RBA meeting, Preliminary PMI data from the Eurozone and the UK coupled with inflation data from the UK and Canada as well as industrial production and retail sales from China will highlight the news this week with unavoidable trade comments and posts from the president Trump.
USD
US and China have released a joint statement following their meeting in Geneva over the weekend agreeing to lower tariffs on China imports to base 10% plus 20% levy on fentanyl. China has agreed to lower tariffs on US imports also to 10%. This will be applied for the period of 90 days. This move is intended as a baseline mechanism for further negotiations between countries regarding economic and trade relations. President Trump posted over the weekend that prescription and pharmaceutical prices will be lowered by 30-80%. Later on he clarified the amount by posting that “Drug prices to be cut by 59% plus!”
April inflation report showed headline number tick down to 2.3% y/y from 2.4% y/y in March with a 0.2% m/m print vs 0.3% m/m as expected (0.221% unrounded). This is the lowest print since February of 2021 and getting closer to 2% target. Shelter was again dominating category in inflation increase printing 0.3% m/m and 4% y/y. Drops were seen in airline fares, used cars, apparel and food prices. Core reading was unchanged at 2.8% y/y as expected with a 0.2% m/m vs 0.3% m/m as expected (0.237% m/m unrounded). Core services rose by 0.3%. Super core growing at 0.159% m/m and 1.78% y/y making it four months below Fed’s 2% target
After a very strong March retail sales report, boosted by front-loaded buying to avoid tariffs, April was a subdued month. Headline retail sales grew by 0.1% m/m while control group declined by 0.2% m/m. The biggest increases were seen in food services and drinking places followed by building material dealers. The biggest declines have been seen in sporting goods and musical instrument stores followed by miscellaneous store retailers. April still saw improvement in headline number after a huge jump in March so nothing to worry regarding strength of consumer going into the Q2.
The yield on a 10y Treasury started the week at 4.39%, rose to 4.55% and finished the week at around 4.43%. The yield on 2y Treasury started the week at 3.91%, rose to 4.07% and finished the week at around 3.95%. Spread between 2y and 10y Treasuries started the week at 49bp and finished the week at the same level. FedWatchTool sees the probability of a 25bp rate cut at June meeting at around 8%, while probability of a no cuts is around 92%. September is now the first month with greater than 50% probability of a rate cut.
EUR
Final German CPI was unchanged at 2.1% with Spain CPI and French CPI also coming unchanged at 2.2% y/y and 0.8% y/y respectively while Italian CPI was revised down to 1.9% y/y from 2% y/y as preliminary reported.
This week we will have preliminary PMI data for the month of May.
Important news for EUR:
Thursday:
Manufacturing PMI (Eurozone, Germany, France)
Services PMI (Eurozone, Germany, France)
Composite PMI (Eurozone, Germany, France)
GBP
BoE policymaker Lombardelli stated that policy remains restrictive and that caution in further moves remains appropriate. She added that wage growth remains too high for the targeted inflation and pointed it out as her main focus when looking for disinflation. BoE policymaker Greene echoed her colleagues thinking that wages inflation measures are still too high, but they are moving in the right direction. She added that some slack opened in the labor market and warned that risks to productivity are to the downside. BoE policymaker Taylor stated that in his opinion neutral rate is in 2.75-3% range. BoE policymaker Mann, biggest hawk, stated that labor market is proving to be more resilient than they expected. She added that worrying signs are showing in increasing inflation expectations by households and that she wants to see companies facing loss of pricing power.
April saw another negative payrolls change number as economy lost 33k jobs after losing 47k jobs in March. ILO unemployment rate for March ticked up to 4.5% as requested. Wage growth, slowed down, with average wages rising 5.5% 3m/y and ex bonus category rising 5.6% 3m/y. This reflects comments from policymakers that wage growth is elevated and carefully watched for future decisions.
Preliminary Q1 GDP saw economy grow by 0.7% q/q vs 0.6% q/q as expected. Services sector also grew by 0.7% while production grew by 1.1%, due to producers working to front-load tariffs, with no growth coming from the construction sector. Real household consumption grew by 0.2% while business investment surged by 5.9%. Net trade and government consumption contributed negatively to the reading, although in volume terms experts grew faster than imports, with former falling by 1.4% and latter declining by 0.5%.
This week we will have April inflation and preliminary PMI data for the month of May.
Important news for GBP:
Wednesday:
CPI
Thursday:
Manufacturing PMI
Services PMI
Composite PMI
AUD
We got a stellar April employment report. Employment change came in at 89k vs 20k as expected! The unemployment rate remained the same at 4.1% while participation rate jumped to new record high of 67.1% from 66.8% in March. Full-time jobs have added the majority of new jobs with 59.5k while part-time jobs added 29.5k jobs. The strength of labor market may cause some changes at the RBA meeting next week.
This week we will have RBA meeting as well as industrial production and retail sales data from China. Markets are pricing 25bp rate cut but considering huge jump seen in April jobs report they may opt for another pause.
Important news for AUD:
Monday:
Industrial Production (China)
Retail Sales (China)
Tuesday:
RBA Interest Rate Decision
NZD
RBNZ survey of inflation expectations saw 1-year rising to 2.41% from 2.15% in January while 2-year rose to 2.29% from 2.06% as previously surveyed. Inflation expectations have been coming down steadily and this increase is worrying. RBNZ focuses more on 2-year and it is yet to be seen if this is just a bump in the downtrend or something more sinister.
CAD
Building permits for the month of March, a very volatile data series, dropped 4.1% m/m after rising 4.9% m/m in February. Final manufacturing sales continued to decline as they printed -1.2% m/m after falling -0.2% m/m the previous month. Wholesale trade managed to increase in March by 0.2% m/m but at a slower pace than 0.3% m/m in February.
This week we will have April inflation data.
Important news for CAD:
Tuesday:
CPI
JPY
After three consecutive quarters of positive growth Q1 GDP showed contraction. It came in at -0.2% q/q and -0.7% y/y vs -0.1% q/q and -0.2% y/y as expected. Private consumption was flat for the second quarter in a row while private investment grew by 1.4% q/q making it the only positive. Net exports subtracted 0.8pp from the reading as exports declined 0.6% while imports grew by 2.9%. GDP deflator printed 3.3% y/y increasing from 2.9% y/y in Q4 indicating increasing inflation pressures in the economy. BoJ has said for months in every statement that economy is recovering moderately so it will be interesting to see how they will react to this setback. It should tone down their rhetoric and move rate hikes further into the latter part of the year. On the other hand, US – Japan trade deal would help greatly with economic recovery.
CHF
SNB total sight deposits for the week ending May 9 came in at CHF453.2bn vs CHF451.1bn the previous week. Steady rise in deposits as market developments are causing Swissy to weaken to the great delight of SNB. US Secretary of Treasury Bessent stated that Switzerland has moved up to the top of the queue on trade deals.
