Macroeconomics: The Day Ahead for 6 May

As China and Japan return to the fray, there is a busy schedule of data, events and earnings to absorb, though the data run has rather little in the way of likely market movers, featuring German Factory Orders, final UK Services PMI, Eurozone Retail Sales, US weekly jobless claims and Q1 Non-farm Productivity, while tonight brings China’s trade data. The events schedule has central bank policy meetings in the UK, Czechia, Malaysia, Norway & Turkey (all seen holding rates) to accompany a plethora of ECB and Fed speakers, while France and Spain have multi-maturity debt auctions. The earnings schedule features a further swathe of European banks including ING, Societe Generale & Unicedito, along with Anheuser-Busch InBev, ArcelorMittal, Enel, Gazprom, Henkel, LG Electronics, Linde, Rio Tinto and Volkswagen in Europe, while the US features Fidelity, Kellogg, Moderna, Tapestry and ViacomCBS amongst others. Both the Norges Bank and CNB decisions will attract attention, with Norges Bank expected to hold rates at 0% and maintain guidance of a rate hike by year end, while the CNB will likely push back further on expectations of what was quite an aggressive rate hike trajectory in H2 2021.

German Orders were better than expected at 3.0% m/m, and both headline and domestic order indices are not only above pre-pandemic levels, but at or close to their cyclical peaks in 2017 (see chart); however supply chain bottlenecks are likely to hinder the catch-up of production to orders. Elsewhere the suspension of the China-Australia Strategic Economic Dialogue by China will capture headlines, but was inevitable given Australia’s interventions on Belt & Road projects and other Chinese investments in Australia. As the attached chart of Australia’s exports to China and the rest of the world attest, the damage has been rather specific, i.e. Barley and Coal, but not Iron Ore.

** U.K. – BoE MPC meeting, UK local elections **

The Bank of England will hold rates at 0.1%, and its QE volumes at £875 Bln Gilt and £20 Bln Corporate bonds. It will upgrade its economic forecasts above all for GDP and Unemployment, reflecting the flow of better economic data since the February meeting, and perhaps tweak its CPI projections marginally, but still suggesting it will be around target on the forecast time horizon, thus justifying guidance that Base Rate will not rise before 2024. In truth, the only interesting question is whether they stick to the current QE pace of £4.4 Bln/week until June, or perhaps cut the pace to £3.2 Bln/week as some are speculating, and again emphasize that this could be adjusted in either direction (Bailey likely to reprise ‘two-sided’ risks), if circumstances so require. This would also avoid a sudden stop in November when the current £150 Bln ‘envelope’ would currently be exhausted. As for the local and regional elections, the fact that the Conservatives continue to hold a very wide lead over Labour in national polls speaks volumes, especially given all the accusations of sleaze and cronyism, and a very chequered record of managing the country through the pandemic. To be sure the rapid vaccine roll-out has been a clear success, as is the fact that the furlough scheme continues to shield the labour market from the much of the economic ravages of the pandemic, even if a reckoning will be had once the latter is wound back. Due to the delays to last year’s local elections, this will in fact be the biggest bloc of elections since 1973 (more than 5,000 seats in total), and likely to produce quite a few surprises, above all given the realignment of UK politics above all highlighted in the 2019 General Election. However it is the Scottish parliament election which will be of most significance for markets, with opinion polls suggesting a pro-independence majority (including the Greens), but not an outright majority for the SNP.