Key Events And Issues In The Week Ahead
The week ahead brings key leading indicators of global activity. The flash PMI's in China and Euro area will be published on Tuesday. Bloomberg consensus expects the China flash to be slightly lower than the previous reading and that the Euro area flash releases for manufacturing and service activity will rise slightly. In addition, Korean 20-day export data for April will provide a good guide to both the external sector in Korea and the likely momentum of Asian exports more broadly. For the same reasons, Taiwan export orders are worth a look as well.
The week ahead also provides Q1 GDP prints in US, UK, and Korea. Goldman expects US GDP to rise by 3.2%. The Australia CPI print may open the door to an RBA rate cut as soon as May and Japanese CPI is likely to underscore why the BoJ policy has shifted aggressively. Friday also brings an update of the BoJ's outlook, along with the next BoJ meeting (unchanged policy expected). As for growth, the projections as of the January revision were 2.3% for FY2013 and 0.8% for FY2014. However, the Outlook Report projections are fiscal year averages and the BoJ will likely need to send out a signal on its fiscal year-end thinking with a view to showing a clearer roadmap toward its 2% inflation target. Therefore the BoJ may change the Outlook Report formula, perhaps showing fiscal year-end in addition to average and/or extending the projections to three years. In addition to the BoJ, the RBNZ, and BSP will also meet.
Monday 22 April
- Taiwan export orders (Mar). Bloomberg consensus +1.6% yoy. Previous: -14.5% yoy.
- Korea exports (20 days) (Apr): Bloomberg consensus: 51.4. Previous: +3.0% yoy.
Tuesday 23 April
- China HSBC/Markit Flash Manufacturing PMI (Apr): Bloomberg consensus: 51.4. Previous 51.6.
- Singapore CPI (Mar): GS: +4.1% yoy. Bloomberg consensus: 3.6%yoy. Previous: +4.9% yoy
- Taiwan Industrial Production (Mar). Bloomberg consensus: +1.8% yoy. Previous: -11.4% yoy
- Euro area Flash PMI (Apr): Manufacturing: Bloomberg consensus: 44.3. Previous: 44.0. Services: Bloomberg consensus: 42.0. Previous: 41.3.
- Canada Retail sales (Feb). Bloomberg Consensus: +0.3% mom. Last 1.0% mom.
Wednesday 24 April
- Australia CPI (Q1): GS: +0.8% qoq. Bloomberg consensus +0.7% qoq, Last +0.2% qoq.
- New Zealand monetary policy meeting. GS: 2.5%. Bloomberg consensus: 2.5%. Last: 2.5%
- Germany IFO (Apr): Bloomberg consensus: 106.3. Previous: 106.7.
- US Durable goods orders (Mar): GS: -2.9% Bloomberg consensus: -2.9%. Last: 5.6%.
Thursday 25 April
- Korea GDP (Advance) 1Q. GS: +1.4% yoy. Bloomberg consensus: +1.1% yoy. Previous: +1.5% yoy
- Philippines Central Bank policy meeting. GS: 3.50%. Bloomberg consensus: 3.50% Last: 3.50%
- UK GDP 1Q. GS +0.2%qoq. Bloomberg consensus: +0.1% qoq. Previous: -0.3% qoq.
- Brazil: Minutes of the April MPC meeting.
Friday 26 April
- Japan CPI (Mar): Bloomberg consensus: -0.8% yoy. Last: -0.7% yoy.
- BoJ meeting: no further policy change, but growth and inflation forecasts in the BoJ's outlook are expected to be raised.
- Singapore Industrial Production (Mar). Previous: -16.6% yoy
- New Zealand trade balance (Mar). Bloomberg consensus: 470mn. Previous: 414mn.
- Swiss KoF indicator (Apr): Bloomberg consensus: 1.05. Last: 0.99
- US GDP Q1: GS: +3.2% qoq ann. Bloomberg consensus: 3.0% qoq ann. Last: 0.4% qoq ann.
- US Univ of Mich Confidence (Apr): GS: 74.0. Bloomberg consensus: 73.5. Last: 72.3
- Mexico monetary policy meeting (Apr): GS 4.0%, Bloomberg consensus 4.0%. Last 4.0%.
