Next week’s market movers
- In the UK, lots of key economic data are due out, among which inflation figures. However, with the recent BoE meeting now out of the way, we think that investors are likely to turn their attention primarily to developments surrounding the upcoming General election.
- In Canada, April’s CPI rates may rebound following notable tumbles in March, but we doubt that this will lead to a material change in the BoC’s dovish rhetoric.
- We also get key economic data from China, Australia, New Zealand, and Canada.
On Monday, during the Asian morning, we get China’s retail sales, industrial production and fixed asset investment data, all for April. The forecast is for all of these indicators to have slowed in yearly terms. Indeed, both of the nation’s official and Caixin manufacturing PMIs for the month showed that production continued to rise, albeit at a reduced pace, which supports the industrial output forecast. Meanwhile, the consensus for slowing retail sales is somewhat supported by the notable slowdown in imports during the month.
From New Zealand, we get retail sales for Q1. The forecast is for sales to have accelerated somewhat, in both quarterly and yearly terms. The case for another quarter of solid sales is supported by the New Zealand electronic card transactions indicator, a gauge of the nation’s retail sales, which remained robust throughout the quarter. In addition, the continued increase in the nation’s population growth due to strong net migration, supports further the forecast.
On Tuesday, the main event will probably be the release of the UK CPI data for April. The forecast is for both the headline and the core rates to have risen notably, something supported by the nation’s services PMI for the month, which indicated that service firms raised their prices charged at the fastest pace since 2008. Indeed, in its latest Inflation Report, the Bank of England also anticipates inflation to have accelerated notably in April. In fact, the BoE forecasts suggest that the headline CPI rose to +2.7% yoy in April, while the market consensus currently anticipates a +2.6% yoy rise. As such, should inflation accelerate by less than what the BoE forecast, this would be yet another factor supporting the case for no action by the Bank in the foreseeable future. Considering that this is what is anticipated by financial markets as well, we think that sterling’s forthcoming direction over the next weeks is likely to be decided primarily by news surrounding the upcoming General Election, rather than developments regarding monetary policy. In our view, incoming opinion polls that show the Conservatives maintaining or extending their current lead could support sterling as we approach the Election Day (June 8th).
On Wednesday, the UK employment data for March are coming out. In the absence of a forecast, we see the likelihood for the unemployment rate to have held steady, while average weekly earnings may have accelerated following three consecutive months of slowdowns. Our view is based on the UK services PMI for the month, which showed that the rate of job creation in the UK’s largest sector was only marginal, and that firms reported stronger salary pressures. Accelerating nominal wages combined with the steady inflation rate for the month could turn real wage growth back to positive.
On Thursday, during the Asian morning, Australia’s employment data for April are due out. The forecast is for the unemployment rate to have remained unchanged, and for the net change in employment to have remained in positive territory following a remarkable surge in March. The forecast for another month of employment gains is supported by the ANZ job ads indicator, which showed that job advertisements accelerated in April. This suggests that the labor market may have continued to tighten, something that could ease further some of the RBA’s concerns regarding employment indicators.
From the UK, we will get retail sales data for April. Without a forecast available, we see the case for sales to have rebounded notably, following a bigger-than-expected plunge in March. Our view is based on the BRC retail sales monitor, which skyrocketed to +5.6% yoy in April from -1.0% yoy previously. In addition, the fact that the TR/IPSOS and the Gfk consumer sentiment indices both rose during the month, enhances the argument for a rebound in sales.
On Friday, we get Canada’s CPI data for April, but no forecast is available yet. Our own view is that both the headline and the core CPI rates likely rebounded following notable tumbles in March. This view is consistent with the nation’s Markit manufacturing PMI for April, which showed another robust increase in factory gate prices. A rebound in these rates would likely be an encouraging development for BoC officials, as it could confirm that the softness in March was only transitory. Nevertheless, we doubt that it will lead to a material change in the Bank’s dovish bias. The BoC made it clear that it is going to maintain a cautious stance until uncertainties around trade clear up, something we don’t see happening anytime soon given the recent tariffs from the US government
