USD: The FOMC minutes outlined that consumer prices, spending and growth are expected to be ‘transitory’, which means any shortfall of these data sets in Q2 are likely to hamper expectations of hike number 4 of this cycle. Core PCE and the surrounding data set will provide the first challenge to this next week to see if consumer spending is indeed picking up as expected.
The Fed Dallas manufacturing provides further regional business survey data to potentially confuse; Whilst ISM and Markit PMI’s have softened, some regional ones have fared well whilst other have not. In good times, they all tend to move higher so the sentiment surrounding business survey’s is already making a mark by being discordant and possibly hampered by lack of policies form the new Whitehouse administration.
ADP employment provides a tease for Nonfarm payroll, which is out on Friday. There have been a couple of soft prints yet the Fed appear content with employment in its entirety, whilst also pointing out that quarterly NFP remains solid. Therefore, we still don’t see NFP as being a reason to fear the Fed not rising in June (maybe July).
CAD: Quarterly GDP is out on Wednesday and monthly GDP suggests it could be around 2.4%. Canada are the only major economy to release a monthly estimate and the 1yr average of MoM GDP annualised is currently 2.4%. PMI data also remained supportive of growth, although as outlined by the BoC statement overnight, it is the housing market which is the key concern and the subdued export growth is preventing growth from being higher.
Industrial product prices have expanded for 7 consecutive months to show demand at the production gate, although raw material prices dipped by -1.6% as the price of oil tanked. Oil prices remain key for their economy and lower oil is the next likely cause for cutting rates other than the housing bubble finally bursting.
EUR:
Flash CPI data for Europe has been more exciting on recent months compared with recent years, mainly because it is pointing up after many years pointing the wrong way and even contracting. The further up this goes and the longer it lasts, the greater the pressure will be on for ECB and ultimately Draghi, to stop being so dovish and talk about tapering. The question here becomes whether the ECB will play ball with politics and allow for a stronger Euro for the sake of Trump, at risk of hampering growth further down the line as Europe loses its competitive advantage.
Markit PMI data continues to shine for the Euro Zones entity and more recently Germany. This is all positive news for growth (if ECB can refrain from ‘talking taper’ and sending Euro higher).
GBP:
Manufacturing PMI remains the flagship of the three business surveys after accelerating away from the 1yr average and sits proudly at 57.3. There appears to be no fears of Brexit negotiations here, although it is also possible companies are getting their orders in before the battle commences.
Construction activity nudged higher to 53.1 and a 4-month high, suggesting it could start to break away from the 1yr average. Still, it remains the weaker of the three reads the it is these indicators that should shed light on business sentiment around Brexit votes. For now, it appears business as usual but it may not stay that way.
Where business seem confident according to the PMI’s, consumer is on the pessimistic side according to GfK sentiment out on Tuesday. The pending election is not likely to see this surge too much higher although now that the gap between Labour and Conservative is closing according to polls, we may see this dip lower.
CNY:
China’s manufacturing PMI is getting a little too close to 50 for liking, as a cross beneath it denotes contraction. Whilst the NBS read is at 51.2, the Caixin (and non-government related business survey) now sits at 50.3. With the expansion slowing in recent months it provides less potential for future growth, at a time that Beijing are opting for growth preservation over growth restoration. Simply put, softer growth will require further fiscal and monetary policies.
JPY:
Japan’s employment markets continue to impress, with jobs/application ratio hitting its highest level since 1190 (1.5 jobs/applications). Not surprisingly the unemployment rate, which moves inversely, is at an outstanding 2.8% and at its lowest level since 1994. If only this were coupled with wage growth then there would likely be inflationary pressures and the temptation for these employed people to spend more and drive up inflation. If only.
AUD:
Building approvals dropped by -13.4% MoM and -19.9% YoY. This is not ideal for two reasons; Higher building approvals tends to mean more buildings, purchases of building and inflationary pressures up the chain, so lower permits can lead to lower growth; Fewer building means lower supply and higher prices, which is exactly what the RBA do not want.
Manufacturing PMI remains the flagship business survey, with Services coming in 2nd and Construction left in the dust. Two out of three is not bad and whilst manufacturing still accounts for 7% us AU GDP, it is primarily a services economy (like most these days) so higher services would benefit growth even more so.
CAPEX (private capital expenditure) provides a forward look at business investment and growth potential for the Australian Economy. Whilst the past 9 quarter have provided 8 contractions, the pace of contraction is at least it’s lowest since Dec ’14. Plant and machinery investment is the only component technically growing compared with the same period last year, yet that is a basing effect as the underlying index has been moving broadly sideways since H2 ’16. With building and structures at -25.5% YoY, we do not expect Capex to bounce back next week.
Retail sales is another metric under the weather, as online competition continues to suppress store sales and hamper growth for AU.
Matt Simpson | Senior Market Analyst
A certified technical analyst, combining macro themes, monetary policy and business cycles to generate Forex and commodity trade ideas.