The Week Ahead
Last week markets grappled with heightened geopolitics, broadly robust US data and a hawkish Fed suggesting higher-for-longer rates, and a lacklustre Chinese economy. Flight to quality saw the dollar push higher, sending some Asian currencies to all time-lows, and gold was another beneficiary. The yield on the 10-year UST rose 10bps to 4.62%, while the S&P Index fell through the week, down 3.05%. Oil dropped 3.49%, closing the week at $87.29pb.
The US data stream kicked off with a weaker-than-expected US empire manufacturing print for April, at -14.3 (exp. -5.2), followed by a bumper March retail sales report. The control group reading, used to calculate GDP, smashed expectations of +0.4%, at 1.1%, coupled with a 0.3% upward revision for February. Housing starts and building permits weakened in March and surprised to the downside.
The Fed’s Beige Book noted that 10 out of 12 districts reported slight to modest growth. Although consumer spending was mixed across the districts, there was a marginal overall increase. Higher prices saw broader weakness in discretionary spending. Manufacturing saw little improvement with only three districts reporting growth. Meanwhile, employment rose at a slight pace with nine districts experiencing very slow to modest increases.
The IMF modestly edged up its global growth forecast, saying that it has proved “surprisingly resilient”, expecting an expansion of 3.2% this year (from 3.1% in January). The organisation cited strength in the US and some emerging markets. Forecasts for 2025 growth remained at 3.2%. Although the IMF currently foresees the global economy headed for a soft landing, it did warn of several downside risks, including the effect of high borrowing costs and the withdrawal of the fiscal support to short-term growth, while reduced productivity and escalating trade tensions are expected to impact medium-term growth. As for inflation, the IMF projects a decrease in global headline inflation from an annual average of 6.8% in 2023 to 5.9% in 2024, and a further fall to 4.5% in 2025. Advanced economies are expected to reach their inflation targets ahead of emerging markets and developing economies.
In China, Q1’24 GDP figures surprised to the upside, at 5.3%yoy (exp 4.8%yoy). Expansion in the first quarter was supported by industrial output, up 6.1%yoy (from 4.6% in 2023). Tech sectors also witnessed considerable strength, gaining 7.5%yoy, underscoring the trajectory towards high-quality expansion. Trade in renminbi terms was up 5%yoy, underpinned by the global trade recovery. Nevertheless, other numbers from the world’s second-largest economy were less upbeat. Both industrial production and retail sales missed by a wide margin. Industrial production came in at 4.5%yoy, versus the consensus of 6%, while retail sales witnessed an even bigger miss at just 3.1%yoy against expectations for 4.8%yoy.
The IMF warned that China remains a significant concern due to its faltering property market, along with other potential risks such as geopolitical tensions leading to price surges, trade disputes, varying rates of disinflation among its key sectors, along with high interest rates. However, on the upside, looser fiscal policy, falling inflation and advancements in artificial intelligence were cited as potential growth drivers.
This week’s main events include the BoJ meeting (Friday), US PCE prints (Friday), S&P Global PMIs, and quarterly earnings from the likes of Tesla, Meta and PepsiCo. On Tuesday we have the S&P Global PMIs for the Eurozone, and UK. Germany’s IFO business climate and US durable goods will garner some interest on Wednesday, and we have IBM, Boeing and Meta earrings reports. On Thursday we have US GDP, wholesale inventories and initial jobless claims, and Alphabet and Microsoft earnings. All eyes will be on the US PCE report on Friday, and we have the personal spending and income readings, and the Uni. of Michigan sentiment and inflation forecast prints.
Central banks chatter will be limited, with the Fed in blackout. On Monday we will hear from the ECB’s Lagarde and the BoE’s Benjamin. The BoE’s Haskel and Pill speak at separate events on Tuesday. The ECB’s Executive Board Members, Cipollone and Schnabel speak on Wednesday. The ECB’s Challenges for Monetary Policy Transmission in a Changing World (CHaMP) two-day conference starts on Thursday, separately we’ll hear from the central bank’s Vujcic.
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