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by Darius Anucauskas

Weekly Outlook: May 6th – May 10th: RBA and RBNZ Rate Decisions, Brexit and US-China Trade Negotiations

This week should be quite an eventful one: with the Reserve Bank of Australia and the Reserve Bank of New Zealand deciding on interest rates, as well as the ongoing Brexit saga and the US-China trade talks. In addition to that, the Eurozone will provide their services PMI and Canada will deliver its employment data.

Monday will be a relatively quiet day in terms of economic data releases. The Eurozone will present its final services PMI figures for the month of April. Individual states, like Italy, Spain, France and Germany are also set to show how their service sectors had performed over the last month. That said, as it is usually the case, the final prints are expected to confirm their preliminary estimates. For example, Eurozone’s print is expected to confirm that the index slid to 52.5 in April from 53.3 in March.

Later in the day, Bank of Canada Governor Stephen Poloz is expected to deliver a speech before the Canadian Credit Union Association on the topic of “The Future of Canada’s Mortgage Market”. We believe that this won’t be a market moving event, hence why we will not put too much emphasis on it.

On the political arena, Brexit negotiations are back this week, as Theresa May will try to find common grounds with MPs again over her EU deal. After the local elections that took place in UK last week, both Conservatives and Labour were disappointed with the results, as they have lost some votes to other, less popular parties. This showed that people are frustrated with both, Conservatives and Labour, over the way they are dealing with Brexit. This might actually work in favor for Theresa May, as Jeremy Corbyn’s popularity is also diminishing. Mrs May sees this as an opportunity to try and negotiate with the opposition, despite the criticism from some members of her party for holding these cross-party talks.

On Tuesday, during the Asian morning, Japan will resume its trading, as it comes back from a long holiday. Just to remind the reader that the Japanese market was closed from the April 29th to May 6th, due to the proximity of various celebrations throughout the week, which were combined into one long holiday. Also, during the early hours Australia will take center stage, as the Reserve Bank Board meeting will take place, discussing monetary policy. Also, the Bank will decide on their main interest rate, which is currently sat at +1.5%. The rate is expected to remain the same. During the April meeting, RBA stated that inflation expectations are still on the lower side with a chance to fall even further. GDP growth had also slowed down a bit, together with the consumption figures. The housing market is struggling to pick up, as weaker demand with increased supply are driving house prices lower. Even though the RBA is expected to keep the rate unchanged, the worsened economic data could weigh in on the Bank to actually consider lowering the interest rate soon. The Bank lowered its rate to +1.5% in August 2016 and since then it remained unchanged.

Later on, during the North American morning, US will release their JOLTs Job Opening number for the month of March. We will see how many non-farm jobs there are, which are not filled for that particular month. The reading is forecasted to come out at 7.350M, which is better than the previous 7.087M for the month of February. At the same time, Canada’s Ivey Business School will deliver on their monthly PMI figure for April, which is one of the measures of economic activity in Canada. The number is believed to have declined from the previous 54.3 to 51.1.

On Wednesday, during the Asian morning, New Zealand’s central bank will deliver its monetary policy statement. The big news here is that the Reserve Bank of New Zealand is very likely to cut its rates from +1.75% to +1.50%. The country is also experiencing a slowdown in inflation, as its neighboring Australia. There was significant decline in the most recent headline inflation number for Q1, which came out at +1.5% yoy versus the previous +1.9%. But the unemployment rate for the quarter has recently declined and now sits at 4.2%, which is close to its 10-year low, at 4%. Lately, the New Zealand dollar lost its grounds against most of its major counterparts. But the Bank believes that lowering interest rates now would give them that edge in tackling low inflation and boosting the domestic economy. They expect consumer consumption to rise and businesses to invest more, in order to support the economy. An hour after the monetary policy statement will be released, RBNZ will hold a press conference to discuss the details of the policy and take questions from the press.

In the early hours of European morning, Switzerland will provide us with the country’s unemployment n.s.a. and s.a. figures for April. The n.s.a. number is expected to have decreased slightly, from +2.5% to +2.3%, whereas the s.a. is forecasted to have remained the same, at +2.4%.

In terms of other economic data, Canada will release their housing starts and the US will deliver the numbers on crude oil inventories. The Canadian housing starts are expected to have increased from the previous 192.5k to 194.0k. At the time of this report, there are no forecasts for the US crude oil inventories.

Also, on Wednesday, the US was set to host the Chinese delegation in Washington for another round of trade talks. Last Friday, Trump said that he was quite satisfied how the negotiations are going along, but on Sunday he somehow changed his tone and threatened to impose tariffs on $200 billion-worth of Chinese goods. It seems he is trying to force Chinese to agree on a deal as soon as possible, as talks are taking too long. That said, the WSJ reported early on Monday that China is considering to cancel this round of talks due to the aforementioned threats.

Thursday will start off with Chinese April CPI and PPI releases. The Chinese inflation numbers on MoM and YoY basis are expected to have improved from the previous. The forecast of the MoM CPI number is +0.1% and the YoY is +2.5%, versus the previous -0.4% and +2.3% respectively. The Chinese PPI on a YoY basis for the month of April is expected to come out at +0.6%, which is also an improvement from the last reading, at +0.4%.

During the European morning we will get the Norges Bank interest rate decision, where the Bank is expected to keep the rate unchanged at +1.0%. The Bank increased interest rates in March and noted that its “policy rate will most likely be increased further in the course of the next half-year”. Following the Riksbank’s decision to push back the timing of when it expects to increase rates again, apart from SEK, the Norwegian Krone slid as well, perhaps due to fears that the Norges Bank may follow suit. However, the currency recovered a decent portion of its Riksbank-related losses later in the day, which means that investors may have had second thoughts with regards to Norges Bank’s plans. Indeed, with the Norwegian economy expanding at a solid pace, and inflation above the Bank’s objective, the Norges Bank could stay as the only G10 central bank planning a hike later this year.

Later on, before the beginning of the US trading session, the US core MoM PPI figure for the month of April will be released. The expectations are slightly on the lower side, where the number is believed to come out at +0.2%, which is by one tenth of a percent lower than the previous. But the headline MoM PPI does not look great either, as the forecast sits at +0.2% versus the previous +0.6%. The US initial jobless claims are also expected to have declined from 230k to 215k.

Finally, on Friday, in the early hours of the Asian morning RBA will release their monetary policy statement. The main focus during the European morning will be on Great Britain’s GDP data. The MoM figure is believed to have declined, going from the previous +0.2% to +0.0%, whereas the preliminary QoQ and the YoY figures are expected to have risen. The QoQ number is forecasted to come out at +0.5% and the YoY one is supposed to be at +1.8%. The previous figures were at +0.2% and +1.4%. Also, UK will present its industrial and manufacturing MoM figures for the month of March. The industrial number is believed to be coming out at +0.2%, which is lower than the previous +0.6%. Similarly, the manufacturing measure is expected to be much lower, at +0.1%, than the previously reported +0.9%.

Before the US opening bell, we will receive the US inflation numbers. Both the headline and core CPI rates are expected to have increased to +2.1% yoy, from 1.9% and 2.0% respectively.

This Friday it will be Canada’s turn to present their unemployment number. The Canadian figure for April is believed to be the same as previous, at +5.8%. The number has roughly remained below 6% for slightly more than a year now. Last time it was higher than that was in November 2017.

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