- MON: Spanish Flash CPI (Apr), German Prelim CPI
(Apr), EZ Sentiment Survey (Apr); Japan Market Holiday (Showa Day). - TUE: FOMC Meeting Commences (Announcement on 1st
May), Japanese Retail Sales/Industrial Output (Mar), Chinese NBS PMIs (Apr),
Chinese Caixin Manufacturing Final PMI (Apr), French Flash CPI (Apr), German
Flash GDP (Q1), EZ Flash CPI (Apr)/Flash GDP (Q1), US Employment Wages
(Q1)/CaseShiller (Feb), US Chicago PMI (Apr), New Zealand Jobs (Q1). - WED: FOMC Announcement, Eurozone, Chinese Market
Holiday (Labor Day), South Korean Exports (Apr), UK/US Manufacturing Final PMI
(Apr), US ADP National Employment (Apr), US ISM Manufacturing PMI (Apr), US
JOLTS Job Openings (Mar). - THU: Chinese Market Holiday (Labor Day), South
Korean CPI (Apr), Swiss CPI (Apr), EZ Manufacturing Final PMI (Apr), Hong Kong
GDP (Q1), US Durable Goods (Apr). - FRI: Chinese Market Holiday (Labor Day), Japan
Market Holiday (Constitution Memorial Day), EZ/UK/US Services and Composite
Final PMIs (Apr), US Jobs Report (Apr), US ISM Services PMI (Apr).
NOTE:
Previews are listed in day order
JAPANESE RETAIL SALES/INDUSTRIAL OUTPUT (TUE): Retail
Sales are expected to have ticked lower to 2.2% in March (vs 4.6% in February).
Industrial Output is expected at +3.5% (prev. -0.6%), Unemployment Rate is seen
ticking lower to 2.5% from 2.6%. Industrial output is anticipated to have
experienced a robust recovery, with the rebound attributed mainly to a
resurgence in manufacturing, particularly within the automotive sector. “Going
forward, downward pressure may persist due to slumping exports for Europe and
China, but the trend of pick-up would continue as car output capacity
normalises towards May”, according to Dai-ichi Life Research Institute. The
release is unlikely to influence the BoJ given the central bank’s focus on
underlying inflation trends.
CHINESE PMI DATA (TUE): NBS
Manufacturing PMI is expected to tick lower to 50.4 from 50.8, with no
expectations for the NBS non-manufacturing whilst the Caixin Final
Manufacturing PMI is seen being revised lower to 51.0 from 51.1. The data will
be used to gauge the health of the Chinese economy. Last month, the
non-manufacturing PMI surprisingly improved (53.0 vs exp. 51.3; prev. 51.4),
whilst the Manufacturing PMI remained sluggish (50.8 vs exp. 50.1; prev. 49.1).
The NBS earlier this year warned that policies to boost domestic consumption
through large-scale equipment upgrades and consumer goods trade “need to be
further detailed and implemented” to provide strong support for manufacturers,
whilst companies are suffering from “insufficient market demand”. This was
confirmed in the activity data released on April 16th. Since then, there
haven’t been major updates on Chinese support for the sector. A return to
contraction territory in the PMI data will resurface fears of a slowdown in the
Chinese economy.
EZ FLASH CPI & GDP (TUE): Expectations
are for headline HICP to hold steady at 2.4% Y/Y in April, with the super-core
metric seen declining to 2.8% Y/Y from 2.9%. The March data saw a pullback in
both headline and core inflation with the former dragged lower by food and energy
prices, while the latter did declined but remained at elevated levels, given
sticky services inflation at 4% Y/Y. For the upcoming release, analysts at
Moody’s actually look for an increase in the headline print to 2.5%, noting
“that the story will revolve around the energy component this time due to
monthly dynamics given the strong upward pressure on oil and gas prices.” From
the core perspective, Moody’s looks for a pullback due to non-energy goods and
services. For the Q1 GDP report, expectations are for a print of 0.2% Q/Q (vs.
the 0.0% in Q4), with the annual measure seen at 0.2% Y/Y (prev. 0.1%). Moody’s
looks for a 0.2% Q/Q growth rate with “some modest support from consumers but
for the main impulse to come from net trade, with weaker imports and a rebound
in exports driving the gains.” From a policy perspective, focus will likely
mainly fall on the inflation data given that more timely PMI metrics (which
indicate a bottoming out in the Eurozone’s growth prospects) will likely
overshadow the GDP data. As it stands, ECB policymakers are unanimous in
conveying a June rate reduction. However, commentary from hawks on the
Governing Council are attempting to guide markets towards not expecting
back-to-back rate cuts. This would suggest a potential path of reductions at
the June, September and December meetings (all of which have accompanying macro
projections), totalling 75bps of cuts, which is broadly in-fitting with market
pricing.
