Macroeconomics: The Day Ahead for 26 April

A reasonably busy start to the week features Germany’s Ifo Business Climate, US Durable Goods Orders and the Dallas Fed Manufacturing survey along with a larger than expected jump in Japan’s Services PPI overnight. The events schedule features some ECB speakers, the OPEC+ joint technical meeting and the EU MARS crop bulletin, with today’s earnings schedule dominated by Tesla, though otherwise light relative to the rest of the week. As noted in the week ahead below, rising infection rates above all the catastrophe in India are increasingly the primary focus, even if central bank ‘largesse to excess’ continues to underpin the buy the dip mentality. In terms of the data run, Germany’s Ifo Business Climate is expected to pick up a little further to 97.8, after surging to 96.6 from 92.7 in March, though much will depend on whether continued strength in manufacturing export demand and a robust pace of activity in the Construction demand offset a likely setback in Services due to extended, and intensified lockdown measures, even if an accelerating vaccination rate offers hope going forward. US Durable Goods suffered a larger than expected -1.2% m/m setback in February due to weather effects and supply chain disruptions, which was the first fall in months. But they are expected to bounce back 2.5% m/m in March, led by aircraft, with the ex-Transport and Non-defence Capital Goods ex-Aircraft measures seen up 1.5% m/m. ISM and regional surveys offer support, though the supply chain bottlenecks, above all auto semiconductors suggest some risk of a less pronounced rebound. In regard to this week’s OPEC+ meetings, it has already been signalled that no further changes are being mulled near-term, and that a decision on how production will be adjusted in H2 will be taken in June, when there should be some greater clarity on JCPOA with Iran are going, and how much demand recovery will be restrained by the latest infection rate surge.

RECAP: The Week Ahead – Preview

The new week brings month end and a feast of data and events: Fed, BoJ and Riksbank policy meetings (all seen on hold), and Biden’s American Jobs Plan infrastructure spending bill speech to Congress. The raft of data includes: US, Eurozone, Germany, France, Italy & Spain Q1 provisional GDP; US Durable Goods, Consumer Confidence and Pending Home Sales; German & Eurozone CPI, China’s NBS PMIs and the month end rush of major Japanese data, Australia Q1 CPI and numerous surveys including Germany’s Ifo. The US earnings season reaches its peak with 180 S&P 500 companies reporting, and the US also has another busy week for issuance with $211 Bln of Treasury coupons being auctioned. The commodities sector see a long list of major commodity companies (around the world) reporting Q1 earnings and/or output, technical meetings of OPEC, EIA oil & gas production and the World Gold Council quarterly demand report. While vaccine roll-out rates have been very good in the US and UK, and are accelerating in Europe, the picture elsewhere is slow, and with India suffering a devastating surge in infection rates, above all due to a new particular virulent variant, and many other countries still posting very high rates, vaccine related optimism is having to be tempered. Tensions between Russia and Ukraine appear to have ebbed a little, but the tensions between the West / NATO and China & Russia / SCO remain high, and unlikely to ease anytime soon. Speaking of China, it is increasingly obvious that while the PBoC is being less generous with some of its liquidity provisioning, a material monetary policy tightening is unlikely, but that regulatory tightening and debt / balance sheet resolution issues are a major risk.

Statistically provisional Q1 GDP estimates top the run, and will doubtless offer the odd surprise outlier as has been the case over the past year, but to a large extent will be seen largely discounted and historical given monthly indicator flows, and also unlikely to shift central bank policies in the near term, despite the ‘outcome based’ narrative on policy guidance. The US is expected to reap the benefits of stimulus cheques and other fiscal spending measures, with a 6.5% SAAR (i.e. 1.6% q/q in European / Asian terms), but in contrast to Q4, Personal Consumption will be the key driver at 10.5% SAAR vs. Q4 2.3%, while supply chain bottlenecks are expected to see Inventories deduct around 1.5-2.0 ppts from headline, with a much more modest contribution from residential investment after the H2 surge. Eurozone GDP is seen dropping -0.8% q/q (vs. Q4 -0.7%), though as with Q4 national profiles will differ quite sharply: France flat q/q, Germany -1.5% q/q, Italy and Spain -0.5%, in part a reflection of differing lockdown measures, and in part due to reversals of Q4 trends. South Korea also reports Q4 GDP, with a strong manufacturing and trade performance making up for continued sluggishness in private consumption, with an expected 1.1% q/q little changed from Q4’s 1.2%.

  Inflation data for the Eurozone is projected to rise 0.5% m/m to push the y/y rate up to 1.6% from 1.3%, but with core CPI seen at 0.8% y/y from 0.9%, this would be scored as a short-term boost for the doves on the ECB’s divided council. Japan’s Tokyo CPI is expected to be unchanged at -0.2% y/y headline and +0.3% on the core core measure. Australia also publishes Q1 CPI, but as with the Eurozone, a rebound in headline CPI to 1.4% y/y from 0.9% will mostly be about energy prices, with core measures seen little changed at 1.2%/1.3%, and unlikely to prompt the RBA to follow Canada’s BoC in signalling a less accommodative stance, at least in the near term. Perhaps of more interest will be Brazil’s IPCA -15 inflation data, which are projected to see the y/y rate climb to 6.25% from 5.52%, and keeping the pressure on BCB’s COPOM to stick to a fairly aggressive tightening path.

The Fed and BoJ meetings are expected to see policy rates and other measures kept unchanged, though there will be differing focal points for markets. In terms of the Fed, the ‘patience’ narrative will be maintained with an emphasis on any uptick in inflation being transitory, and while they will acknowledge the pick-up in economic activity and labour demand, as well as a boost from fiscal policy, they will doubtless stress that there remains a lot of slack in the labour market. Powell will doubtless also emphasize that it is still too early to have a discussion about a tapering timetable, and more than likely eschew from making any comments on fiscal policy, even though the scope and size of what actually materializes in terms of the Biden infrastructure spending bill may well have a bearing on monetary policy.

The US corporate earnings is busy as noted above, but it will also be a busy week in Europe and Asia, with a raft of reports from energy and commodity majors in all regions, along with US tech sector behemoths. Bloomberg highlights the following as likely to be among the headline makers: ABB, AbbVie, ADM, AMD, Airbus, Alphabet, Altria Group, America Movil, Aon, Apple,  AstraZeneca, ADP, Banco Santander Brasil, Barclays, BNP Paribas, Boeing, Boston Scientific, BP, Bristol-Myers Squibb, Canadian National Railway, Canon, Capital One, Caterpillar, Chevron, Comcast, Corning, Delivery Hero, Deutsche Bank, Eli Lilly, Eni, Exxon Mobil, Facebook, Ford, Foxconn, Fujitsu, Garmin, Gilead, GlaxoSmithKline, HSBC, Komatsu, Lloyds Banking, Mastercard, Merck, Microsoft, Mitsui & Co, NatWest, Northrop Grumman, Novartis, Novatek, PetroChina, Pinterest, Koninklijke Philips, Raytheon, Royal Dutch Shell, S&P Global, J Sainsbury, Samsung Electronics, Sanofi, Sberbank, Sirius XM, Sony, Spotify, Starbucks, Swiss Re, Tesla, Total, Twitter, UBS, UPS, Vale, Visa, Waste Management, Whitbread and Yum China.