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The Economic Week Ahead

Market Analysis

Global growth has become less of a worry, even though there are still plenty of challenges ahead. The solid U.S. April jobs report supports the view that Q1 weakness was transitory. And it adds to the growing body of evidence that shows the smaller Eurozone economies are catching up to Germany’s drive such that the expansion is deepening and broadening. The U.K. has been surprisingly resilient to Brexit fallout. And though Asia is more of a question mark with some slowing in China and still weak consumption in Japan, the region looks to remain rather robust.

United States: The U.S. employment report went a long way toward restoring confidence in the expansion, and even hinted that the Trump bump and rise in producer sentiment might be working their way into the real sector given the broad-based nature of the gains. There are a couple of important indicators due out this week, including CPI and retail sales, though neither are likely to materially change the view that the weakness in Q1 was temporary. Along with data, the $62 bln May refunding is on tap. Some concessions were made into the weekend, but the offerings could prove difficult amid rising risk appetite. Earnings reports will remain a factor too, but the calendar is considerably lighter this week as the season dies down. Other data reports out this week include the April NFIB Small Business Optimism Index (Tuesday), which has improved significantly since the Trump election. JOLTS job openings for March (Tuesday) will give the markets another angle on the labor market. Then trade prices (Wednesday) will provide another view on inflation parameters. The April Treasury budget (Wednesday) will give a more complete view on the important tax season inflows and outflows. PPI for April (Thursday) will highlight inflation developments from the producer side.

Canada: The Canadian calendar has a limited amount of economic data and nothing from the Bank of Canada this week. Housing starts (Monday) are expected to moderate to a still elevated 220.0k pace in April from the 253.7k pace in March. Building permit values (Tuesday) are projected to expand 5.0% m/m in March after the 2.5% drop in February. The March new home price index (Thursday) is seen rising 0.3% m/m in March after the 0.4% gain in February. The next event on the BoC calendar is the policy announcement (May 24), which no change to the current 0.50% rate setting expected alongside a still cautiously constructive outlook for growth and inflation that maintains our ongoing view that no change in rates will prevail through year end.

Europe: With markets digesting the French election, German manufacturing orders for March (Monday) may attract less attention than usual at least if there is no major negative surprise in the wings. The German orders data will be the most forward looking of this week’s data round, which otherwise focuses mostly on Q1. German industrial production (Tuesday) is expected to have corrected -0.4% m/m in March, after expanding strongly in February, while French production should rebound from the drop-in February and rise 1.0% m/m. This should leave the Eurozone number up 0.4% m/m. German trade data for March will complete the German Q1 cycle ahead of the preliminary GDP release (Friday). After the robust Eurozone release, the German growth number is expected to come in at 0.6% q/q, up from 0.4% q/q in Q4 last year.

UK: The stellar set of April PMI surveys of last week showed that the UK economy remains resilient in the face of Brexit uncertainties. The UK calendar this week includes the May BoE MPC meeting and publication of the central bank’s latest quarterly Inflation Report (Thursday). No change to prevailing policy settings is widely anticipated, while the recent signs of accelerating economic activity after a relative soft patch in Q1, along with robust global growth, should feature in both the policy meeting’s minutes and the inflation report narrative. Data include the April BRC retail sales report (Tuesday), where expected to rise by 0.4% y/y after the -1.0% figure in the month prior. The late timing of Easter this year has messed with seasonal adjustments somewhat, so markets will be looking at the underlying three-month figure for better clarity. Industrial production data for March are also up (Thursday), which expected to be improved to a -0.4% m/m figure after -0.7% in February. Trade data will be released at the same time.

Japan: In Japan, April consumer confidence (Monday) should slip back to 43.5 from 43.9, while the March current account surplus (Thursday) is expected to narrow to JPY 2,400 bln from 2,813.6 bln. April bank loan figures are also due Thursday.

Australia: Calendar has retail sales (Tuesday), expected to improve 0.1% m/m in March after the 0.1% dip in February. Building approvals (Monday) are seen falling 4.0% in March following the 8.3% bounce in February. ANZ job ads for April are also due (Monday). There is nothing on the docket from the Reserve Bank of Australia this week.

New Zealand: New Zealand’s calendar has the Reserve Bank of New Zealand meeting (Thursday).

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Andria Pichidi

Market Analyst


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