NEW ZEALAND JOBS (TUE): Q1 Unemployment
Rate is seen ticking higher to 4.2% (prev. 4.0%), with the Jobs Growth also
seen cooling to 0.3% Q/Q (prev. 0.4%), and the Participation Rate is seen
ticking lower to 71.8% (prev. 71.9%). Labour Cost Index Q/Q is expected to dip
to 0.8% (prev. 1.0%) and the Y/Y is also seen cooling a touch to 3.8% (prev.
3.9%). The expected rise in unemployment would still leave it at historically
low levels, but much higher than the 3.2% record low set in 2022. Analysts at
Westpac suggest “Labour shortages have become far less prevalent over the last
year, due to both the increased availability of migrant workers and the
softening in the economy. We expect the pace of wage growth to have slowed in
the March quarter, though remaining above what would be consistent with the
RBNZ’s 2% inflation target”.
US QUARTERLY TREASURY REFUNDING ANNOUNCEMENT (WED): The Treasury is expected to announce at 13:30BST/08:30EDT on
Wednesday its nominal coupon auction sizes will remain unchanged for the
quarter ahead, with USD 54bln of 3yr notes to be sold on May 7th, USD 42bln of
10yr notes on May 8th, and USD 25bln of 30yr bonds on May 9th. Last quarter’s
announcement said, “Based on current projected borrowing needs, Treasury
does not anticipate needing to make any further increases in nominal coupon or
FRN auction sizes, beyond those being announced today, for at least the next
several quarters.” Analysts are in agreement that the current sizes of
coupon auctions are adequate to meet the Treasury’s financing needs in the near
term. However, while most likely not an issue for this QRA, there are some
expectations that the Treasury may need to lift its coupon auction sizes again
at some point in the future, especially given the outlook for fiscal spending
shows no sign of slowing regardless of who wins the election, with CBO budget
deficit forecasts for next year currently at levels above what current issuance
plans would fund. The Q1 meeting minutes even said, “(the Treasury) may
consider recommending additional increases to coupon auction sizes over time
based on changes in borrowing needs”. The wildcard is the Treasury’s
assumptions on the Fed’s balance sheet runoff, where if it assumes a tapering
as the Fed has been guiding towards (and is expected to announce later on
Wednesday), that may cap the Treasury’s borrowing needs/forecasts, albeit the
Treasury has been aware of the impeding QT taper for a while so some suggest
it’s unlikely to lead to material changes in the its plans. We get the
quarterly financing estimates first on Monday at 20:00BST/15:00EDT, that
follows the Treasury’s forecast in January that for the April-June quarter it
expects to borrow USD 202bln in net marketable debt, assuming an end-of-June
cash balance of USD 750bln; analysts don’t expect large changes to that
forecast, but are expecting a strong rise for the Q3 forecast. Finally, as
previously guided towards, the Treasury is expected to launch its buyback
programme with expectations for a schedule of purchase operations.
FOMC ANNOUNCEMENT (WED): The FOMC is
expected to hold rates at 5.25-5.50% at its May meeting. Strong incoming data,
which alludes to sticky inflation and a slowing GDP growth narrative, are
likely to keep the central bank cautious. That said, the recent meeting minutes
stated that almost all participants judged it would be appropriate to pivot to
a less restrictive policy stance at some point this year. Accordingly, traders
will be attentive to the degree to which Chair Powell looks through recent
upside in inflation data. In wake of the March PCE report, traders were pricing
around 36bps of rate cuts through the end of this year. Note: the FOMC’s March
economic projections continued to pencil in three rate reductions this year,
taking the FFR target to between 4.50-4.75%, but many officials have been
talking a hawkish game ahead of the pre-meeting blackout, and money markets are
now only fully pricing in just one rate cut. With rates likely to be on hold,
and Chair Powell likely to continue warning that the path to returning inflation
to target will be bumpy, keeping the Fed cautious, traders will be attentive to
any updates on the central bank’s plan to taper the pace of its balance sheet
runoff. The recent meeting minutes stated that the vast majority of
participants judged that it would be prudent to begin slowing the pace of the
runoff “fairly soon”, with a few participants preferring to continue
the current pace of runoff until indicators showed reserves were nearing
“ample level”. Participants generally favoured reducing monthly
runoff pace by roughly half from recent overall pace, implying that the
Treasury runoff cap could be lowered to USD 30bln/month vs the current USD
60bln. On MBS, participants saw little need to slow the runoff, preferring to
adjust cap on Treasuries redemptions.
