Macroeconomics: The Day Ahead for 16 May

A relatively busy day awaits, even if the aftermath of yesterday’s US CPI proves to be the key driver of trading activity. There are Japan’s Q1 provisional GDP, Australian labour data (with the sharp jump in the Unemployment Rate to 4.1% likely to encourage the RBA to opt cautiously for an easing bias) and Norwegian GDP, while the US looks to Import Prices, Industrial Production, Philly Fed Manufacturing, Housing Starts and weekly jobless claims, before the attention turns to tonight’s China activity data. Philippines BSP held rates again as expected, while there are numerous Fed, ECB and BoE speakers, the latter perhaps most notable given their hawkish bias, and the ECB publishes its Financial Stability Review. Earnings take form of two further China tech behemoths – Baidu and JD.com – ahead of bellwether machinery maker Deere & Co and retail giant Walmart. Govt bond supply has Japan selling 20-yr, France medium-dated and I-L, and Spain also holding a multi-tranche sale.

** U.S.A. – April Import Prices, Industrial Production, Housing Starts & Philly Fed Manufacturing **

– Yesterday’s marginally better than expected CPI (though core services were still sticky at 0.4% m/m) and the downturn in Retail Sales add to the growing evidence of a more material loss of momentum in the US, even if caution is advised in overinterpreting one or two months data, as has been the case for much of the past 18 months to 2 years when so many commentators frequently rushed to ramp up recession talk. Be that as it may, the focus for today will be on the final leg of the monthly inflation readings, with Import Prices seen up a modest 0.2% m/m, and the ex-petroleum measure up a meagre 0.1%, though the PPI data impart some risk of an upside surprise, but also of a downward revision to March. Meanwhile Industrial Production and Manufacturing Output are forecast to rise just 0.1% m/m, after relatively robust prints of 0.5% and 0.4% in March, headline may be boosted by utilities due to warmer weather, while surveys hint at downside risks to Manufacturing Output, while the May Philly Fed Manufacturing index is seen giving back much of April’s jump to 15.5 from 3.2 with a slip to 7.5. Initial Claims will also be closely watched after last week’s jump to 231K, though consensus forecasts assume the latter was largely aberrant with a slip to 220K anticipated.

** Japan – Q1 GDP **

– At -0.5% q/q for Q1 and with Q4 revised down to flat (from +0.1%), GDP was much weaker than expected. While weaker than expected Business Spending at -0.8% q/q can be largely attributed to the shutdown at an automaker due to a safety scandal, it is the deep seated weakness in Private Consumption -0.7% q/q following a downwardly revised -0.4% q/q in Q4 which accounts for all of the miss relative to forecasts, even if weak auto sales due to the shutdown clearly exacerbated the size of the Q1 fall. This leaves the BoJ with an even bigger headache than it was already aware of, and which accounted for a good deal of the caution it had expressed about further policy tightening moves. To be sure, this year’s ‘inflation busting’ wage settlements (at least at large companies) should facilitate a turnaround, but the weakness is to a certain extent also structural due to Japan’s ageing demographic. For the time being, the change in sentiment on the US rate outlook gives it some breathing room, above all in respect of JPY weakness, but it is anything but a ‘get out of jail free’ card.

** China – April Retail Sales, Industrial Production, FAI and Property data **

– Friday’s activity data are expected to see April readings improve on March, as LNY timing effects unwind, but year to date readings across the gamut of Retail Sales (4.7% y/y), Industrial Production (6.0%), Fixed Asset investment (4.5%) and Property Investment (-9.6%) are seen barely changed from March, with the surveyed Unemployment Rate also expected to hold at 5.2%. A more sustained and meaningful recovery still looks rather elusive, as property sector woes continue to offset very notable strength in High Tech and energy transition related output. Property developer balance sheet resolution remains a sine qua non if the much hoped for recovery is to get some real traction, particularly given headwinds to external demand from geopolitical tensions.