Macroeconomics: The Day Ahead for 17 May

The US and UK take the reins over from China in terms of providing the statistical schedule highlights, with UK and French labour data, Singapore and Indonesia Trade and Thai Q1 GDP to digest, while ahead lie the first revision to Eurozone Q1 GDP and provisional Q1 GDP CEE prints, while the US looks to Retail Sales, Industrial Production, NAHB Housing Index and Business Inventories. The events schedule has the May RBA minutes to digest, with Lagarde and Powell heading up a busy day for central bank speakers, while the US sees a busy day for Congressional primaries in five states. Home Depot and Walmart along with JD.com top the run of corporate earnings, while there are govt bond auctions in the UK (29-yr) and Germany (2-yr). Last but not least, do keep an eye on the growing number of extreme weather, beyond the extreme heat in India and the drought in the western half of North America, for instance the immense sandstorms in Iraq and Kuwait, forcing the closure of 3 Kuwait ports, and a temporary closure of the international airport, while frosts are forecast in Parana and Minas Gerais, key coffee and corn growing regions.

** U.K.  – March/April labour market reports **

– Ahead of tomorrow’s CPI and after an unconvincing MPC Treasury Select Committee appearance yesterday, the generally stronger than expected labour data will leave the BoE under even more pressure to take further action, even if it should be remembered that labour data are a lagging indicator, and the details require come reflection. A sharp 135K pick-up in April Payrolls from an upwardly revised 59K, allied with a 57K drop in the Claimant Count underline the strength of labour demand, as a record 1.295 Mln Vacancies would also attest, and suggesting some acceleration given a better than expected 85K rise in Q1 LFS Employment. The wages data offering a nuanced contrast, with a way higher than expected 7.0% y/y surge in headline Average Weekly Earnings contrasting with a marginal pick-up in the ex-Bonus reading to 4.2% y/y (vs. 4.1%), underlining that employers continue to use bonuses rather than base pay. If employers were as desperate to attract and retain staff, then base pay should not be lagging headline this much, particularly as inflation adjusted basic pay is contracting so sharply; it may well hint at a lack of employer confidence in the medium-term outlook. Indeed with economic inactivity on the rise, and the labour force contracting, and facing additional legislative headwinds from labour immigration laws, the headwinds to the UK’s growth potential above and beyond its infrastructure sclerosis are becoming all too obvious. It should be added that addressing these issues is the task of government, and not monetary policy makers.

** CEE – Q1 GDP **

– While Q1 GDP is in effect rather historical given the big drag that the war in Ukraine and associated sanctions measures on Eurozone / EU countries (above all whatever emerges in terms of oil and gas), the run of CEE Q1 GDP readings require some attention. After a stellar 5.2% q/q 6.5% y/y surge in Romania, a better than expected 2.1% q/q 8.2% y/y in Hungary, and a modestly better than forecast 3.1% y/y in Slovakia, the focus turns to Poland. The consensus looks for 1.8% q/q 8.1% y/y (vs Q4 1.7% q/q 7.3% y/y), with the risks very heavily skewed to the upside. The strength may dissipate in Q2, but it still underlines why all of these countries’ central banks are still well behind the curve, and yesterday’s EC spring economic forecasts (see attached table) look to have underestimated the underlying growth momentum in the CEE.

** U.S.A. – April Retail Sales, Industrial Production & May NAHB Housing Index **

– As noted with respect to the run of US data this week, there will doubtless be some very binary interpretations, especially any misses relative to forecasts, but contextual perspective is required. For example the NY Fed Manufacturing slide yesterday looks to be more a function of the big squeeze from sky high NatGas and Diesel prices due to low inventories and output (whereby the North East of US is disproportionately vulnerable), but the 6-mth outlook indices remained very positive. Be that as it may Retail Sales are seen up 1.0% headline (vs March rev. 0.7%), while the ex-Autos and Gas measure is expected to be steady at 0.7% m/m, but obviously much weaker once adjusted for the higher than expected CPI. However some of that weakness in real terms also reflects a continued swing back from Goods to Services spending as the economy to a certain extent reverts to more normal spending patterns, with risks in terms of the nominal data looking to be to the downside of those consensus estimates, given the broad based pressure on goods prices. Industrial Production is seen up 0.5% m/m, with a boost likely to come from auto output as manufacturers continue to try to boost and rebuild forecourt inventories despite continued supply chain headwinds, with favourable seasonal adjustment also providing a boost, while extractive (mining) industries are likely to continue to boost output given high prices, though utilities may drag given more normal seasonal weather patterns after a warm March. But with mortgage rates rising, and household income squeezed by inflation, it is perhaps the NAHB Housing Market Index that requires closest attention, with a fifth consecutive drop (even if again small) to 75 from 77, matching the 2021 low, and rather more forward looking than Housing Starts tomorrow, or Existing Home Sales tomorrow.