Macroeconomics: The Week Ahead: 3 to 7 May 2021

A new month begins with holidays in UK Monday, and China and Japan Monday through Wednesday set to dampen trading volumes. The statistical schedule has a very familiar start of month look to it with PMIs and US Auto Sales dominating the start of the week, while the latter half of the week has US labour and Chinese Trade data as its highlights, with German Orders, Trade and Industrial Production, Japanese wages, Turkish CPI and the UN FAO World Food Price Index also due. The RBA and BoE meetings top the run of central bank meetings, though a further aggressive rate hike is seen in Brazil, while Turkey’s TCMB is expected to hold; Fed, ECB and BoE speakers are again very numerous. In the commodity space, weather reports will continue to be closely monitored  in what is proving to be an acute La Nina disrupted year for grains, while Friday’s Chinese Imports data will be scoured for clues for the gamut of commodity and energy markets, along with the CNGOIC monthly report on Chinese Grains & Oilseeds. Another bumper week for corporate earnings in the US and around the world, with pharmaceuticals, oil and steel producers, and three major auto makers (BMW, GM and VW) perhaps attracting most attention along with another raft of financials. As Covid-19 vaccination rates pick up in Europe, the focus will increasingly turn to the timetables for easing activity restrictions, above all in Europe, but with India’s infection rate likely to remain tragically high, and the vaccination roll-out in many parts of the world still slow, the risk of more infectious mutation remain very high. Supply chain disruption reports continue to escalate, and are clearly putting pressure on prices, but also likely to blight output in a number of sectors in Q2 and more than likely Q3, that has been a clear message from producers and end users in corporate earnings.

In bullet points in data and central bank terms:

• PMI reporting will be a little haphazard due to holiday schedules, forecasts assume continued strength in Manufacturing, with divergent Services performance very much a function of looser or tighter activity restrictions. Input Prices and Supplier deliveries along with Employment are perhaps of greater importance than orders and output, and going forward supply bottlenecks may result in reduced output, even if this should ultimately prove to be transitory.
• Echoing the trend seen in weekly jobless claims and aided by easing leisure and entertainment restrictions, US Payrolls are expected to post another strong increase of up to 1.0 Mln, but an improvement in the U-6 Underemployment and Labour Force Participation rates would carry much greater weight with the Fed. As lower paid services jobs increase, this will bear down on average hourly earnings, with base effects adding to the downward pressure
• The Bank of England will hold rates at 0.1%, as will the RBA, but the BoE is expected to taper the pace of its Gilt purchases, the question is what it offers as guidance on further reductions. But the RBA will doubtless point to the record low Q1 core CPI rate as underlining the need for it to continue its QE at the current pace. It should be remembered that the Australian govt has already withdrawn a considerable volume of fiscal support, in contrast to the UK. That said, the RBA is also much more concerned about the level of the AUD.
• Chinese Trade data will continue to be noisy in headline terms, but the commodity imports data – above all grains, soybeans, oil and copper – will be highly sensitive. German trade data will be closely watched for the strength of demand from China and the US. Korea’s Trade data (1st May) is also expected to be robust, above all thanks to semiconductor, auto and pharmaceutical demand.
• Commodity prices, above all oil and copper which both faded at the end of the week, will likely be a key factor in terms of any re-emergent pressure on long-term yields.
• As a broader point, dismissing such pressures as being ‘just’ supply chain issues that will be resolved and throwing around glib statements about technology reasserting its downward pressure may prove to be a major error. When supply disruption meets spikes in demand in a world where many businesses (and people) are desperate to ‘get up and running at full capacity’ above all to make a dent in the debt mountain that has been accumulated in the past year could prompt a step shift in prices, even if this is overcome in 1-2 years.

Another busy week for corporate earnings Blo0mberg News suggests the following will be among the highlights;

• Cars/car services: BMW, Uber, Volkswagen, Lyft, Ferrari, GM and Avis Budget.
• Energy/commodity: Barrick Gold, Williams Cos., Marathon Petroleum, Enel, Nippon Steel, Aramco, ConocoPhillips and Cheniere Energy.
• Entertainment/travel: Liberty Media, Air France-KLM, Hilton, Peloton, Hyatt Hotels, Activision Blizzard, Japan Airlines, Air Canada, DraftKings, Warner Music Group, Adidas and Fox.
• Financial: Berkshire Hathaway, AIG, Banco do Brasil, Sun Life, Allstate, KKR, MetLife, Itau Unibanco, Societe Generale, UniCredit, National Australia Bank, ING Groep, Credit Agricole, Vornado Realty Trust and Apollo Global Management.
• Food/drink: Bunge, Anheuser-Busch InBev, Ambev, Beyond Meat, Budweiser, Kellogg and Shake Shack.
• Technology/pharmaceuticals: Siemens, Nintendo, GoDaddy, Infineon, Wayfair, Square, PayPal, Moderna, Regeneron, Pfizer, Novo Nordisk, T-Mobile US and CVS Health.