The Week Ahead
US PPI (Tue) and CPI (Wed) will draw market focus this week. We also have several corporate earnings reports, and plenty of central bank chatter to digest. Later today we’ll hear from the Fed’s Mester and Jefferson, and the IMF’s MD Georgieva, speaking alongside the SNB’s Jordan. Japan and US PPI, and UK unemployment figures will be of interest on Tuesday. We also have the Qatar Economic Forum (through to May 16), and a gathering of EU finance ministers. The Fed’s Chair Powell, and ECB’s Knot and BoE’s Pill speak on Tuesday. China’s rate decision comes on Wednesday; later we have eurozone GDP, US CPI, retail sales, business inventories and empire manufacturing. Central bank chatter includes the Fed’s Kashkari, and the ECB’s Rehn and Villeroy. Japan GDP, US housing starts, initial jobless claims and industrial production are due on Thursday. The Fed’s Harker, Mester and Bostic speak at different events, and we'll hear from the ECB’s Galhau and Panetta. Eurozone CPI and the US Conf. Board leading index hit the screens on Friday. Central bank speak comes from the ECB’s Vasle, Vujcic, Holzmann and Kazaks, at the same event in Slovenia.
Last week we had limited key data from the US, so markets absorbed weak wholesale inventories and wholesale trade sales (-1.3% versus exp +0.8% and prev. 2.0%). Initial jobless claims were also disappointing. Later, we had the Uni. of Michigan prints which showed sentiment slumped to a six-month low. Markets were, however, more focused on the inflation forecasts, which were expected to remain flat, at 3.2% for the 1-year and 3.0% for the 5–10-year projections. However, the former rose to 3.5%, and the longer-term outlook edged marginally higher to 3.1%.
Having rallied following the rise in weekly initial jobless claims, yields across the US Treasury curve moved higher amid the mounting inflation concerns. The yield on the 10-year closed marginally lower on the week, at 4.50%. Meanwhile, the S&P Index rose 1.85%. The dollar (DXY Index) gained 0.26%, and Brent Crude fell 0.20%, to $872.79pb.
During the week, we heard from the Fed’s Kashkari who cautioned that the Fed will most likely hold rates for an “extended period”. While his colleague Collins said the 2% inflation goal may take longer to reach, adding that the economy may need to weaken to achieve this. Fed Governor Cook, noted that although households remain resilient, rising delinquency rates should be monitored. Later, Bowman said the central bank should proceed “carefully and deliberately”, adding that she is not considering rate cuts this year, given persistent inflation pressures. Logan followed, stating it is too early to consider lowering rates. Goolsbee said he doesn’t believe “inflation is stalling out at 3%”, adding that monetary policy is “relatively restrictive”.
Closer to home, the more dovish BoE held rates, and hinted that a rate cut could come as soon as June. Markets barely repriced rate reduction expectations despite a warning from Governor Bailey that cuts may come more aggressively than markets perceive. The stronger-than-expected Q1’24 GDP, which lifted the UK out of recession, did little to convince markets that an imminent cut is necessary; the UK economy expanded 0.6%qoq (exp. 0.4%, prev. -0.3%) and 0.2%yoy (exp. 0.0%, prev. -0.2%).
A more uncertain message came from the ECB. Although the central bank has signalled a June cut, what follows is less clear. Belgian policymaker Wunsch warned of the risks to “the trajectory of wage growth and inflation in wage-intensive services”. He also called for tolerating “some flexibility” in interpreting the 2% inflation target. His Spanish counterpart, Hernandez de Cos, said the central bank is “being very cautious about what the timeline will be like after the first cut, because the level of uncertainty continues to be very high.”
Elsewhere, we had the Caixin China PMI services print, at 52.5, in-line with expectations. China’s trade data surprised to the upside in April; exports were up 1.5%yoy (exp 1.3%, prev. -7.5%), and imports rose 8.4%yoy (exp. 4.7%, prev. -1.9%), in dollar terms. Over the weekend PPI missed expectations, at -2.5%; however, CPI rose above consensus, at 0.3% in April. This week China will sell its first batch of CNY1tn (USD138.37bn) ultra-long special bonds, as the nation ramps up support for its economy.
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