Macroeconomics: The Day Ahead for 10 May

Today’s calendar of data and events looks very busy, but with equity and to an extent credit markets in something of a tailspin, and commodity and energy markets continuing to display an extraordinary level of volatility, much of the statistical schedule will likely be ignored. The latter features Norwegian CPI, Germany’s ZEW and US NFIB Small Business Optimism surveys. Given that markets remain very much on the defensive, the busy run of Fed and ECB speakers and the Riksbank testimony to Sweden’s Riksdag will likely be the focal point with Romania’s BNR expected to hike rates a further 50 bps, but remaining way behind the curve given that tomorrow’s April CPI is expected to jump another 1.0% to 11.13% y/y. The first of this week’s monthly oil market reports comes via way of the US EIA Short-Term Energy Outlook (STEO), while France’s Agriculture ministry its monthly Grains S&D report and Unica may publish its Brazil Cane Crush & Sugar output data. Govt bond supply is plentiful with auctions in Netherlands, U.K., Austria, Germany and U.S., while Coinbase Global, Occidental Petroleum, Peloton, Warner Music are likely to be among the headline makers in terms of the run of US corporate earnings. In respect of the EIA STEO, the outlook for crude prices is to a large extent in terms of energy price pressures, and this is not just about Gas and Electricity, but the fact that oil product prices are rising at a much faster pace than crude, in no small part due to the loss of refining productive capacity, which is in turn fuelling a record level of refining margins, as can be seen the attached chart from Bloomberg’s Javier Blas (see https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.washingtonpost.com%2Fbusiness%2Fenergy%2Fsorry-but-for-you-oil-trades-at-250-a-barrel%2F2022%2F05%2F09%2F5c8e422e-cf64-11ec-886b-df76183d233f_story.html&data=05%7C01%7CSimrat.Sounthe%40admisi.com%7C20c7cbb667cf4420e34a08da32335821%7C2f55bf3242d444b3a8c2930ac8b182b2%7C0%7C0%7C637877493380591843%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=SlLoc7vIGJgxGVAvLa6%2FPWsetPQamTwAY%2BbevcueK8Y%3D&reserved=0 ). The fact that this essentially boils down to lost productive capacity underlines that this supply chain problem is not going away in any hurry, particularly given that diesel remains the workhorse petroleum product of the transport sector. As such markets would do well to focus more on heating oil, gasoline and crack spreads rather than WTI or Brent.

** Germany – May ZEW & US – April NFIB Small Business Optimism surveys **

– Germany’s ZEW survey is expected to see a modest further drop in the Expectations index to -43.5 from -41.0, with the risks looking skewed to the downside given the close correlation between this index and the performance of the Dax, with much depending on survey collection timing. The Current Situation index is also seen declining further to -35.0 from -30.8, clearly weak but still a good distance from the 2021 low of -67.8, let alone the May 2020 low of -93.5. The ZEW survey is of dubious value at the best of times, as such it will have to be substantially wide of forecasts to have anything more than a fleeting impact. The US NFIB Small Business Optimism has been in a steady, not quite linear decline since June 2021, and the headline index is projected to slip a little further to 92.9 from 93.2, with the already published employment components suggesting steady demand for labour, with a near record high level of companies (47%) reporting positions unable to fill, the latter tallying well with last week’s ADP report highlighting a drop in SME hiring. But the primary drag is likely to remain Business Expectations (‘expect better economy’), which plunged a whopping 14 pts to a fresh all-time low of 49 in March, even if this level of pessimism does reflect a good deal of political bias.