In table format, via SocGen:
And the key issues for the week ahead:
TOP ISSUES FOR THE WEEK AHEAD
EURO AREA GLOOM
The next batch of confidence surveys for April (INSEE, IFO and PMIs) are set to show renewed declines, confirming a gloomy outlook for the euro area. Financial fragmentation remains a major headwind to the economy and the release of the ECB’s quarterly bank lending survey this week is unlikely to point to any real improvement. Moreover, we expect the monthly bank lending data (part of the M3 data release) to post its 11th month of year-on-year decline. The debate on a possible rate cut within the ECB continues; Saturday, Ewald Nowotny noted, “It’s still too early. In Europe, we have very expansionary monetary policy and it’s too early to judge if further steps should be taken”. This seemed to echo earlier statements from Jens Weidmann. For his part, Joerg Asmussen appeared more open to a rate cut if justified by the data, but importantly noted “the effectiveness of rate cuts is limited”.
MARKET ISSUES: While we recognise that the probability of a May rate cut has increased, we maintain our call for no change. Importantly such a move – by the ECB’s own admission – would have limited economic impact. The far more interesting debate is thus what options the ECB does have to hand to give a game changing boost to the economy. We will be writing more about this in the course of the week, but to our minds the game changing tools are held by the governments. Sadly, however, there is little to suggest fast track banking and fiscal union.
STILL NO GOVERNMENT IN ITALY
President Napolitano’s re-election on Saturday for a second 7-year term (by which time he will be 94), means that attention can return to the job of forming a new government. Media reports now that this process could get underway, even before the Democratic Party (PD) elects a new leader following the resignation of Pier Bersani on Friday. Matteo Renzi (currently mayor of Florence) seems best placed, but there is concern that his pro-reform stance could see the PD split. Moreover, the 5-star Movement has expressed dissatisfaction at the deal cut behind closed doors to re-elect Napolitano. For his part, Mr Berlusconi has once again re-iterated his readiness to join a grand coalition – an idea so far rejected by the PD. The political situation in Italy remains challenging and an election in the autumn remains a very real possibility. Several commentators expect that once a new government is formed, President Napolitano will step down.
MARKET ISSUES: The prolonged political uncertainty is weighing on the real economy, adding to the downside risks.
BoJ ON HOLD AFTER THE BIG EASE
It would be a major surprise if the BoJ took any new steps when it meets on Friday. The meeting will, however, not be without interest as the BoJ debates the semi-annual outlook. We look for March CPI at -0.5% yoy (ex-fresh food) this week. At present, the BoJ forecast this inflation measure to hit 0.9% in FY14, not accounting for any consumer tax hike. BoJ Governor Kuroda, however, has promised inflation back at 2% by the end of FY14, but remains vague on just how much consumer tax effect is discounted in the number. The consumption tax is due to go up from 5% to 8% in April 2014 and to 10% in October 2015. The BoJ estimate that the first hike alone would add 2pp to inflation. If the BoJ raises the mediumterm inflation outlook to 2% excluding the consumption tax, that would then boost headline inflation to 4% in the transition period (before the base effect of the tax hike then falls out of the measure).
MARKET ISSUES: The BoJ faces a delicate balancing act. In the best case, Japanese banks will replace JGB holdings with lending to the domestic economy, while Japanese investors shift holdings of JGBs into domestic equities, corporate bonds and other risky assets. In the worst-case, banks would dump JGB holdings only to build up excess reserves at the BoJ (without boosting lending to the real economy) and other domestic investors would shun Japanese assets all together. This risk scenario would send JGByields higher and the yen plummeting as the BoJ raced behind the yield curve. No wonder BoJ Governor Kuroda has been keen to emphasise that the recent policy measure should be seen as discrete and that its success would drive a stronger yen medium-term.
A flurry of triple-dip news flashes are set to accompany the Q1 GDP report, where we look for -0.1% qoq. Away from the gloomy headlines, however, the CBI surveys should point to improvement ahead and we expect the March budget numbers to show PSNBR for the full fiscal year slightly below the OBR’s £86.5bn estimate (we look for £18bn in March, whilst the OBR estimate implies £19.6bn).
MARKET ISSUES: The UK economy remains trapped in weak growth and hope remains that the new BoE Governor will be able to deliver a real boost to growth. Having explored several ideas, we expect the answer will simply be further asset purchases. [ZH: LOL]
US TO OPEN WITH GOOD Q1
We look for Q1 GDP at 3.2% qoq annualised, but attention has already shift to Q2 and the road ahead. Regional Fed surveys and the Michigan sentiment are all expected to post gains for April, which should ease some of the downside concerns. March durable goods, however, are forecast at -6.0% mom due to a sharp decline in transportation.
MARKET ISSUES: In a light week on the macro data side, market attention is set to turn to a flurry of earnings reports due for release.
Source: Goldman and SocGen