From Goldman Sachs
Week in Review: An awful lot of data disappointments
It is tough to find a positive data print amongst the slew of disappointing data last week. Arguably it was the encouraging production plans which accompanied Japanese IP. As has been catalogued elsewhere, the majority of the business surveys generated significant negative surprises, for reasons that are not entirely clear at this point. Analysing the business surveys also presents a quandary between levels and changes. The sharp declines are clearly worrying, but the level isn’t necessarily. After printing at multi-year highs in recent months, the levels are closer to ‘normal’. Indeed the Euroland PMIs suggest growth is tracking at 0.6%qoq, above our forecast of 0.4%. If the drops are related to supply chain issues from Japan, they could be reversed next month given Japanese production plans.
However the breadth of the weak data, which was not just confined to business surveys raise questions about the strength of global momentum. Indeed the GLI reading for May recorded momentum at zero, which does point to an uncertain outlook for global IP. Away from industrial activity, US payrolls only rose by 54k, with the weakness concentrated in manufacturing, retail trade and leisure/hospitality. In our view, only about 15-20k of the downshift in employment growth is attributable to supply-chain problems in the auto sector (adding together changes in job growth for manufacturing firms and vehicle dealers).
Market reacted to this news with a rally in fixed income, weakness in equity markets and renewed broad Dollar weakness, in particular against the Euro.
Week ahead: It is all about IP
The week ahead brings a barrage of IP data for April from all round the world, the momentum of which will be closely examined after the sharp drops in the manufacturing business surveys last week. Expectations – both ours and the consensus – are a mixed bag, but broadly, we expect momentum to slow in April. The data will be dissected for evidence of supply chain issues – which probably should be faded given the Japanese production plans published last week – and for evidence of a broader slowdown. In addition, manufacturing orders data from Germany, Taiwan, Japan and Sweden will be watched similarly.
Away from IP, the week brings a bunch of inflation prints, which are all broadly expected to show a further rise in the headline readings. In addition the week brings interest rate decisions in the UK, Euroland, Poland, Indonesia, Korea. We expect a 25bps hike in both Poland and Korea, on hold everywhere else.
Outside of the data, developments in Greece will remain on the radar screen, particularly any colour on a new package.
We expect activity data to broadly stabilise relative to increasingly low expectations, and we also expect gradually declining contagion fears linked to the Greek fiscal situation. Together this would suggest that the Dollar could remain under pressure, for which we remain positioned across our trading recommendations.
Monday 6th June
Spanish IP (Apr): Consensus expects a rise of 1.5%yoy after -0.9% previously. Spanish IP has hovered just above zero in yoy terms since early September.
Also of interest: Czech IP (Apr), Mexico IP (Apr), Canada PMI (May).
Tuesday 7th June
RBA meeting: The June RBA Board meeting is shaping up as the most uncertain for the year thus far. Though the majority of economists still expect the RBA to remain on hold, 5 of 28 surveyed expect a 25bp rate hike. The RBA laid out a clear tightening bias in the Statement on Monetary Policy three weeks ago, but the subsequent domestic data has been all but universally soft. Additionally there have been global growth downgrades and rising global uncertainty, which also argues for holding steady for the time being.
Philippines CPI (May): Consensus expects a rise of 5%yoy after a previous reading of 4.5%. We expect a higher reading of 5.1%.
Taiwan CPI (May): Consensus expects a rise of 1.6%yoy after 1.34% previously.
Switzerland CPI (May): We expect a print of 0.4%yoy, after 0.3% previously. Consensus: 0.3%yoy.
Euroland retail sales (Apr): Consensus expects a rise of 0.3%mom after a decline of 0.9%mom previously.
Germany Manufacturing orders (Apr): We expect a rise of 1.2%mom/ 7.9%yoy after -4%mom/9.8%yoy previously. Consensus expects a rise of 2.1%.
Also of interest: Hungarian IP (Apr)
Wednesday 8th June
Taiwan trade balance (May): Consensus expects exports to rise by 7.4%yoy after 26.4% previously.
Poland MPC meeting: We expect NBP to hike rates by 25bps to 4.5% however, we also see the risk that the MPC may want to stay on hold and wait for the revised inflation forecast due in the July Inflation Report.
Germany IP (Apr): We expect a decline of 0.5%mom, 9.2%yoy after 0.7%mom and 10.9%yoy previously. Consensus expects a rise of 0.2%mom/10.3%yoy.
Also of interest: Turkey IP (Apr), Norway IP (Apr), Japanese BoP (Apr), Australia Westpac consumer confidence (Jun), German exports (Apr).
Thursday 9th June
RBNZ Meeting: Consensus expects unchanged at 2.5% as do we. We expect the RBNZ to acknowledge both the improving signs in the domestic data but also the number of risks that still remain. However, in general, and with inflation pressures becoming less favourable, there are likely to be a few more warning shots fired by the RBNZ in this statement around the medium-term inflation outlook. While we are not expecting a hawkish statement, it is likely to be one that is less dovish than recent communications.
Australia Employment data (May): After the decline of -22.1k in April, we expect a rise of 15K, a smaller rise than the consensus, which expects a rise of +25k. We expect unemployment to rise slightly to 5.0%, consensus expects unchanged at 4.9%.
BI Meeting: Consensus expects rates to remain unchanged at 6.75%, as do we.
ECB meeting: We do not expect a rate hike however the June statement should prepare the ground for a July increase in official interest rates.
BoE Meeting: We expect rates to remain at 0.5%, as does the consensus.
US Trade balance (Apr): We forecast a narrowing in the trade balance in April to -$47.5bn from -$48.2bn previously. Although higher commodity prices likely lifted the nominal value of imports, we believe this was more than offset by weaker import volumes from Japan. Consensus expects a slight widening of the deficit to US$48.6bn. The data is accompanied by annual revisions.
Also of interest: South Africa IP, US jobless claims, Czech CPI (May), Malaysia IP (Apr), Japanese Machine tool orders (May P).
Friday 10th June
BoK Meeting: Consensus is evenly split between unchanged at 3% and a hike of 3.25%. We expect a 25bps hike on the back of high inflation and robust growth.
China trade balance (May): Consensus expects exports to rise 21.8%yoy after 29.9% previously and imports to rise by 22.3% after 21.8% previously. If realised this will cause the trade surplus to rise from $11.6bn to $17bn.
Indian IP (Apr): Previous reading 7.3%.
French IP (Apr): Consensus expects a rise of 0.4%mom after a decline of 0.9% previously.
Sweden IP (Apr): We expect a rise of 0.5%mom, the consensus expects a smaller rise of 0.3%.The previous reading was 0.9%mom.
UK IP (Apr): consensus expects a rise of flat mom/1.3%yoy for headline IP after 0.3%/0.7% previously.
Norway CPI-ATE (May): We and the consensus expect a moderation to 1.1% after the previous reading of 1.3%mom.
Also of interest: Philippines exports, Canada employment (May), Sweden industrial orders (Apr).