The Daily Update: The Week Ahead

Last week was a mixed week for asset markets: a bout of volatility in Bitcoin/cryptocurrencies, after the PBoC said that cryptocurrencies cannot be used for payment, was accompanied by some selling pressure in equity markets and commodities. Brent crude recovered somewhat but ended the week down 3.3% at USD 66.44pb as some signs of progress on restoring the Iran nuclear deal which could potentially ease oil export sanctions also weighed on sentiment. The S&P 500 recovered off the lows to end the week down 0.43%. USTs range traded over the week with yields backing up mid-week but then recovering into the end of the week: over the week the UST 10 year yield tightened 1bps to 1.62%. The 5s30s spread tightened 3bps to 149bps.

The FOMC minutes released on Wednesday were a focus, these noted: “A number of participants suggested that if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” However, the minutes also stressed that it would likely be ‘some time’ before ‘substantial further progress’ on its mandates was seen. So, as has been the way of it over the last few months, the comments are littered with conditionality, but it does seem that the members are gearing up to have the conversation, if and when the data improves. Key US data releases included initial jobless claims which fell to a pandemic low of 444,000 and the preliminary readings for the US Markit PMI for manufacturing and services which exceeded expectations at 61.5 and 70.1, respectively. The services reading was particularly strong benefiting from the economy reopening as the Bloomberg survey was looking for 64.3 and the prior reading was 64.7 However, April US housing starts and existing home sales came in below expectations.

UK data releases continued to show the economy recovering with reopening: April retail sales grew 9.2% mom exceeding expectations of 4.5% mom. The preliminary readings for the May PMI data for manufacturing strongly exceeded expectations coming in at 66.1 versus expectations of 60.8. The May PMI for services came in at 61.8 which was a bit below expectations of 62.2 but ahead of the prior reading of 61. UK CPI for April increased 1.5% yoy, which was in line with expectations, and up from 0.7% yoy the prior month. The final reading for Eurozone CPI for April came in at 1.6% which was in line with expectations. Eurozone Q1 GDP showed the economy contracted 0.6% qoq which was in line with expectations. However, with vaccination rollout gaining momentum in Europe the focus has turned to the economic recovery. The Eurozone May preliminary PMI data for manufacturing and services exceeded expectations (Bloomberg survey) coming in at 62.8 and 55.1, respectively. In contrast, Japanese Q1 GDP disappointed shrinking at an annualised rate of 5.1% reflecting the state of emergency and restrictions due to covid infections and low rates of vaccination. Japan’s May PMI data also disappointed with the services gauge falling deeper into contractionary territory with a reading of 45.7 from 49.5.

In the week ahead, there are a number of US data releases which will be closely watched to gauge how the recovery is faring. The week starts with the April reading of the Chicago Fed National Activity Index for April. On Tuesday, the April New Home Sales data is due followed by April Pending Home sales later in the week. US durable goods orders for April is released on Thursday with the Bloomberg survey looking for the headline figure of 0.8% mom. The second reading for US GDP is also due that day with the Bloomberg survey looking for 6.5% on a quarterly annualised basis. On Friday, the personal income and spending data for April will be a focus: personal income is expected to decline (-14.8% Bloomberg survey) following the jump in March due to the stimulus cheques. The Bloomberg survey is looking for the spending reading for April to come in +0.5% mom. Given the focus on inflation, the PCE deflator and core PCE readings for April will be a focus with the Bloomberg survey looking for 3.5% yoy at the headline and 2.9% yoy for the core. Elsewhere, the German Q1 GDP final reading is due on Tuesday: the Bloomberg survey is looking for Q1 GDP to decline 1.7% qoq. Key sentiment gauges to watch include the IFO Business Climate and Expectations readings for May on Thursday and the June GfK Consumer Confidence reading is on Thursday.

In terms of central bank news, the RBNZ decision on rates is due on Wednesday but otherwise the focus is likely to be on a slew of central bank speakers. BoJ Governor Haruhiko Kuroda, Riksbank Governor Stefan Ingres and ECB Chief Economist Philip Lane are due to speak at a BoJ-IMES conference. Fed speakers over the week include Loretta Mester, Ester George and Raphael Bostic. Randal Quarles, Fed Vice Chair for Supervision, is also due to give a semi-annual testimony before the Senate Banking Committee on Tuesday. ECB speakers include ECB Vice President Luis de Guindos on Wednesday speaking on financial integration and ECB Executive Board Member Isabel Schnabel is due to speak at the Forum New Economy on a new mandate for central banks. BoE speakers include Silvana Tenreyro speaking on ‘Economic Challenges from the Pandemic’ on Tuesday and Gertjan Vlieghe speaks on Wednesday. Other events of interest include a virtual meeting of the G7 Finance Ministers and Central Bank Governors ahead of the June meeting. EU leaders are also due to gather in Brussels for a summit on Monday.