Key themes for the week ahead – Inflation and growth data, BoJ meeting, and ongoing geopolitical risk
Recap from last week
Last week, US Fed Chair Powell indicated that a 50bps increase will be on the table for the May meeting. Other speeches by Fed officials last week supported the view of a faster move up to the ‘neutral’ rate. US Fed officials are now in the blackout period ahead of the FOMC meeting next week 3-4 May.
The RBA minutes provided insight behind the guidance shift at the Apr meeting. Rising inflation pressure, high uncertainty about wages growth amid a tight domestic labour market, and rates moving higher globally – “these developments have brought forward the likely timing of the first increase in interest rates”. Inflation is expected to increase over the coming quarters. Aus CPI for Q1 is out this week and annual CPI growth is expected to accelerate to +4.6% from +3.5% in Q4. Core inflation is expected to increase to +3.4% from +2.6%. A hike at the next RBA meeting (3 May) is possible, but the Board may be hesitant to make a major policy shift ahead of the Federal election on 21 May.
Prelim PMIs for Apr were mixed. The unifying theme remained the record, or near-record, high rates of input and output price growth. Escalating costs and prices were cited as offsetting the positive impact of the reduction in covid restrictions. There was some indication that supply chains remain under pressure. In Aus, reduced covid restrictions contributed to faster growth across manufacturing and services. Momentum across manufacturing and services in Japan remained lacklustre. Eurozone services activity helped to offset a more notable slowdown in manufacturing output. Germany’s manufacturing output contracted sharply. US manufacturing activity increased while there was a more notable slowdown in services growth.
The week ahead
US growth and PCE inflation data are out this week ahead of the FOMC meeting next week. US GDP growth in Q1 is expected to slow to +1.1% (SAAR basis) from +6.9% in Q4. The headline PCE price index for Mar is expected to be little changed from +6.4% in Feb. Core PCE inflation is expected to ease slightly to +5.3% in Mar from +5.4% in Feb.
The BoJ meets on policy this week and settings are expected to remain unchanged. The BoJ continues to reaffirm its commitment to accommodative policy and remains an outlier among global central banks that are shifting to a tightening stance. Japanese CPI last week was in line with expectations on headline inflation +1.2% and core inflation +0.8%.
Eurozone Q1 GDP and the prelim inflation data for Apr are out this week. Euro area GDP is expected to increase by +0.3% in Q1 (from +0.3% in Q4). Annual GDP growth is expected to increase to +5.1% versus +4.6% in Q4. The prelim Euro area CPI for Apr is expected to increase to +7.5% from +7.4% in Mar. The monthly inflation rate is expected to ‘ease’ to +1.8% from +2.5% in Mar. ECB President Lagarde is scheduled to speak this week.
BoC Governor Macklem is scheduled to provide a statement to the Canadian parliament.
China PMIs for Apr is expected at the end of the week, amid extended Covid lockdowns.
This week, the US Treasury will auction and settle approx. $211bn in ST Bills and 5yr TIPS, with a -$7bn paydown.
The US Treasury will also auction approx. $180bn in Notes and FRNs which will settle on 2 May.
Approx. $19bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
