The Week Ahead - Preview: 21 to 25 May 2018 2018
The schedule for the upcoming week is relatively modest, with the exception of the UK, which has CPI, PPI, House Prices, Retail Sales, revised Q1 GDP, PSNB and both CBI surveys. Elsewhere flash PMIs and a plethora of surveys (including Germany's Ifo) feature alongside US Durable Orders, New & Existing Home Sales & the May FOMC minutes, while Japan looks to Trade and Tokyo CPI. All of which amounts to not very much, and will thus have the markets' chattering classes continuing to focus on Italian politics; China, Asia, EU, NAFTA trade tensions with the US, and the Brexit saga which still looks like a dog spinning round and round trying to bite its own tail, as well as the seemingly inevitable collapse of the Iran/G8 JCPOA nuclear deal. Venezuela's elections will also be closely watched, even if that will not arrest its precipitous and ever deeper fall into economic hell. Next week is also a very chunky week for US debt issuance (ca $270 Bln total): $99 Bln of T-Notes, $16 Bln of 2-yr FRN and $ 116 Bln of 3, 6 & 12-mth Bills are confirmed, and an estimated $45 Bln of 1-mth Bills are likely to be confirmed next Monday.
- Statistically, UK CPI is seen unchanged at 2.5% y/y in headline terms and core CPI a fraction lower at 2.2% (vs. March 2.3%). By contrast, upward pressures from energy and raw materials prices will likely be the main drivers of a projected 1.1% m/m in PPI Input to jump the y/y rate back up to 5.8% from 4.2%; that said PPI Output is seen barely changed and subdued at 0.3% m/m 2.3% y/y (vs. March 2.4%). PSNB / budget data for the start of any fiscal year are above all noisy, and often more about the revision to Q1 readings than anything else, but for what it is worth the April deficit is seen at a marginally improved £-7.1 Bln vs. April 2017's £-7.5 Bln. The first detailed UK Q1 GDP data are seen un revised in headline terms at a very sluggish 0.1% q/q 1.2% y/y, with Private Consumption forecast at 0.1% q/q, Gross Fixed Capital Formation at -0.2% q/q and Govt Spending unchanged at 0.4% q/q. The breakdown for German Q1 GDP is expected to show sluggish Private Consumption (0.2%q/q), solid CapEx (1.1% q/q) and Construction Investment (1.0% q/q), and Govt Spending falling 0.2% q/q, while the Ifo Business Climate is forecast to be little changed at 102.1. Flash PMIs for the Eurozone, Japan and USA along with the CBI Industrial Trends survey are seen little changed vs. March, more than likely reflecting the usual level of agnosticism rather than anything else. US Existing and New Home Sales are both expected to dip after strength in March, but are always good for a surprise that should not be over-interpreted, while the ever volatile Durable Goods Orders are forecast to drop 1.4% m/m after surging 2.6% in March, while the core measures are expected to bounce from sluggish March prints: ex-Transport 0.5% (March 0.1%) & Non-defence Capital Goods ex-Aircraft 0.7% m/m (March -0.4%). In Japan, Exports and Imports are seen rebounding to 8.7% and 9.8% y/y respectively (predicated on the assumption that the March weakness related to lunar new year & base effects), while May Tokyo CPI is assumed to be unchanged at 0.5% y/y headline and 0.3% y/y ex-Food & Energy, i.e. very far away from the BoJ's 2.0% target.
- Another very busy week for Fed, ECB, BoE, RBA and Riksbank speakers also has minutes from the most recent Fed and ECB meetings to digest. In respect of the Fed, the key aspects will be the discussions around the potential end point for the current tightening cycle, both in nominal & real terms and whether it should be neutral or slightly restrictive, as well as the debate around whether the current inflation target is "appropriate", again not only in nominal terms, but also in respect of the topic of being 'symmetric', and by extension relative elasticity. The Bank of Korea is seen on hold again at 1.50%, the more so given recent BoK comments that the relatively weak level of labour demand is hardly an encouraging signal on the economic outlook. In the EM space, policy meetings in Colombia, Nigeria, Paraguay, South Africa and Ukraine appear likely to maintain rates at unchanged levels. By contrast the consensus sees scope for Ghana's central bank to cut rates by a further 50 bps to a still very high 17.50% (vs. a peak of 26.0%), though the weakening Cedi (GHC) would appear to limit the central bank's room for manoeuvre, even if with CPI dropping to 9.6% y/y in April from 10.4%, real rates look to be rather too high.
- The corporate earnings season is largely complete, with consumer related stocks dominating the US schedule. Highlights are likely to include: Bosch, Gap, Hewlett-Packard, Marks & Spencer, Tata Motors, Target, TJX and Toll Brothers.
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Marc Ostwald
Strategist
ADM Investor Services International
