Big GDP Week Ahead After Central
Bank Governors Cede the Stage
Squawker’s Weekly, May 12-18
Last week was central bank week, with five major central
banks loosening monetary policy. But the upcoming week
promises to be Gross Domestic Product data week, with
releases from euro zone members and Japan.
EURO ZONE
Traders’ eyes will be on the release of GDP data from euro
zone nations. Analysts expect euro zone economic growth in
the first-quarter to have eased its rate of decline, forecasting
a quarter-on-quarter reading of negative 0.1%, from a 0.6%
contraction in the fourth-quarter of 2012.
No detailed breakdown will accompany the release.
Therefore, individual readings from France, Germany,
Austria, Portugal and Greece will be important in gauging the
differentials between core and periphery nations.
Analysts at RBC expect a divergence between euro zone
members to be such that better readings from Germany,
Austria and the Netherlands will not be able to offset
weakness in Italy, Spain and other periphery nations, which
are set to remain in recession.
Ahead of Wednesday’s GDP data, euro zone industrial
production on Tuesday is more of a wild card. Recent data
for the euro zone has been mixed – typified by PMI readings
last week, which was generally positive for core nations, but
nations like Spain continued to show weakness.
But HSBC notes that “the overall trend indicated by the
OECD lead indicator suggests that industrial production
is bottoming out and should begin to improve again in the
months to come.”
Also on Tuesday, Germany’s ZEW survey will add some
colour to the economic picture in Europe. Last week, the DAX
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index hit all-time highs on the back of looser monetary policy
from the European Central Bank, and encouraging German
economic data points, like factory orders and industrial
production. Therefore, analysts are expecting the ZEW index
to rebound from the 36.3 reading in April.
UK
Sterling will be at the mercy of the Bank of England’s latest
Quarterly Inflation Report, out Wednesday, which will be
governor Sir Mervyn King’s last. In its previous inflation report
in February, the BOE forecast inflation would reach 3.5% in
the third-quarter, and was unlikely to fall back to the target
2% until 2015.
However, as commodity prices ease, inflation may peak
before the BOE estimated, presenting the outgoing governor
an opportunity to deliver a bit of good news before parting at
the end of June.
Howard Archer, chief economist at IHS Global Insight, expects
that “the general tone of the Bank of England’s Quarterly
Inflation Report and Sir Mervyn King’s accompanying
remarks at the press conference to leave the door open
to further Quantitative Easing (QE) and other possible
measures to help the economy.” This will largely be facilitated
by Chancellor George Osborne’s move to allow the BoE to
tolerate higher levels of inflation for longer periods of time.
Employment and pay growth data is also due on Wednesday.
Pay growth slipped to its lowest level since March 2012 last
month, and Philip Shaw, chief economist at Investec, expects
this weakness to be maintained this month. However, after
the positive tone of recent PMI data, he expects the easing in
unemployment to continue.
UNITED STATES
The health of the world’s largest economy will be in the
spotlight Monday, with the release of retail sales figures.
The latest Redbook reading was hardly encouraging, with
month-on-month sales declining by 2.8% in April.
RBC, therefore, notes that “the deceleration in auto sales
and the continued decline in gasoline prices will weigh
on headline retail sales, which should print negative on a
sequential basis for the second consecutive month,” adding
that risks remain to the downside.
Employment and inflation expectations are the primary
drivers of U.S. monetary policy at the moment, so
Thursday’s Consumer Price Index reading is likely to be a
market moving event. Consensus expectations are for a
0.4% fall in April (month-on-month), which would take the
annual rate of inflation down to 1.1%.
target. And while the trade data was strong, posting a
trade surplus in April after a deficit in March, some have
questioned the reliability of the data.
In terms of global implications, China’s industrial production
data release on Monday will be in focus. HSBC’s Jha believes
that industrial production will have softened in April, on the
back of weaker PMIs. “Soft demand conditions alongside
destocking pressures implies a slowdown of input growth on
the month,” she says.
While gaining exposure to China can be tricky for most
traders, analysts at Bank of America Merrill Lynch say
that “neutral to positive data in China should push interest
rates, particularly the front end, higher in Australia. With
Australian dollar 3 month forward 1 year being 6 basis
points lower than the spot 1 year rate, we see it as a good
place to pay with positive carry.”
It is worth bearing in mind that the Federal Reserve has
indicated that it was prepared to adjust the size of its
monthly asset purchases (currently $85 billion) up or down,
depending on how the economy performs. So a weak reading
will no doubt fuel further talk of disinflation, which may
encourage the Fed to step up asset purchases – something
that is likely to be dollar negative.
