The Week Ahead
G-7 ministers meet this week (Thu), we also have the FOMC minutes (Wed), and corporate earnings include Nvidia (Wed). A host of BoE speakers take the stage at London’s City Week 2024 which kicks-off today. Later today we’ll hear from the Fed’s Bostic and BoE’s Broadbent. On Tuesday the Fed’s Barkin speaks on “Investing in Rural America”, Waller discusses the US economy and monetary policy, and Bostic and Williams speak at different events. UK CPI hits the screens on Wednesday and later we have US existing home sales. Thursday sees a number of preliminary S&P Global PMIs including the US, UK, Eurozone and Germany, and in the US initial jobless claims will garner market attention. The week ends with US durable goods and capital goods orders Friday, and we have the final May Uni of Michigan prints. The ECB’s Schnabel and Fed’s Waller will be of interest.
Last week, mixed US data captured market attention, kicking off with PPI prints which rose above expectations, however, the downward revisions for March’s strong readings suggested Q1 key inflations may not have risen as sharply in Q1. Next, the Consumer Price Index (CPI) readings moderated in April, with the core prints below market expectations. The headline figure rose 0.3%mom (vs. expected 0.4%) and 3.4%yoy (prev. 3.5%), while the core readings, excluding food and energy, eased to 0.3%mom (prev. 0.4%) and 3.4% (prev. 3.8%). Thus, disinflation is back in play, although not as sharply as the Fed may have hoped. Next, the retail sales figures disappointed, particularly given the downward revisions for March's readings, indicating cracks in US consumer resilience. The control group figure, used to calculate GDP, missed expectations for a 0.1% rise in April, falling 0.3%. Ahead of the data, Home Depot reported subdued results, with its managing director noting "some hesitation among consumers" and attributing the "current challenges to a period of churn in the consumer economy." Walmart, a bellwether for the US consumer, raised its earnings forecast, and its stock hit all-time highs. The company’s CEO Bill Simon, did, however, note that food inflation and the higher-income consumers were the primary drivers of Q1 performance, warning that the latter shopping at Walmart isn’t great news for the broader economy.
The overriding message from Fed chatter was that although there is some improvement to inflation, further evidence is needed to adjust the higher-for-longer stance. The Fed’s Bowman did, however, throw out that a rate hike remains a possibility, leading to a sell-off in USTs at the end of the week. US Treasury 10-year yield managed to cling onto the gains earlier in the week, following the inflation and retail sales prints, closing 8bps lower, at 4.42%. The S&P 500 Index soared to new all-time highs, gaining 1.54% on the week. The dollar backed-off as falling inflation renewed hopes of rate cuts, the DXY Index fell 0.81%. Meanwhile, oil enjoyed a bounce, Brent gained 1.44%, closing the week at $83.98pb.
China is taking significant measures to stimulate its faltering economy, including the launch of its ultra-long special sovereign bonds on Friday. The first tranche of 30-year bonds were well absorbed, at 3.9x oversubscribed. These ultra-long bond sales, part of broader coordinated efforts to bolster growth through fiscal stimulus and strategic investment coincide with disappointing April credit data showing record low expansion in total social financing. The issuance is also likely timed to offset the potential impact of threatened US tariffs on Chinese goods and uncertainty ahead of a key Communist Party meeting on reforms in July. Furthermore, amid China's ailing property crisis, reports outlined a proposal for local governments nationwide to purchase millions of unsold homes from struggling developers at steep discounts using loans from state banks, with many units converted to affordable housing - a more ambitious effort than previous small buyback pilots. With home sales down around 47% and unsold inventory at an eight-year high, authorities hope injecting liquidity by clearing inventory benefits developers, though concerns remain over further indebting local governments and banks.
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