Macroeconomics: The Week Ahead: 30 May to 3 June

Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist

The Week Ahead – Preview: 

The new week will  be disrupted by holidays: US Memorial Day on Monday, the UK double bank holiday on Thursday and Friday for the Queen’s Platinum Jubilee, and the Dragon Boat Festival in China, Hong Kong and Taiwan. A relatively busy week for statistics has Eurozone CPI, US and other Consumer Confidence surveys, Manufacturing and Services PMI; US labour data, Auto Sales and House Prices; Australian, Canadian and Indian Q1 GDP and the usual end of month rush of activity and labour data in Japan. The Bank of Canada is expected to hike rates a further 50 bps, as is Hungary’s MNB, there are numerous central bank speakers, the Fed’s Beige Book and start of its balance sheet reduction (QT) programme, and BIS Green finance forum. It’s a light week for corporate earnings, and for govt bond auctions outside of the Euro area, which sees a hefty EUR 27.0 Bln total of issuance from Germany, France, Italy and Spain, while Japan sees JPY 5.5 Trln total of 2 & 10-yr, and there is another deluge of Chinese local govt bond issuance. OPEC+ holds its monthly production meeting, but is expected to stick with its long established plan to increase output by 400K bbls, despite continued pressure from the US and others, but as is well known the issue of the moment is oil products (gasoline, diesel, etc) rather than crude, in other words it’s about refining and storage capacity. The EU holds a special 2-day leaders’ summit to start the week, and will attempt yet again to reach an agreement on a Russian energy embargo, though as yet it still looks as though Hungary will continue to block this, and there remains a pressing need to develop a coherent strategy to deal with the broader energy crisis that pre-existed the war in Ukraine.  The latter war remains brutal, barbaric, colossally destructive and deadly, and very entrenched, while the economic toll of China’s Covid-19 battle is all too obvious, and will find its focal points in this week’s PMIs and anecdotal evidence on reopening.

Market narratives on the global economy and by extension central bank policy outlooks are veering once again to something that is is more self-serving, with ‘down at heel’ surveys tending to ride roughshod over official statistics that in many cases is proving more resilient, as for example is the case with US personal consumption, and Eurozone services spending. The modest recent Fed speak has in principle signalled that the rapid tightening of financial conditions, clear signs that the housing bubble is deflating and some signs that core inflation pressures are probably starting to ease has prompted a shift to a less hawkish medium-term stance, with September potentially an inflection point at which it will pause, once the Fed Funds rate target has reached 1.75%-2.0%, just short of neutral. Unsurprisingly the USD has started to give some ground. By contrast the ECB has finally conceded that it will start to remove some of its accommodation, with the hawks in the ascendancy for the time being, while the Bank of England is confronted by the inflation pressures that abound elsewhere, a structural weak economy given a chronic overdependence on imports and decades of infrastructure neglect, and a very inept, reactive and ‘sleaze’ swamped government.

In terms of the week’s data run, Eurozone CPI is 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, though core price pressures will remain very evident with a further modest rise to 3.6% y/y from 3.5% expected. EC Confidence surveys are likely to be mixed as national surveys and flash PMIs have already signalled with Manufacturing labouring under supply chain disruptions, and energy and raw materials price pressures, exacerbated by the war in Ukraine, while Services continue to some benefit from re-opening. China’s NBS PMIs could prove pivotal, with a rebound seen for both Manufacturing (49.0 vs. 47.4) and Services (45.0 vs. 41.9), but still obviously contracting. US 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, while the ISM surveys are seen falling again, but still expanding at a healthy pace, even if well off their highs (Manufacturing 54.5 vs. 55.4; Services 56.5 vs. 57.1), and the focus on Orders, Supplier Deliveries and Prices. The Fed’s Beige Book is likely to indicate that the economy is expanding at a moderate pace, the question is whether it indicates any slowdown in personal consumption (previously seen picking up), any demand destruction due to ongoing and accelerating energy pressures, and any signs of slowing demand for logistical services (transport, warehousing) as inventories start to build, above all in retail/wholesale). Last but not least Non-farm Payrolls are forecast to post a 325K gain after successive gains of 428K, and as ever how this contrasts with the Household survey, which showed some perhaps Easter related weakness in April, which forecasts assume was transitory, with the Unemployment Rate expected to dip to 3.5% and Participation rate to edge up 0.1 ppt 62.3%, while Average Hourly Earnings at 0.4% m/m 5.2% y/y (vs. April 0.3%/5.5%). Auto Sales are also due, and forecast to be nearly unchanged at 14.30 Mln, with industry estimates hinting at some modest downside risks, with low inventories and supply chain issues still creating headwinds.

The UK data run is expected to see a solid £1.2 Bln gain in Consumer Credit (but the contribution from Credit Card debt requires monitoring) and a still very robust £5.9 Bln in Mortgage Lending, while May Nationwide House Prices are expected to slow somewhat to 0.6% m/m 10.5% y/y, while a further rise in the BRC’s Shop Price Index appears likely, paced above all by Food prices. Australian Q1 GDP should moderate to around 0.6% q/q, after a re-opening paced 3.4% q/q rebound in Q4, while Canadian Q1 GDP is expected to slow only modestly from Q4’s 6.7% SAAR q/q to 5.2%.

The latter will only galvanize the Bank of Canada to try and rein in inflation running at 6.8% y/y, with core CPI ar 4.2%, with a further 50 bps hike to 1.50%, and signal a further 50 bps in July, before reverting to a 25 bps pace later in Q3. The point of interest will be whether it (like the Fed) raises any concerns about the pace of tightening of financial conditions.

In the commodity pace, outside of the OPEC+ meeting and the upward pressure on oil product and Nat Gas prices in the US, the focus will be on the UN FAO World Food Price Index, which will have likely climbed to a fresh record high in May, with the Global Food Forum also taking place in Australia. Agricultural Export curbs also remain high on the watch list, with India apparently now also looking at curbing rice exports, on top of the already Wheat and Sugar export curbs.

The light week for earnings will find its highlights in the following according to Bloomberg News: Broadcom, Crowdstrike, Hormel Foods, HP, Lululemon Athletica, Oil & Natural Gas, Salesforce, Sun Pharmaceutical, Veeva Systems.

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