In the absence of major data releases, the focal point of the week for markets becomes the release of the minutes of the May FOMC meeting. The most notable change in the statement was the inclusion of the new language: “the Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” In the May meeting minutes, the market will be looking for any clarification of the motivation behind this change as well as any evidence that the committee members may be becoming less comfortable with the unemployment rate threshold or more specific about tapering timelines and dates.
The May BOJ meeting will also attract significant market attention. It is not expected that the BOJ stance will change in the upcoming meeting given how little time has passed since it adopted its current quantitative and qualitative easing stance on April 4th. However it is likely they will upgrade its economic assessment slightly given current trends in personal consumption, and the overarching desire to boost confidence and sentiment regardless of facts and reality.
In Europe, Flash PMIs for May are the key release on Thursday, while the IFO on Friday will also be key to watch. The expenditure breakdown of Q1 GDP for Germany and UK will be interesting to follow too.
Finally, China Flash PMI will be interesting particularly for the AUD underperformance trend.
Monday, May 20
- Interesting: Japan Reuter Tankan, Chile/Thailand GDP, Chicago Fed President Evans speaks
Tuesday, May 21
- UK CPI: We forecast 2.6%yoy, down from last month’s 2.8%.
- Also interesting: Poland IP, Korean Exports, Fed’s Bullard and Dudley speak
Wednesday, May 22
- Fed Chairman Bernanke testifies before Congress
- Japan Monetary Policy Meeting
- US FOMC Minutes
- UK MPC Minutes
- Also interesting: Canada Retail Sales, Brazil Current Account, Mexico Retail Sales, US Existing Home Sales
Thursday, May 23
- China Flash PMI: Consensus expects 50.3, slightly below last month’s 50.4.
- US Initial Claims: Consensus expectations are for a read of 346k, down from last week’s 360k.
- South Africa MPC: We expect the MPC to leave the policy rate unchanged at 5% in line with consensus, although the policy statement may turn more dovish.
- European Flash PMIs
- Euro Area Consumer Confidence
- Also interesting: UK GDP Q1 (revised), UK/Italy Retail Sales, US New Home Sales, Poland MPC minutes, Fed President Bullard speaks
Friday, May 24
- US Durable Goods: We forecast +1.2%, below consensus at +1.5% and up from last month’s -6.9%.
- German IFO Business Survey
- Also interesting: German GDP Q1 (revised), France Business Confidence, Italy Consumer Confidence, Mexico Current Account and Unemployment
The above visually:
And via SocGen, the key issues for the week ahead:
TOP ISSUES FOR THE WEEK AHEAD
FEW BUT BETTER US DATA
A bounce back in April durable goods, a decline in initial claims to 340K (from the 360K surprise last week) and a 1.0% mom gain in existing home sales should all reassure on the temporary nature of the soft patch. The one grey cloud is set to come from a decline in Markit PMI to 50.6 from 52.1 previously.
MARKET ISSUES: Our preliminary spadework ahead of the May employment report suggests non-farm payrolls at 180K with upward revisions to past data of 55K. This will keep the debate focused on the Fed’s exit strategy (cf. above).
EU COUNCIL ON TAX EVASION
The 22 May EU Council will focus on energy and tax fraud and evasion. Discussion on broader economic policy, including the conclusion of the European Semester will take place at the 27-28 June Council.
MARKET ISSUES: Sustainable, secure and competitive energy supply is a key issue for all member states. The EU Commission point to fragmentation, low investment and high taxes as issues to be discussed. As the US enjoys a shale gas supply side shock, Europe risks falling behind unless policy action is taken swiftly.
BOJ ON HOLD, BUT WATCH BOND SPEAK
Recent volatility in JGB yields has triggered some concern that the BoJ’s policy may already be backfiring. At this stage, we do not share these concerns. The BoJ will accept the higher bond yields that naturally come with recovery, but will also “carefully examine risk factors of market conditions and developments in economic activity and prices”. Such a discussion is likely to be held at Wednesday’s meeting and the BoJ may consider (1) front-loading bond purchases and/or (2) intervening more frequently.
MARKET ISSUES: The risk is that more BoJ intervention will further weigh on JGB liquidity. On the key question of allocations, our rate strategists find that Japanese investors are favouring domestic stocks over JGBs, but appetite for foreign bonds remains modest.
BOE MINUTES AS WE WAIT FOR CARNEY
Coming after the Inflation Report, the BoE minutes Wednesday will offer little new information. Nonetheless, the vote will be important. For three meetings in a row, Miles, Fisher, and King have voted for £25bn more in QE. Logically after the May Inflation Report, this number should decline. Tuesday, Mark Carney, will offer his last press conference as BoC governor.
MARKET ISSUES: Better fundamentals have eased pressure for the BoE to do more and Mr. Osborne may be disappointed if Carney – as we expect - offers little action. Indeed, Governor King in an interview Sunday praised Carney, but also reminded that he will work with the MPC and not run a one-man show. Mr. Osborne has asked Carney to report on forward rate guidance, but, as we have discussed previously we believe such a policy would be sub-optimal for the UK.