Key events this week – US CPI & retail sales; US Fed Chair Powell; Aus budget, labour market, & wages; Europe growth & CPI
Recap from last week
There was limited data released last week. US data focused on lending conditions and consumer sentiment. The University of Michigan consumer sentiment survey recorded a notable (and statistically significant) fall in sentiment in the prelim May report. While the result may be influenced by the change in methodology, there was a corresponding increase in inflation expectations that may have weighed on sentiment. Inflation expectations have eased from recent peaks, but they remain elevated compared to the pre-pandemic trends.
The growth in US consumer credit in Mar was much lower than expected at +$6bn led by (unusual) stalled credit card/revolving credit growth. Non-revolving credit lifted somewhat, but growth rates remain historically subdued. The latest Senior Loan Officer Opinion survey for Q1 noted that while banks reported tighter lending standards for most loan categories in Q1, there were lower net shares of banks reporting tighter lending standards than in Q4. Initial jobless claims were higher than expected at 231k (up from 209k in the prior week). Half of the +20k increase over the week can be traced back to New York and seasonal patterns related to the school year. Initial claims are expected to stay at a slightly elevated +221k level this week though.
The BoE kept policy rates unchanged last week. There was a shift in voting with seven members voting for a hold and two members now voting for a 25bp cut. The Committee noted that the restrictive stance of policy is weighing on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures. The Committee still judged that policy rates would need to stay restrictive for an extended period. Headline inflation has eased but services inflation remains elevated and persistent. Later, Governor Bailey noted that recent inflation data have been encouraging. In a positive sign for the UK economy, GDP for Q1 increased by more than expected by +0.6% after contracting in the second half of 2023.
The RBA kept rates on hold amid concern over slowing progress on inflation. The Board noted that “we need to be vigilant” to upside risks to inflation and that it would be some time yet before inflation is sustainably in the target range. The Board discussed a rate hike at this meeting but judged that the right stance for now was to stay on hold. Rates were deemed restrictive enough and won’t necessarily have to tighten again, but the Board couldn’t rule another hike in or out. The path of policy rates in Aus has shifted up since the Feb Statement on Monetary Policy – led in part by the higher Q1 inflation print. This week, the federal budget and Q1 wage data will play into the broader inflation picture in Aus.
Outlook for the week ahead
With a range of data out this week, the focus will be on US CPI for Apr and its implications for rate projections.
Progress on disinflation in the US has stalled over the past few months, pushing the timing of rate cuts further out. The FOMC recently noted that “it will likely take more time to gain confidence that inflation is on a sustainable path to 2% inflation”. The data this week is expected to show some progress on inflation. US headline CPI is expected to slow to +3.4% over the year in Apr (from +3.5% in Mar). The monthly headline rate is expected to slow to +0.3% in Apr, from +0.4% in Mar. Core inflation is expected to slow to +3.6% over the year in Apr (from +3.8% in Mar). The monthly core inflation rate is expected to slow to +0.3% in Apr from +0.4% in Mar.
US headline PPI for Apr is expected to be little changed at +2.1% over the year while the monthly pace remains unchanged at +0.2%. Annual core PPI is expected to be little changed at +2.4% with the monthly rate also staying at +0.2%.
There is a broad range of US data out this week that will inform the trajectory of growth so far in Q2. These developments will be reflected in the Atlanta Fed GDPNowcast update for Q2.
US retail sales for Apr are expected to slow to +0.4% from the faster +0.7% in Mar.
Building permits are expected to rebound somewhat to an annualized pace of 1.48m in Apr (from 1.467m in Mar). Housing starts are also expected to rebound to an annualized pace of 1.41m in Apr (from 1.32m in Mar).
Industrial production in Apr is expected to slow to +0.2% from +0.4% in Mar.
Import and export prices are expected to slow over the month in Apr.
There will be a range of Fed speakers this week. The headline event will be Fed Chair Powell in a moderated discussion at the Foreign Bankers’ Association AGM in Amsterdam. Other speakers include Vice Chair Jefferson and Governor Waller. Topics aren’t specifically related to current economic conditions but could be covered. Please check the link above.
It’s also a busy week for data outside of the US. Japanese GDP for Q1 is expected to fall -0.4% from the slow pace of +0.1% growth in Q4.
Euro area GDP for Q1 is expected to be confirmed at +0.3%. Euro area inflation for Apr is expected to be confirmed at +2.4% over the year and +0.6% over the month. Core CPI is expected to be +2.7% over the year.
There will be a range of Aus data out this week. The RBA will be watching closely the direction and impact of the Australian Federal Budget, wage data, and labour market conditions. The wage price index for Q1 is expected to accelerate slightly to +1% from +0.9% in Q4. The labour market survey for Apr will be important for the RBA given its dual mandate. Governor Bullock noted the importance of preserving labour market conditions in her opening press conference statement last week, “The Board wants to keep employment growing while bringing down inflation, and we think rates are at the right level to achieve this”. Employment growth is expected to rebound this month to +25k after net employment edged slightly lower last month. The unemployment rate is expected to increase to 3.9% (from 3.8% in Mar).
Data out of China will also be closely watched after some firming in activity recently. Retail sales, industrial production, and fixed asset investment for the year to Apr will be released this week.
This week, the US Treasury will auction and settle approx. $606bn in ST Bills, Notes, and Bonds, raising approx. $34bn in new money.
QT this week: Approx $35bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $31bn in Notes & Bonds will be redeemed and roll off the Fed balance sheet.
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
