Key themes for the week ahead – inflation, US retail sales, central bank speeches & minutes, and ongoing geopolitical risk
Recap from last week
US CPI for Apr and Fed speeches was the focus of last week. US CPI growth did ease to +8.3% in Apr from +8.5% in Mar but not by as much as expected (expecting +8.1%). The rate of growth is still extremely elevated. The deceleration in Apr was the result of slower growth in energy (gasoline) and used car prices. Household energy prices, food, and shelter price growth continued to accelerate. US consumer sentiment declined markedly again amid high inflation concerns.
Fed speeches reiterated the priority to deal with high inflation by moving to neutral as quickly as possible. This means increases of 50bps are likely at Jun and Jul meetings. The more hawkish speeches called for an even greater tightening of financial conditions. According to Fed Chair Powell, the FOMC is not actively considering 75bps increases but is prepared to do more (or less) if needed.
Chair Powell’s interview after the CPI release noted that their “ability to execute a soft landing depends on factors outside of its control” – namely geopolitics and supply chain bottlenecks, both of which remain issues. Growth concerns have become heightened since the invasion of Ukraine. Some US growth forecasts have recently been revised even lower than the FOMC SEP from Mar when 2022 growth was revised from 4% down to 2.8% (without a corresponding increase in the unemployment rate).
The week ahead
A big week of data affecting the growth and inflation outlook and the path for rates.
US retail sales this week are expected to increase by +0.8% in Apr from +0.7% in Mar. The Apr US housing data is expected to weaken slightly on rising mortgage rates. Speeches this week by Fed Chair Powell, Bullard, and Mester. Initial manufacturing surveys for May to provide early insight into output growth momentum, prices, employment, and supply chain impact, especially from the latest Chinese lockdowns.
Both the BoC and BoE have guided higher for rates on the back of elevated inflation. This week, Canadian CPI is expected to ease to +6.3% in Apr (from +6.7% in Mar) while UK CPI is expected to accelerate from 7% in Mar to +9.1% in Apr. UK labour market (Mar) and retail sales (Apr) data will also provide some important insight into the pace of economic activity. Last week, UK Q1 GDP was slightly lower than expected at +0.8% (expecting +1%).
Japanese national CPI growth is expected to increase to +1.5% in Apr up from +1.2% in Mar. Core CPI ex fresh food is expected to increase to +2.1% in Apr (from +0.8% in Mar) on the back of higher energy prices. Ex energy and fresh food prices, CPI is expected to decline by -0.9% over the year in Apr. The BoJ has stated that it expects inflation to reach above 2% but will ‘look through’ rising energy prices which it expects to be transitory. Japanese GDP in Q1 is expected to contract by -0.4%.
The RBA minutes should provide insight behind the May rate hike. The RBA will watch closely the labour market and wages releases this week. Expecting a +30k increase in employment and the unemployment rate to fall to 3.9%. Wages in Q1 are expected to increase by +0.8% in the quarter and by +2.5% over the year. Last week, Aussie consumer sentiment fell further on rising inflation and interest rates impacting the cost of living. The Australian Federal election will be held this weekend.
The ECB minutes will be released this week. Markets are continuing to forecast rate lift-off after QE ends, possibly from Jul. Final Apr Euro area CPI for Apr is expected to confirm Euro area inflation at +7.5%. ECB President Lagarde and numerous other ECB members will speak this week.
Chinese data for Apr continues to reflect weaker economic conditions amid strict covid-zero lockdowns.
G7 leaders meet this week.
This week, the US Treasury will auction and settle approx. $319bn in ST Bills, Notes, and Bonds raising approx. $16bn in new money.
The US Treasury will also auction the 20yr Bond and 10yr TIPS this week – both will settle on 31 May.
Approx. $97bn in ST Bills, Notes, and Bonds 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