Key events for the week of May 12
ASIA
France – BoF business sentiment
GDP week extends beyond Europe, with Japan reporting
data for the first-quarter. HSBC predicts GDP will accelerate
to 0.7% for the quarter, based on the pickup in domestic
consumption, residential investment, and the recent
improvement in net exports.
Madhur Jha, an economist at HSBC, says, “Japan’s recovery
continues to be driven by firm domestic demand. The
economy is poised for strong growth for the rest of the
year thanks to generous monetary and fiscal stimulus and
frontloaded demand.”
Elsewhere in Asia, the debate about whether Chinese
growth will face a “hard-landing” or “soft-landing” has
reignited after some mixed data. The annual rate of inflation
was 2.4% in April – well below the government’s 3.5%
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Monday, May 13
Japan – Money Supply (April)
China – Retail Sales (April)
China – Fixed income investment ex rural (April)
China – Industrial production (April)
US – Retail sales (April)
US – Business inventories (March)
Speeches & events:
Euro zone – Eurogroup Finance Ministers’ meeting
Euro zone – E
U Commissioner Barnier speaks at
Committee of the Regions in Brussels
Tuesday, May 14
Germany – CPI (April, final)
Germany – HICP (April)
Spain – CPI (April, final)
Spain – HICP (April)
France – Current account
Global – IEA releases its Medium-Term Oil
Market Report 2013
Italy – CPI (April)
Germany – ZEW Survey
Germany – Current conditions
EMU – Industrial Production (March)
US – NFIB small business survey (April)
US – Import price index (April)
Speeches & events:
US – Fed’s Plosser will speak about monetary policy,
and his economic outlook at SNS Centre for Business
and Policy Studies
Speeches & events:
Euro zone – EU President Van Rompuy will speak at the
European Business Summit
Euro zone – EU Commissioner Almunia will take part in the
Munich Economic Summit
Thursday, May 16
Japan – GDP (Q1)
Japan – Industrial production (March, final)
Italy – Total trade balance (March)
Italy – EU trade balance (March)
Euro zone – Trade balance (March)
Euro zone – HICP (April, final)
Euro zone – EcoFin Council Meeting
US – Housing starts (April)
Australia – Treasurer Swan announces his
2013/14 Federal Budget
US – CPI (April)
Euro zone – ECB board member Asmussen speaks at Social
Democratic Party event
US – Housing starts (April)
Wednesday, May 15
Japan – Tertiary industry index (March)
US – Initial jobless claims
US – Building permits (April)
US – Philadelphia Fed (May)
Japan – Consumer confidence (April)
Speeches & events:
France – GDP (Q1)
New Zealand – Finance Minister English presents his
annual budget
Germany GDP (Q1)
France – CPI (April)
France – HICP (April)
UK – ILO Unemployment rate (March)
UK – Claimant count (March)
UK – Average earnings (March)
US – Fed’s Plosser to speak at the Global Interdependence
Centre Central Banking Series, “Recovery 2013 - Strength
or Stagnation?” event in Milan
Fed’s Rosengren speaks at the Global Interdependence
Centre “Recovery 2013 – Strength or Stagnation?” event
in Milan
Portugal – GDP (Q1)
Fed’s Fisher speaks at the National Association for Business
Economics 2013 Industry Conference, “Energy: Will the Oil
and Gas Boom Reignite the Economy?”
Greece – GDP (Q1)
ECB’s Mario Draghi speaks at Turin Book Fair in Italy
UK – Bank of England Quarterly Inflation Report (May)
ECB Board member Praet will speak at the European
Business Summit
Euro zone – GDP (Q1)
Canada – Manufacturing sales (March)
US – Empire manufacturing (May)
US – PPI (May)
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EU Commissioner Barroso to speak at European
Business Summitt
Fed’s Williams to speak about his economic outlook at the
Portland Business Journal 2013 CFO of the Year lunch
Bank of Canada to release its Quarterly Review
Friday, May 17
Canada – CPI (April)
Canada – Bank of Canada core rate decision
Canada – Wholesale sales (March)
US – University of Michigan confidence (May)
US – Leading indicators (April)
Speeches & events:
US – Fed’s Kocherlakota participates on a panel, “The
Future of Financial Regulation and Monetary Policy” before
University of Chicago Boooth School of Business
ECB Executive Board member Praet will take part in the
Cercle de Lorraine conference
Also this week, China is also expected
to release:
New yuan loans (April)
M2 money supply (April)
Total aggregate social financing (April)
This information was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the
information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options
contracts.
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