Inflation and consumption data from the US coupled with preliminary Q1 GDP reading from the UK will be the highlights of the week.

USD 

ISM manufacturing PMI in April came in at 60.7 vs 65 as expected and down from 64.7 the previous month. New orders and employment sub indices came in weaker than in March, however they are still at a very high levels indicating strong manufacturing sector. Semi-conductor chip shortages are the main culprit for the drop from the previous month. One thing that is concerning is that prices paid index continued to rise and came in at 89.6 vs 85.6 in March. This is a 13-year high. Rising input prices will be transferred to consumers at some point which would lead to higher consumer prices, inflation. ISM Non-manufacturing PMI also eased coming in at 62.7 vs 63.7 in March. New orders and production sub indexes were down from March reading, but still in the 60s. New export orders and employment sub indexes both improved. A matter of concern is the rise in prices paid and supply deliveries sub indexes. Prices paid also rose to a 13-year high and in combination with elevated supply deliveries it indicates shortages and supply constraints raising changes for disruptions in the future.

Dallas Fed president Robert Kaplan talked about tapering and adjusting bond purchases. He stated historically elevated stock prices, tight credit spreads and surging housing prices. As we get closer to the June meeting we could see more members start to talk about lowering the bond-buying in the future. That could give USD a nice boost. US Treasury Secretary Janet Yellen, former chairman of the Fed, stated that due to the expected success of fiscal stimulus “interest rates will have to rise somewhat to make sure our economy doesn’t overheat”. This have sent shivers down the spine in the market with equities dropping quickly. Later during the day, she clarified her statement saying that it is “not something I’m predicting or recommending”. Fed chairman Powell and NY Fed president Williams came out with statements reiterating their dovish view of the economy.

Nonfarm payrolls for April heavily missed expectations. The report showed 266k jobs added vs 1000k as expected. March reading was revised down for almost 150k jobs. The unemployment rate ticked up to 6.1% from 6% in March, expectations were for it to drop to 5.8%. The participation rate ticked higher to 61.7% from 61.5% the previous month indicating more people returning to workforce and taking a sting out of the rise in the unemployment rate. Questions about the pace of recovery will be raised. Fed will continue to reiterate that economy still has a long way to go.

This week we will have inflation and consumption data. Headline inflation should shoot close to 4%.

Important news for USD:

Wednesday:

CPI

Friday:

Retail Sales

EUR

Final services PMI in April for Eurozone was unchanged at 50.3 thanks to the strong reading from Spain while German and French readings saw small downward revisions. German reading even dipped into contraction with 49.9. Composite PMI was revised up to 53.8 from 53.7 as preliminary reported. Markit states that “April’s survey data provide encouraging evidence that the Eurozone will pull out of its double-dip recession in the second quarter”. Retail sales continued to rise in March coming in at 2.7% m/m vs 1.6% m/m as expected. There were also upward revisions to February reading giving more strength to the report. Non-food products contributed the most (4.6% m/m) while automotive fuels decreased (-2.9% m/m). Continuation of the consumption trend coupled with easing of restrictions will have a positive influence on Q2 GDP.

GBP

Final manufacturing PMI for April improved to 60.9 from 60.7 as preliminary reported thus making it the record reading in almost 27 years. Output and new orders continued expanding at an increased rate. Markit notes that “The sector also remains beset by supply-chain issues and rising inflationary pressures. Disruption following Brexit and COVID-19, especially at ports, caused a further near-record lengthening of supplier delivery times. The resulting input shortages kept producer price inflation among the highest over the past four years.” Final services PMI was revised up to 61 from 60.1 as preliminary reported which pushed composite to 60.7 from 60 as preliminary reported. Services reading is highest in 8 years and it reflects loosening of restrictions in the UK. With all three reading into 60s there is a reason to be optimistic about the UK economy.

