The data and event calendar is reasonably light this week, with a number of markets on holiday today. Geopolitics will likely remain in the spotlight given the ongoing rise in crude oil prices and the United States’ pending decision on 1st June on whether to impose import tariffs on the European Union.
In the UK, the focus will be on labour market and retail sales data for April but will likely re-centre on Brexit negotiations and the scheduled publication in coming weeks of a 100-page White Paper. It will reportedly set out the government’s stance on key Brexit-related issues, including membership of a Customs Union.
In the US markets will be looking to the minutes of the Federal Reserve’s May policy meeting and the numerous FOMC members’ schedule speeches, including Chairperson Powell on Friday, for any signs that the Fed may still hike rates three more times this year.
Similarly, the minutes of the European Central Bank’s May meeting may provide further clarity on whether the ECB plans to extend its QE program beyond September. German business confidence and Eurozone PMIs for May will provide further evidence as to whether the momentum in economic activity slowed further in Q2.
Monday 21st May
Public holiday: Canada, Norway, Switzerland, Germany, France.
Tuesday 22nd May
United States: FOMC members Bostic, Harker, Kashkari speak.
Wednesday 23rd May
Eurozone: Preliminary May manufacturing PMI. Data in recent months have confirmed that Eurozone economic growth slowed quite sharply in Q1 and the question is whether this was carried through to Q2. Manufacturing PMI data tend to correlate quite well with GDP growth and in April it fell to 56.2 from 56.6 in March having been above 60 in late-2017. Consensus forecast is for a further drop in May to 56.0 which if correct would suggest that Eurozone GDP growth did not rise much from 0.4% qoq in Q1.
United Kingdom: April CPI-inflation. The faster than-expected-drop in core and headline consumer price inflation in March, to 2.2% yoy and 2.5% yoy respectively, contributed to the Bank of England’s decision on 10th May to keep its policy rate unchanged at 0.50% despite some members keen for a 25bp rate hike. A further fall in CPI-inflation in April is likely given weak economic activity and the diminishing inflationary impact of Sterling depreciation. The magnitude of any further fall in inflation is likely to colour market’s reaction-function, with a 46% probability of a 25bp rate hike currently priced in for the August policy meeting.
United States: Minutes of Federal Reserve’s May policy meeting. The Fed kept rates unchanged at its May meeting, in line with expectations. The focus will be on whether the minutes give any clearer intention as to the Fed’s intentions for the remainder of the year and specifically whether it may hike rates at its June, September and December meetings or instead skip one. Markets’ core scenario is for two more rate hikes before year but the probability priced in for a third hike has inched up in coming weeks and now stands at 42%. Unless the Fed minutes explicitly pour cold water on a three-hike before end-year scenario, US yields and the Dollar are unlikely to fall much.
Thursday 24th May
United Kingdom: April retail sales. The weakness of retail sales and consumer demand in Q1 was partly attributed to the cold and wet weather in March. But British Retail Consortium (BRC) figures and the VISA spending index suggest that retail sales, which contracted 1.2% mom in March, remained weak in April. This may in turn be partly blamed on the timing of Easter this year but the overall picture is one of weak consumer demand in the face of stagnating real wages, a fall in bank lending and morose consumer confidence.
Eurozone: Minutes of European Central Bank’s May policy meeting. The ECB has made clear that it is very unlikely to raise interest rates until next year so focus will likely be on the modalities of its quantitative easing (QE) program. The consensus forecast is that the ECB will stop its bond purchases in September as previously indicated but this may not yet be a foregone conclusion give the recent slowdown in Eurozone growth and still very low inflation. Should the ECB hint at a possible extension of its QE program beyond September the Euro may initially weaken. But to the extent that loose monetary policy is supportive of Eurozone economic activity an extension of QE into 2019 may ultimately prove Euro-positive.
United States: FOMC members Dudley and Harker speak
Friday 25h May
Germany: May IFO business climate index. Business confidence in Germany, along with growth in exports and industrial output, has considerably weakened since February with the index down to 102.1 in April from 115.4 in February. Euro strength is unlikely to be the main cause as historically German business confidence has been high when the Euro has been strong. German businesses have expressed concern about, amongst other things, the negative impact of potential US tariffs on imports from the European Union. The IFO has been a good leading indicator of German GDP growth so a further fall in business confidence in May would not bode well for growth in Q2 and by extension for the prospects of renewed Euro appreciation.
United Kingdom: Second reading of Q1 GDP. The slowdown in GDP growth to 0.1% qoq and 1.2% yoy, according to the first reading, dealt a serious blow to the prospects of a rate hike at the Bank of England’s 10th May policy meeting. Precedent suggests that these figures may have been revised slightly but this is unlikely to provide Sterling with a significant boost as the UK ultimately remains one of the slowest growing economies within the G7 and OECD.
United States: April durable goods orders. Markets tend to focus on this measure of domestic investment and analysts are expecting core goods orders, which have historically been quite volatile, to have risen 0.5% following a 0.1% contraction in March.
United States: Federal Reserve Chairperson Powell speaks, as do FOMC members Evans, Bostic and Kaplan.
