- MON: UK Bank Holiday, EZ Sentix (May), German Final CPI (April), Fed SLOOS
- Tuesday: Riksbank Minutes, NBH Announcement, EIA STEO, China Trade Balance (April)
- married: Norwegian CPI (April), US Consumer Price Index (April)
- Thursday: BoE Announcement, BoJ View Summary, USDA, China Inflation (Apr), US PPI (Apr)
- Republic of Macedonia: New Zealand Inflation Expectations (Q2), UK GDP (March/Q1), French CPI (April), University of Michigan Prelim. (maybe)
Note: Previews are listed in daily order
Fed Chief Loan Officer Survey (Monday): The Fed’s quarterly loan officer survey of bank lending practices reveals that lending standards at mid-sized banks have been tightening recently, Fed Chair Powell revealed at the FOMC meeting in May. The poll is prepared before Fed policy meetings, and officials use it in their deliberations. The Fed chair argued that given recent stresses in the banking sector, the Fed may not need to raise interest rates as high as they have traditionally done. But he stressed that the effect was not clear, making it difficult for officials to determine when the policy rate has achieved a “enough restraint stance.” At the policy meeting, the FOMC raised interest rates by 25 basis points to 5.00-5.25% in line with consensus expectations, and also hinted at a rate halt by dropping language on expecting more policy firmness. The Fed said it would determine further policy steadiness based on tightening to date, policy delays, and other developments; It remains committed to bringing inflation down to its target level, and will take a data-driven approach to identify further rate hikes, while there will be an ongoing assessment of whether the Fed has reached sufficiently restrictive levels.
Rixbank Minutes (Tuesday): minutes that will be closely scrutinized after the cautious 50 basis point increase in April for more insight into the thought process of opponents Breyman and Flodden and how close, if possible, the other three members might be to voting in favor of 25 basis points. For opponents, this wasn’t entirely unexpected given the economy’s sensitivity to the tightening and easing seen in March headline inflation combined with pre-meeting market rates and lack of calls from desks for a 25 basis point hike. Note that the dissenters were Breyman and Flodden who were usually on the dovish side of Ricksbank. Finally, we’re looking for any guidance in the minutes as to whether the final increase will be in June or September; However, discussion of this may be somewhat premature.
Chinese Trade Balance (Tuesday)Trade balance is expected to narrow to a surplus of $74.30 billion from a surplus of $88.20 billion a month ago. Exports are expected to grow by 8% (previously 14.8%), while imports are expected to contract by 5.0% after recording -1.4% in March. In the previous month’s release, China saw exports defy expectations and surprisingly rose 14.8% against expectations of a 7% contraction and breaking the downward trend observed over the previous five months. The recovery was mainly driven by electronic parts and products and is expected to support Q1 GDP. However, a slowdown in imports suggests that this recovery may be short-lived, with exports likely to slow in the coming months, according to analysts.
US CPI (Wednesday): Consensus expects core consumer prices to rise 0.4%m/m in April, accelerating from the pace of +0.1% in March, while the annualized gauge is expected to rise 0.2 percentage point to 5.2% yoy. Core inflation is expected to have increased by 0.3% MoM – moderate slightly from +0.4% MoM in March – while the annual rate of core inflation is seen unchanged at 5.6% YoY. Credit Suisse says commodity inflation will pick up, with higher used car prices from the first quarter showing in this month’s CPI, while inflation in other commodity categories is expected to remain flat. The Bank believes services inflation will remain elevated, with housing inflation showing a slight decline in April, but it is not expected to fall significantly until later in the summer. The CS writes that “a reading consistent with our expectations would remain uncomfortably high for the Fed, but remains consistent with gradual inflation this year once the shelter rolls over more significantly,” adding that the low core inflation of the former shelter should be enough to sustain the Fed. The Fed is on hold in the coming months as banking stress leads to higher uncertainty.”
