Macroeconomics: The Day Ahead for 13 May

It’s Ascension Day in many parts of Europe and Eid-Al-Fitr in Islamic countries, so trading volumes will be somewhat reduced as markets get their heads around the larger than expected surge in US CPI. Today’s data run will be dominated by US weekly jobless claims and PPI, with only the UK RICS House Price Balance and Japan’s Economy Watchers (services) survey to digest. A busier day for govt bond auctions sees Italy sell a sizeable EUR 9.75 Bln total of 3, 7 & 30-yr, Ireland offer 10 & 30-yr and the US 30-yr. A busier day for corporate earnings has a good number of energy sector companies reporting (EDP, Gazprom, Inpex and Petrobras), with AirBnB, Alibaba, BT, Telefonica and Walt Disney also likely to grab some of the headlines. There are a number of G7 central bank speakers, most notably BoC chief Macklem who may well raise a flag on recent CAD strength, with BoE’s departing Haldane calling to make a start on moving away from ultra-accommodative policy now to be digested. But it will be EM policy meetings, above all in Latin America (Chile, Mexico & Peru) which will also get plenty of attention, even if none are expected to make any rate changes. Banco de Mexico is expected to hint strongly at a rate hike given that CPI is well above target at 6.1%, and plenty of questions about how long Peru’s central bank can hold rates at 0.25% with the Sol having made fresh record lows on the back of political concerns (leftist Castillo is ahead in presidential election opinion polls). By way of observation, it is a parable for these central bank ‘largesse to excess times’ that, in a prime facie example of bad governance Musk announcing that Bitcoin would no longer be accepted as payment for Tesla vehicles pushes real macro news to the sidelines, such as the US inflation jump, the escalating tensions between the West and China above all over Xinjiang, and China’s State Council implicitly threatening to intervene in commodity markets, which has prompted a long overdue sell-off in iron and steel futures this morning.

** U.S.A. – April PPI, Weekly Jobless Claims **

– Yesterday’s CPI upside surprise was primarily a confluence of supply disruptions (above all 10.0% m/m rise in Used Cars), re-opening pressures above all in leisure and entertainment, along with Household Energy Services (1.0% m/m) and Food (0.4%), some of which will prove to be transitory, but the transitory period may be rather longer than the Fed anticipates, with some of the price increases proving stickier. Clearly markets will be on guard for a surprise in PPI, even if the read across is not a good one, above all in month to month terms. Be that as it may PPI is seen slowing to 0.3% m/m at headline and core ex Food, Energy & Trade after spiking in March, with base effects driving y/y rates to 5.8% (from 4.2%) and 4.3% (from 3.1%). The risks given the surge in a broad array of commodities, and a long list of supply chain disruptions are clearly skewed to the upside, even if energy should be a marginal factor this month. While the April labour report was very disappointing, last week’s Initial Claims dipped below 500K for the first time since the pandemic struck, and are seen dipping marginally to 490K from 498K, while Continued Claims are expected to reverse last week’s rise, and drop to the prior week’s level at a still high 3.650 Mln. The key as ever will be what happens with claims for all unemployment benefits, which remain much higher (PUA last 6.862 Mln, PEUA 4,973 Mln).