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by Charalambos Pissouros

Weekly Outlook: May 25 – May 29: EZ CPIs the Most Important Data Release in the midst of US-China Tensions

The calendar appears relatively light this week, with no central bank meetings on the agenda. The only important data we get is Eurozone’s preliminary CPIs for May and perhaps Canada’s GDP for Q1.  We also get the 2nd estimate of the US GDP for Q1, as well as the core PCE rate for April. In the absence of any major events on the schedule, investors may keep most of their attention locked on headlines and developments surrounding the US-China relationship.

Remember that last week, US President Donald Trump accused China over disinformation in order to hurt his reelection chances, while US Senators decided unanimously to pass a bill which makes it hard for Chinese firms to stay listed in the US. What’s more important, China confirmed that it plans to pass a bill establishing “an enforcement mechanism for ensuring national security” for Hong Kong  in response to last year’s violent pro-democracy protests, with the US threatening to react strongly if China proceeds with national security laws for Hong Kong.

With all that in mind, investors may be eager to find out what’s next in this sequel. Further frictions may add to fears that the two nations are unlikely to secure a final trade deal soon and could even jeopardize the already-agreed “Phase One” accord. Something like that may prove negative for risky assets and positive for the safe havens, while the opposite may be true if the two nations decide to sit back down at the negotiating table in order to work things out and find common ground.

On Monday, the calendar is relatively light, with the only releases on the agenda worth mentioning being Germany’s final GDP for Q1 and the Ifo survey for May. The German GDP is already out, and as it is the case most of the times, it confirmed its preliminary print, namely that Eurozone’s power engine has contracted 2.2% qoq in the first three months of the year.

With regards to the Ifo survey, both the current assessment and expectations indices are expected to have rebounded to 75.0 and 81.0 from 69.4 and 79.5 respectively. This would drive the business climate index up to 80.0 from 74.3. Bearing in mind that the ZEW current conditions index slid further into the negative territory, we would consider the risks of the Ifo current assessment forecast as tilted to the downside. That said, the ZEW economic sentiment index came in better than expected, which suggests that the Ifo expectations actual print may also beat its own estimate.

German Ifo vs ZEW surveys

Markets in the UK and the US will be closed today, in celebration of the Memorial Day and a Bank Holiday respectively.

On Tuesday, during the Asian morning, we have New Zealand’s trade balance for April, but no forecast is available yet.

Later in the day, we get the US Conference Board consumer confidence index for May and the nation’s new home sales for April. The CB index is expected to have slid to 85.5 from 86.9, while new home sales are anticipated to have accelerated their slide in April, to -17.0% mom from -15.4%.

On Wednesday, the calendar appears very light, with no major events or indicators on the schedule.

On Thursday, Asian time, New Zealand’s ANZ business confidence index for May is due to be released, but, currently, there is no forecast for it.

Later in the day, Germany’s preliminary CPIs for May are coming out. Expectations are for both the CPI and HICP yoy rates to have declined to +0.6% and +0.5% from +0.9% and +0.8% respectively. Something like that could raise speculation that inflation in the Eurozone as a whole, the rates of which are expected to be released on Friday, may also slow further.

From the US, we get the 2nd estimate of GDP for Q1, and durable goods orders for April. The second estimate of GDP is expected to confirm the preliminary estimate and show that the US economy contracted 4.8% qoq SAAR. Even if we get a small revision, we expect this release to pass unnoticed as we already have models suggesting how the economy has been performing during Q2. The Atlanta Fed GDPNow model suggests that in the second quarter, the economy slumped 41.9%, while the New York Nowcast points to a -31.1% rate. With the Fed signaling readiness to act further in order to revive economic growth, such rates suggest that the Committee is more likely to ease further its policy than not. Remember that recently, although he expressed opposition to negative interest rates, Fed Chair Powell warned over an “extended period” of week growth, while at the press conference after the latest FOMC meeting, he said that economic activity will likely drop at an “unprecedented pace” in Q2.


As for the durable goods orders for April, the headline rate is expected to have rebounded somewhat, but to have remained within the negative territory. Specifically, it is expected to have risen to -15.0% mom from -15.3%. That said, core orders are expected to have fallen at a much faster pace than in March (-9.2% from -0.6%). Pending home sales for April are also coming out, with the forecast pointing to a 15.0% mom fall, after a 20.8% tumble in March.

Finally, on Friday, during the Asian morning, we have the usual end-of-month data dump from Japan. The unemployment rate for April is forecast to have risen to 2.7% from 2.5%, while the jobs-to-applications ratio is expected to have fallen to 1.33 from 1.39. The slide in industrial production is anticipated to have accelerated to -5.1% mom during the month, from -3.7%, while the yoy rate of retail sales is forecast to have dropped to -11.5% from -4.7%. We also get the Tokyo CPIs for May. No forecast is currently available for the headline rate, but the core one is anticipated to have ticked down to -0.2% yoy from -0.1%.

From the Eurozone, we get the preliminary CPIs for May. The headline rate is expected to have remained unchanged at +0.3% yoy, while the no forecast is available for the core one. That said, the HICP excluding energy and food is forecast to have slowed to +0.8% yoy from +1.1%. With the German headline rates though expected to have declined notably, we would see the risks surrounding at least the headline rate as tilted to the downside.

German vs Eurozone CPIs

When they last met, ECB policymakers eased the conditions of their TLTROs and introduced a new series of non-targeted pandemic emergency long-term refinancing operations (PELTROs), staying ready to adjust all of their instruments, as appropriate, to ensure that inflation moves towards their aim in a sustained manner. 

Last Thursday, the preliminary PMIs for the month rebounded by more than anticipated, but stayed well below the boom-or-bust zone of 50, keeping the door for further stimulus wide open. Thus, with that in mind, we believe that further slowdown in Eurozone’s inflation, or perhaps a deflationary print, may increase the chances for the ECB to adopt additional easing measures, and/or to expand the existing ones.

In the US, we have personal income and spending for April, as well as the core PCE rate for the month. Personal income is expected to have fallen 8.3% mom after sliding 2.0% in March, while spending is anticipated to have tumbled 9.7% mom after falling 7.5%. That said, we would consider the risks of the income rate as tilted to the upside and this is because the average hourly earnings for the month jumped 4.7% mom. With regards to spending, we would consider a larger-than-expected decline as retail sales for the month dropped 16.4% mom.

With regards to the yoy core PCE rate, the Fed’s favorite inflation metric, it is expected to have fallen to +1.1% yoy from +1.7%. The case for a notable decline is supported by the core CPI rate for the month, which dropped to +1.4% yoy from +2.1%. With the Fed showing willingness to ease its policy further if needed, a notable slide in the core PCE index may add to the chances of more stimulus.

US CPIs vs core PCE yoy

From Canada, we get the GDP for March and for Q1 as a whole. The monthly rate for March is expected to have tumbled to -9.0% from 0.0%, which will drive the qoq annualized rate down to -10.0% from +0.3%. At its prior gathering, the BoC announced an expansion of its QE purchases, while last week, inflation data for April missed estimates, with the headline rate falling to -0.2% yoy. Although this may have been due to the collapse in oil prices, combined with an unprecedently low GDP print, it may increase speculation for more easing by the BoC and thereby bring the Canadian dollar under selling interest.

Canada GDP qoq annualized


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