Macroeconomics: The Day Ahead for 27 April

A much busier day awaits above all statistically, accompanied by the BoJ and Riksbank policy meetings, BoC’s Macklem testifying to Canada’s parliament on last week’s ‘semi-hawkish’ Monetary Policy Report, and plenty more corporate earnings. There are the overnight Korea’s Q1 GDP and China’s Industrial Profits to digest, while ahead lie Italian Confidence and UK CBI Retailing surveys, Brazil’s IPCA-15 inflation, US Consumer Confidence and House Prices. In corporate earnings terms ADM, AMD, GE, Jiangxi Copper, Pulte Group and Visa are likely to be among the headline makers, while Italy sells I-Ls and a Zero, Germany 7-yr and the US 2-yr FRN and 7-yr. While the focus for the week in terms of inflation data will be on the Eurozone, Japan and the US (PCE deflators), today’s Brazil’s IPCA -15 inflation may be most significant, given that these 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 (market discounting 5.50% in October vs. current 2.75%). Talking of inflation, the continued / renewed surge in grains and industrial metals prices, and a degree of resilience in oil prices (see various charts) despite demand concerns, would suggest that the reflation trade is anything but over, even if there is a clearly speculative component to it, and that markets continue to focus rather too narrowly on oil prices as their inflation proxy.

The overnight run of data saw South Korea’s Q1 GDP beat forecasts on strength in Exports and Business Investment in facilities, along with a modest recovery in Private Consumption (1.1% q/q vs. Q4 -1.5%); Q2 GDP is seen maintaining this pace, but H2 will likely see a marked slowdown. China’s Industrial Profits slowed less than many had expected to 92.3% y/y, leaving Q1 up 137% y/y, though the fact that manufacturing closures around the Lunar New Year were much lower than normal and the obvious base effects flatter the outcome. Given concerns about China’s SOE and industrial debts, the fact that industrial sector liabilities were up 9.0% y/y is also worth noting. As for the BoJ, there were never going to be any surprises, with the current FY CPI forecast revised down to 0.1% from 0.5% y/y, 2022 seen at 0.8%, and the initial forecast for 2023 at 1.3%, thus confirming that the BoJ expects to continue to miss its CPI target on a longer-term basis.

** U.S.A. – April Consumer Confidence **

Following on from last month’s surge to 109.7 from 90.4 in February, paced both by a rise in expectations to 109.6, its best level since July 2019 on the back of an improving labour market (see chart), and a 1-year high for Current Situation, a more modest headline rise to 112.0 is anticipated. Rapid vaccine rollout, easing activity restrictions, improving labour demand (though wage growth remains sluggish given colossal labour market slack) should all help to underpin. House Price indicators for February are also due, with both FHFA and CaseShiller measures seen up 1.0%, which would see the former push up towards 13.0% in y/y terms and the latter to 11.8%, underlining that affordability will present an increasing headwind to the housing sector.