BOE has left both bank rate and total amount of purchases unchanged. They are at 0.10% and £895bn respectively. MPC members do not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. GDP forecast for 2021 is now at 7.25% while GDP for 2022 is seen at 5.75%. Inflation is seen at 2.31% in one year’s time. In the statement, MPC members have stated that pace of asset purchases would be slowed down. The pound dropped first on the news that there will be no changes to asset purchases and then rebounded when the statement came.

This week we will have preliminary Q1 GDP data.

Important news for GBP:

Wednesday:

GDP

AUD

RBA has left cash rate unchanged at their May meeting as widely expected. Targeted yield on 3-year bonds was also unchanged at 0.10%. At the July meeting, RBA will consider future bond purchases following the completion of the second AUD100 bn of QE purchases as well as whether to change 3-year targeted bonds from April 2024 to November 2024. The bank assessed economic recovery as stronger than expected and they see that trend continuing. There will be a small, modest pick-up in wages and inflation. They have reiterated their stance not to increase the cash rate until inflation is sustainably within the 2-3% target range, which is forecast for 2024 at the earliest. GDP for 2021 has been revised up to 4.75% and 3.5% in 2022. The unemployment rate should hover around 5% at the end of 2021, falling to 4.5% at the end of 2022. Underlying CPI to be at 1.5% this year, rising to 2% in mid-2023 with CPI to be temporarily above 3% in the Q3 of 2021.

Caixin services PMI jumped to 56.3 from 54.3 in March on the back of expanding new orders. Rising input costs, labour and raw materials, indicate that inflation pressures are building. Composite PMI came in at 54.7 vs 53.1 the previous month for the highest reading in 2021. Trade continued to bloom in April. Trade surplus was $42.85bn and it was achieved on the back of exports increasing 32.3% y/y while imports rose 43.1% y/y. China’s economic planning agency (NDRC) is going to halt activities under the China-Australia Strategic Economic Dialogue ‘indefinitely’. With China being Australia’s largest trading partner this decision could seriously impede Australia’s economy and push AUD down.

This week we will have inflation data.

Important news for AUD:

Tuesday:

CPI (China)

NZD

Employment report for Q1 was a strong one. Employment change was unchanged on q/q basis and came in at 0.6%, however expectations were for a 0.3% rise. The true shine of the report can be seen in the unemployment rate which fell to 4.7% from 4.9% in Q4 of 2020. At the same time, participation rate rose to 70.4% from 70.2% the previous quarter. Preliminary business confidence for May came in at 7, back into positive after -2 reading in April. Finance Minister Robertson stated that economic recovery has exceeded every forecast, adding that fiscal spending will carry on to support the economy.

CAD

Employment report in April was plagued by renewed lockdowns, however it painted the worse picture than expected. Headline number came in at -207.1k vs -150k as expected. Majority of jobs lost were full-time jobs (-129.4k). The unemployment rate rose to 8.1% from 7.5% in March while participation rate dropped to 64.9% from 65.2% the previous month. USDCAD dropped below the 1.22 level during the week and is fighting to stay there. With weak NFP reading we could see USD weakness due to Fed not rushing to taper or raise rates, which opens up a potential for selling the rallies in USDCAD.

JPY

Final services PMI for April saw improvement to 49.5 from 48.3 as preliminary reported. This is the highest reading since January of 2020 and very close to expansion. The reading also showed fastest job creation in two years. Composite PMI was pushed upward thanks to services and came in at 51 vs 50.2 as preliminary reported. Wages data showed earnings rise 0.2% m/m vs -0.2% m/m as expected for a first rise since March of last year. The Government is considering extending state of emergency until the end of the month, possibly going into the June as well, while easing some of the restrictions.

CHF

SNB total sight deposits for the week ending April 30 came in at CHF701.4bn vs CHF701.7bn the previous week. Although EURCHF has dropped below the 1.10 level SNB does not see it as a threat and continues to ease its actions in the market. Inflation in April came in at 0.3% y/y as expected, thus climbing from 14 months of deflation. It is attributed to the base effects due to the wreck pandemic made in the economy a year ago. Core inflation came in flat vs -0.1% y/y as expected.

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