Bank of England announcement (Thursday): Expectations are for the Bank of England to raise 25 basis points in the benchmark rate to 4.5%, according to a 55/56 analyst polled by Reuters, with only one looking for that unchanged. Market pricing agrees with economists with 25 basis points being priced at about 85%. The previous meeting in March saw a 7-2 vote in favor of a 25 basis point increase with dovish opposition from Tenrero and Dongra, while the MPC chose to continue with guidance on rates indicating that if there is evidence of further sustained pressure, More tightening would be required. Data since March has trended to the upside, with the CPI coming in year on year at 10.1%, which is about 0.9 points above the MPC’s forecast, and the core rate at 6.2% versus the MPC’s forecast of 5.8%. On the labor market, core earnings growth rose to 6.6% from 6.5%, while on the economic growth front, GDP M/M held steady in February, and survey data showed an increase in the UK composite measure, supported by the services sector. As such, further action from the MPC is expected with Governor Bailey (March 27) reminding markets that further tightening will be required if signs of persistent inflationary pressures emerge, adding that the FPC could focus on the financial system while the focus of the policy committee would be cash on bringing inflation back to target. While there is currently no consensus on how to split the vote, Oxford Economics proposes another 7-2 decision with Dingra and Tenero the only opponents. The focus will be firmly on whether the MPC makes any adjustments to its forward guidance to suggest a possible pause as the likes of Chief Economist Bill keep reminding markets that “there is a lot of policy work in progress still coming through”. As it stands, the market rate puts the final interest rate at around 4.75%, which would mean a further 25 basis points hike after next week. For the accompanying macro outlook, Oxford Economics expects an upgrade to growth in the near term, a downgrade to inflation in the near term, while inflation in the medium term will be below 2% in 2024 and 2025.
BoJ SoO(T): The Bank of Japan will release the summary of opinions from the April 27-28 meeting as it kept its policy settings unchanged, as was widely expected, at the first secret meeting under Governor Ueda’s leadership, with a hold rate at -0.10% and QQE benchmarks with YCC insisted and made the decision Concerning the latter by unanimous vote. The central bank modified its forward guidance dropping reference to the COVID-19 pandemic and a pledge to maintain interest rates at current or lower levels, although it remained pessimistic by replacing this with a pledge to take additional easing steps without hesitation as needed. With the pursuit of market stability. The central bank also announced a large-scale review of monetary policy with a planned time frame of one to one and a half years, endorsing the idea of a slow exit from ultra-easy policy, although Governor Ueda later clarified during the press conference that they will make changes to monetary policy as needed. during the review period and may announce the results of the policy review in the meantime if necessary.
Chinese inflation (Thursday): The Consumer Price Index (CPI) is expected to rise to 1.0%, while the Producer Price Index (CPI) is seen on an annual basis at -2.5%. Taking the monthly Caixin PMI as a proxy, the release suggested “prices rose in April as the measure of input costs remained in expansionary territory for 34 consecutive months, mainly due to higher labor costs. Some companies surveyed also reported higher prices for raw materials and office supplies.” . China’s March CPI data revealed cooler-than-expected inflation. The decline in prices last month was likely the result of several factors. 1) CPI is strongly influenced by food prices which varied in March. Higher egg prices caused by the bird flu outbreak were offset by lower vegetable prices due to warmer weather. 2) Weak PPI for the month may be an indication of slowdown in industrial production in March. Weakening export demand can have a direct impact on industrial production, which in turn affects the rate of inflation. Analysts at ING suggest that “China should continue to show modest CPI inflation, and weaker manufacturing activities continue to put deflationary pressures on PPI.”
UK GDP (Friday)Forecasts are for monthly growth of 0.1% in March (vs. 0.0% previously) and the rate is expected to decline year-on-year to 0.4% from 0.6%. The previous report was characterized by striking activity that weighed on growth and overwhelmed the recovery in private sector activity. This time around, analysts at Investec expect the strike activity to have a clear impact on data provided by teachers, junior doctors and civil servants. However, Investec notes that strikes should be weighed against “reports of resilient business activity in the services sector in the PMI survey.” Overall, Investec reported a 0.1% contraction in March which equates to quarterly growth of just 0.1%, but means the UK avoided a recession this winter. Although a potential slowdown in H2 has led some to call for an eventual recession later in the year. From a policy perspective, it is difficult to gauge the impact (if any) of the release on the BoE given that it will happen the morning after the MPC decision. A weak report would likely see markets rallying around the idea of a possible pause by the Bank of England in case the MPC refrains from offering hints of further tightening.
New Zealand Inflation Forecast (Friday): The prior outlook study indicated that while inflation expectations remain elevated, the upward momentum has faded somewhat. The next two years’ measure saw a decline, dropping from 3.6% to 3.3%. Likewise, projections for inflation in the next five years have shown a slight decline, according to Westpac. The latest Reserve Bank of New Zealand (FSR) Financial Stability Report indicated that New Zealand’s financial system is well prepared to manage the landscape of rising interest rates and any turmoil in global financial markets. The Financial Stability Report added that with monetary policy tightening due to rising inflation, households and businesses are facing an increase in debt servicing expenditures.
This article originally appeared Newsquack
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