The Week Ahead: Flash PMIs and Inflation Reports in Focus – Action Forex

Credit: Original article can be found here

A soft US inflation print and further signs of deflation across parts of Asia weighed on the US dollar heading into the weekend, with investors fairly certain that the Fed’s terminal rate will peak at 5.25% with an outside chance of a pause at the next FOMC meeting. This week’s key data points include global flash PMI reports, which will show if price pressures are continuing to recede and if growth potential will be as soft as feared. The ZEW sentiment reports for Europe and Germany always warrant a look. Furthermore, we also have inflation reports for the eurozone, UK, Canada and New Zealand, alongside the release of the RBA minutes.

The week that was:

  • The IMF warned that financial system vulnerabilities could lead to a new crisis yet urged that the fight against inflation need to be maintained
  • Geopolitical tensions continued to rise across Asia, with North Korea reportedly cutting the phone link with South Korea (having ignored calls from the South over the past five days) and China continuing military training around Taiwan
  • US inflation was mixed with headline CPI falling to 5% y/y, although core inflation (and services inflation, a key metric for the Fed) remained elevated
  • The March FOMC minutes revealed that four members considered a pause at the last meeting due to banking stress, but ultimately concluded high level of inflation required the hike regardless
  • The FOMC minutes also mentioned staff forecasts of a ‘mild recession’ this year
  • The BOC (Bank of Canada) held interest rates for a second month at 4.5%, although again warned they are “prepared to raise the policy rate further if needed”
  • RBA deputy governor Bullock said in a speech that rates are in ‘restrictive territory’ and we can ‘stop and watch for a minute’, adding that there are no domestic signs that banks are tightening lending standards due to global financial stress
  • Eurozone industrial production came in stronger than expected, to boost Q1 GDP expectations
  • BOE chief economist Huw Pill said the UK could be experiencing a ‘positive demand shock’ due to low unemployment, suggesting the BOE could be leaning towards a hike over a policy pause
  • Further signs of deflation came from China, with PPI falling -2.5% y/y, CPI down to an 18-month low of 0.7% and contracting for a second month at -0.3%
  • South Korean export prices also contracted for a second consecutive month
  • China’s exports far exceeded expectations and sent their trade surplus sharply higher, but whilst this is good news for Q1 GDP many were quick to point out that the spike was due to backorders being filled

The week ahead (calendar):

Monday 17th April:

  • US: Empire State Manufacturing Survey,
  • Canada: Wholesale prices
  • EU: Reserve assets
  • UK: BOE Jon Cunliffe: Keynote speech at the Innovate Finance Global Summit
  • China: 1-year lending facility rate
  • New Zealand: Food and rental price indices, business PSI

Tuesday 18th April:

  • US: New Residential Construction (Building Permits, Housing Starts, and Housing Completions), NAHB housing market index
  • Canada: Monthly CPI (core, median, trimmed)
  • EU: ZEW economic sentiment (EU, Germany)
  • UK: Earning and employment report
  • China: Q1 GDP, fixed asset investment, retail sales industrial output
  • Australia: RBA minutes

Wednesday 19th April:

  • Canada: Producer prices, housing starts, house prices
  • EU: Inflation (CPI, core CPI, HICP), Construction output, balance of payments
  • UK: Inflation (CPI, core CPI, RPI, PPI)
  • Japan: Industrial production, capacity utilisation
  • Australia: Leading Index

Thursday 20th April:

  • US: Initial Jobless Claims, Philadelphia Fed Manufacturing Survey, NAR Existing Home Sales, Weekly Economic Index,
  • EU: Trade balance, German producer prices,
  • China: 1 and 5-year loan prime rate
  • Japan: Trade balance, tertiary industry activity,
  • Australia: Judo Bank Flash Australia PMI’s
  • New Zealand: Quarterly CPI report

Friday 21st April:

  • US: S&P Global Flash US Composite PMI, Existing home sales, FOMC voting member Lisa Cook speaks – Important Questions for Economic Research
  • Canada: Retail sales
  • EU: S&P Global Flash PMI’s (France, Germany, Eurozone), consumer confidence
  • UK: S&P Global Flash PMI’s, retail sales, GfK consumer confidence
  • Japan: CPI (March), Jibun Bank Flash Japan Composite PMI

The week ahead (key events):

Flash PMI data

With freshly renewed concerns of a global recession, PMI data is as important as ever. Sure, the financial meltdown concerns may have been knocked from the top spot for headlines, but the FOMC minutes actually tipped their hat to the potential for a ‘mild recession’ in the US. And with that comes the question over whether it will be the soft or hard landing.

Global manufacturing PMI has contracted for seven consecutive months, and whilst it look on the cusp of reverting to expansion in February, the March report expanded at a faster pace which begs the question as to whether we’ll see another acceleration of a slowdown. So traders will keep a close eye on how flash PMI’s for Asia, Europe and the US play out next week.

Inflation data:

Eurozone inflation has generally exceeded expectations to keep pressure on the ECB to keep hiking, but it is possible they may drop to 50bp increments – especially if we see some softening in eurozone CPI data on Wednesday.

UK inflation, wages and jobs data could move the needle for the BOE’s next decision, following Huw Pill’s comments on a ‘positive demand shock’. Money markets are currently pricing in an 80% chance of a 25bp hike, and firmer wages and employment data on Tuesday followed by hotter inflation on Wednesday likely all but confirms it. As it stands, expectations are for CPI to soften (from very high levels), and even if it manages to do so the BOE may still be tempted to hike with a low unemployment read.

New Zealand’s inflation remains as hot as ever, and the RBNZ delivered a hawkish 50bp hike when a 25bp one was expected earlier this month. So unless we see a material drop in prices, it’s possible the RBNZ could hike by another 25 or 50bp despite the dire business sentiment reads and warning signs of a recession (which they seem to be asking for to help deflate prices anyway).

— Written by Matt Simpson