US ISM MANUFACTURING PMI (WED): The
consensus expects the headline to pare to 50.0 (prev. 50.3), indicating
manufacturing conditions neither expanded nor contracted in the month. As a
proxy, S&P Global’s flash US Manufacturing output index fell to a three
month low of 51.1 in March (from 54.0), with the flash Manufacturing headline
slumping to a four month low, and in contraction (49.9 vs February’s 51.9). In
terms of prices, the manufacturing sector has now seen a steeper rate of price
increases in three of the past four months, with factory cost pressures
intensifying in April amid higher raw material and fuel prices, S&P noted,
and manufacturing input cost inflation hit a one-year high. Manufacturing
business sentiment dipped, but composite sentiment remains in positive
territory amid hopes that market conditions will pick up.
US ISM SERVICES PMI (FRI): The Services
ISM is expected to rise to 52.3 in March from 51.4 in February. As a proxy, the
S&P Global flash US Services business activity index fell to a five-month
low of 50.9 (from 51.7). S&P Global said “the deterioration of demand
and cooling of the labour market fed through to lower price pressures, as April
saw a welcome easing in rates of increase for selling prices for both goods and
services.” It added that the drivers of inflation have also changed:
“Manufacturing has now registered the steeper rate of price increases in
three of the past four months… contrasting with the wage-related services-led
price pressures seen throughout much of 2023.” On the labour market, the
S&P PMI saw a decline in services staffing levels at the most pronounced
rate since the end of 2009; “the drop in staffing levels partly reflected
signs that current capacity was sufficient to handle workloads, with backlogs
of work decreasing for the third month running and to a larger degree than in
March,” the report said.
NORGES BANK ANNOUNCEMENT (FRI): Norges
Bank is expected to maintain its Key Policy Rate at 4.50%, with markets also
assigning a 96.7% chance of such an outcome alongside a 3.3% chance of a 25bps
reduction. Communication from the last meeting saw Governor Bache, in her press
conference, stating that the rate path indicates a cut is most likely in
September and then a second by the end of Q1 2025. The rate path implies a
policy rate being maintained in the first half of 2024, and further out, the
rate path implies rate cuts of in total 20bps by September and another 5bps in
December. The most recent CPI data saw core inflation cool more than expected
(4.5% vs exp. 4.7%; prev. 4.9%). Meanwhile, wages look set to trend higher than
previously forecast given wage negotiations between the leading private sector
labour union Fellesforbundet and the Norwegian Industrial Confederation, which
reached a wage agreement at 5.2% vs the 4.1% forecast by the Norwegian
Technical Calculation Committee for Wage Settlements (TBU) – “this will yield
positive real wage growth of 1.1ppt, lending a clear upside risk to Norges
Bank’s 4.9% estimate for annual wages this year”, SEB highlights. Desks suggest
that Norges Bank will likely stay cautious despite this slowing in inflation
amid a weak NOK and wages follow-through. Analysts at SEB “expect very little
market reactions from the immediate rate decision. However, signalling of
whether a September cut still remains the main scenario could push rates
lower.”
US JOBS REPORT (FRI): The US is
expected to have added 210k nonfarm payrolls to the economy in April (prev.
303k; 3-month average 276k), with the unemployment rate seen unchanged at 3.8%.
Average hourly earnings are expected to rise +0.3% M/M, matching the pace seen
in March. Capital Economics says the fading of weather-related support and
broader evidence of easing labour demand is driving expectations of the
slowdown in headline payrolls growth. “No single survey indicator is a
great guide to labour market conditions, but they are currently all sending the
same message,” CapEco said, “in March, the NFIB’s hiring intentions
indicator fell to its lowest since the pandemic; the employment indices of the
flash April S&P Global manufacturing and services PMIs also weakened, with
the latter in contractionary territory for the first time since 2020.”
This weakness is also seen in Indeed’s job listings data, which have continued
to trend down. On wages, CapEco says that “the recent puzzle is that the
apparent weather-related strength in payrolls has not been accompanied by
softer gains in average hourly earnings, as is normally the case because the
weather-sensitive sectors tend to pay below-average wages.” That said, the
consultancy said that even if earnings rise by 0.3% M/M again, it assumes that
the annual rate will still edge down to 4.0% Y/Y (prev. 4.1%), owing to strong
productivity growth. That 4.0% Y/Y would be consistent with the 2% price
inflation target, and it adds that the private job quits rate continues to
suggest that wage growth will ease to nearer 3.5% soon.