% drop in auto fuel
prices. RBA Governor Lowe will be delivering a speech on Tuesday, a day before
the Australian CPI metrics, as he appears before the Senate in Canberra at
09:00AEST.
Canada GDP (Wed):
Expected to rise +0.2% M/M in March (prev.
+0.1%); that would be better than the StatsCan flash estimate released after
the February data, were the agency said it was tracking growth of -0.1% M/M in
March. Meanwhile, for Q1 as a whole, the expectation is for growth of 1.5% Q/Q
annualised (prev. 0.0%). Ahead, Bank of Canada Governor Macklem mid-May said
officials were not forecasting recession in Canada, but their base case is for
a few quarters of slower but positive growth.
ECB Minutes (Thu):
As expected, the ECB stepped down to a 25bps
cadence of rate hikes from the 50bps unveiled in March. The decision to
implement further tightening was based on the Governing Council’s judgement
that the “inflation outlook continues to be too high for too long”.
The smaller increment of tightening was likely amid concerns that “past
rate increases are being transmitted forcefully to euro area financing and
monetary conditions, while the lags and strength of transmission to the real
economy remain uncertain”. Moving forward, future “decisions will
ensure that the policy rates will be brought to levels sufficiently
restrictive…”. The main surprise from the announcement came via the
balance sheet, where the GC now expects to discontinue the reinvestments under
the APP as of July 2023. Some observed that the decision on the balance sheet
could have been part of a compromise between the doves and the hawks, with the
latter favouring a 50bps hike or a potentially more aggressive rate path going
forward, something which President Lagarde later denied. However, sourced
reports later suggested that there was a deal involved, but the hawks
apparently gave up on a 50bps hike without much of a fight. At her follow-up
press conference, Lagarde stated that the policy decisions were not to be read
as a “pause”, and the ECB still had “more ground to cover”,
giving the announcement a more hawkish skew than the initial policy statement.
In terms of the balance of views on the GC, Lagarde said that the decision was
not unanimous, with some members preferring a 50bps adjustment. However, no
members argued for an unchanged outing. Looking beyond May, Lagarde said she does
not have an exact number for what “restrictive” will mean for the ECB
with regards to the terminal rate, however, she judges the Bank will know when
it gets there. The sources later revealed that some policymakers see
two-to-three hikes ahead. As always, the account of the meeting will be deemed
as stale to some. Furthermore, with a June hike fully priced in and the Bank in
data dependent-mode, it’s hard to see what, if anything, the account can reveal
to help shape expectations for policy after next month’s meeting.
CBRT Minutes (Thu):
The Turkish Central Bank maintained its
One-week Repo Rate at 8.50%, in line with market expectations. It reiterated
that the current rate level was sufficient to facilitate a recovery from the
early 2023 earthquakes. The CBRT’s forward guidance was consistent with its
previous report, emphasising financial stability concerns due to various
factors, including a potential global recession. The domestic outlook was more
optimistic, highlighting an expedited recovery in the earthquake-stricken
region. It also restated the need for supportive financial conditions in
response to the earthquakes, underscoring the alignment of all policy
instruments with ‘liraisation’ targets. Following the first round of elections,
the CBRT briefly expanded security maintenance requirements to encompass
additional commercial and consumer loans, only to backtrack ahead of the
electoral run-off. Despite these actions, increased regulations on daily bank
FX transactions and ‘liraisation’ targets remain in effect. The future of CBRT
policy could largely reside with the outcome of the election run-offs –
“whether the new administration after the second round of the Presidential
elections is to change/revise the new economy model will be a key issue for watchers
of the Turkish economy”, ING said.
Eurozone Flash CPI (Thu):
Headline inflation is expected to cool to 6.3%
Y/Y in May from 7.0% prior; the “super core” metric is seen easing slightly to
5.5% Y/Y from 5.6%. Participants will be keeping an eye on the core and
super-core metrics as lower energy prices and base effects temper the headline
readings. “There should also be a slight negative effect from the food segment
as cost pressures gradually ease,” analysts at Moody’s write, “however, we
expect annual core inflation to be unchanged at 5.6% as an increase in services
inflation balances out a decline in core goods inflation.” The common
denominator among recent speeches from ECB members is high persistent
inflation. ECB hawk Knot recently suggested no sign underlying inflation is
abating, and the ECB will hold rates at their peak for a significant time,
adding that they need rate hikes of 25bps in both June and July, but is
open-minded for September. Meanwhile, Vujcic said inflation momentum was still
persistent and it is questionable that we will be able to get to 2% in the next
two years. Chief Economist Lane highlighted there is no sense of certainty in
the terminal rate, and added that uncertainty in models is high. The most
recent S&P Global PMI data warned the ECB “will have a headache with
the PM price data,” because “selling prices in the services sector actually
rose more than in the previous month and “upward momentum” is preventing the
ECB from pausing.
US ISM Manufacturing PMI (Thu):
The consensus expects the headline to be
little changed at 47.0 (prev. 47.1). Credit Suisse is a little more optimistic,
but still expects the index to remain subdued at 47.5. Despite a slight
decrease in the S&P Global manufacturing PMI in May, CS highlights that
regional surveys indicate stabilisation, and point to improvements in ISM
supplier deliveries, slight production growth in recent months, and declining
inventories since January. “We expect global industrial production
momentum to peak in May before declining into the third quarter,” the bank
writes, “tighter financial conditions and weak sentiment continue to exert
pressure on goods demand from households and businesses, which will likely keep
manufacturing growth below trend.”
US Labour Market Report (Fri):
The consensus looks for 180k nonfarm payrolls
to be added to the US economy in May, and despite the upside surprise seen in
April, the rate of payroll additions continues to ease (3-month average 222k,
6-month 278k, 12-month 333k). In terms of other gauges of labour market
strength, the sub-indices within the PMI data saw a rebound, but the ISM
equivalent was little changed, regional Fed surveys have been trending lower,
while the NFIB’s hiring intentions index is near a three-year low. The
unemployment rate forecast to tick up by one-tenth to 3.5%, and the rate of
average hourly earnings growth is seen paring to 0.4% M/M from 0.5% in April.
Capital Economics says that wage growth is easing, but the unemployment rate
remains low (the FOMC’s March projections see the jobless rate rising to 4.5%
by the end of this year).
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