Written Commentary
- Deluge of statistics to accompany month end: digesting China PMIs, Australia Current Account & Inventories; Japan & South Korea Production, French CPI, EU energy embargo compromise; awaiting Eurozone CPI, Canada and India Q1 GDP, US Consumer Confidence and House Prices; plenty of central bank speakers; German and Italy debt auctions
- Eurozone CPI: upside miss discounted, as in line French and Spanish HICP temper renewed surge in Germany
- US Consumer Confidence: gasoline prices and broader inflation pressures likely to prompt further fall, above all on Current Situation
- China PMIs: better than expected bounce, but still contracting, rebound faces numerous headwinds, stimulus package to help at the margin
- Australia Q1 GDP: sharp drag from Net Exports likely to be offset by Inventory surge and Govt Spending, Private Consumption key
- EU Energy embargo: compromise ban will still create major supply disruption, other factors require consideration in assessment
EVENTS PREVIEW
It being month end and with the US returned from the Memorial Day Holiday, there is a deluge of economic data and surveys, with Japanese and South Korean Industrial Production, Australia Q1 Inventories and Current Account to digest ahead of French, Italian and Eurozone CPI, German labour data, UK monetary and credit aggregates, Indian and Canadian Q1 GDP, and US CS and FHFA House Prices and Chicago PMI, but pride of place is likely to go to US Consumer Confidence. There is also a busy run of ECB, Riksbank and SNB speakers, with Hungary’s MNB expected to hike rates by a further 50 bps to 6.90%, while Italy and Germany auction debt, and HP and Salesforce top a modest run of corporate earnings. The hard won EU deal to embargo Russian seaborne oil exports may be a far from all-encompassing ban, but it will still have consequences for crude supply chains. The question is how much of the displaced Russian output will find its way to China and India, with tanker capacity constraints suggesting that in practice the two countries could absorb around 60% of lost exports to the EU. On the other side of the coin, the challenge for the EU will be to find similar quality oil to Urals for its refiners, and in the short-term what would be available is likely to be constrained by high spot prices. Given that similar grade crude is likely to come from the Middle East, Nigeria and Angola, this will also impact freight rates, as well as leaving questions about the security of supplies.
In terms of the overnight run of data, China’s official PMIs were slightly better than expected, but still signalled contraction, with the detail suggesting that supply chain disruptions continue to constrain intermediate and downstream output, above all in smaller companies, and that sluggish domestic and softening export demand remain a considerable constraint. The package of measures announced overnight will provide a boost, but Q2 GDP is will contract in q/q terms, and may struggle to post a gain in y/y terms. The components of Australian Q1 GDP released overnight were heavily divergent, with Net Exports (-1.7 pt) weighing heavily, but likely to be offset by a sharp 2.5% q/q rise in Govt Expenditure and a much stronger than expected 3.2% q/q rise in Inventories, which on balance implies tomorrow’s Q1 GDP should be stronger than the anticipated 0.7% q/q 3.2% y/y, with much depending on Private Consumption.
** Eurozone – May CPI **
– CPI was seen rising at an unchanged 0.6% m/m to push the y/y rate up to a fresh record high of 7.8%, paced by food and energy, with core price pressures remaining very evident with a further modest rise to 3.6% y/y from 3.5% expected. But with German HICP smashing forecasts at 1.1 m/m vs. expected of 0.5%, while Spanish HICP was in line at 0.7% m/m, though Spanish core CPI jumped to 4.9% y/y from 4.4%, a Eurozone headline reading of >8.0% y/y, and core close to 4.0% seems probable.
** U.S.A. – May Consumer Confidence **
– Consumer Confidence is forecast to fall for a fifth month to 103.8 from 107.3, though the contrast between a buoyant Current Situation and the sharp slide in Expectations (see chart) remains very striking. Rising gasoline and household energy prices are likely to weigh on the Current Situation index this month.
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ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
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