On Monday, during the European morning, the UK construction PMI for May is coming out. Expectations are for the index to have declined to 52.0 from 52.5. Following the weak economic growth in Q1, investors are probably paying extra attention to the PMIs for clues on how the economy performed thereafter. On Friday, the manufacturing PMI rose to 54.4 from April’s 17-month low of 53.9. However, the manufacturing sector accounts for only about 10% of the UK economy, and a modest rebound from a 17-month low is not encouraging enough to revive speculation with regards to a near-term BoE rate hike in our view, especially following the slowdown in April’s CPIs. We think that market participants are likely to place more emphasis on the services index, due out on Tuesday, as the service sector accounts for 80% of the UK GDP.
From the Eurozone, we get PPI data for April. Expectations are for the yearly PPI rate to have risen to 2.4% from 2.1%. The bloc’s Sentix investor confidence index for June is also scheduled to be released.
Later in the day, the US factory orders for April are due out. Headline orders are forecast to have slid 0.5% mom after rising 1.6% in March, while no forecast is currently available for factory orders excluding transportation. The case for a decline in headline orders is supported by the slide in headline durable goods orders for the month, while the acceleration in core durable goods orders suggests that core factory orders may have picked up some steam as well.
On Tuesday, during the Asian morning, the RBA will decide on monetary policy. Expectations are for the Bank to keep interest rates unchanged once again. Lately, the meetings of this Bank have been non-events and we believe that this one will not be an exception. According to the Bank’s latest Statement on Monetary policy, the cash rate is expected to increase around the middle of next year.
At the latest meeting, the Bank kept interest rates unchanged at +1.50% and made little changes to the statement accompanying the decision. Since then, data showed that the unemployment rate ticked back up to 5.6% in April from 5.5% in March, while the net change in employment showed that the economy gained 22.6k jobs after losing 0.7k previously. What’s more, the yearly rate of the wage price index for Q1 stayed unchanged at +2.1% yoy, while the Labour costs index of the NAB business survey suggested that salaries for April accelerated somewhat from the previous month on a qoq basis. So, having these data in mind, we expect the statement accompanying the decision to continue carrying the same tone as previously. For example, the Bank may acknowledge once again the improvement in the labor market, but it could reiterate that wage growth remains low, although it appears to have troughed.
As for the economic indicators, Australia’s current account balance for Q1 and China’s Caixin services PMI for May are due to be released.
Later, during the European trading, we have the final services and composite PMIs for May from several European nations and the Eurozone as a whole. The preliminary estimates suggested that the economic moderation observed since the turn of the year continued, and the final prints are expected to confirm just that. Eurozone’s retail sales for April are also coming out and expectations are for an acceleration to +0.5% mom from +0.1% in March.
We get the services PMI for May from the UK as well. Expectations are for a fractional increase to 53.0 from 52.8. As we already noted, following the economic slowdown in early 2018, investors will be looking for hints on how the economy performed thereafter. That said, although the services PMI is likely the most important of all three UK PMIs, following the disappointment in the latest UK inflation data, we doubt that such a marginal increase will be enough to revive bets with regards to a near-term BoE rate hike.
In the US, the final Markit services and composite PMIs for May are due to be released, as well as the ISM non-manufacturing index for the month. The market tends to pay more attention to the ISM index, which is expected to have risen to 57.5 from 56.8. The US JOLTs Job Openings for April are released as well.
On Wednesday, Asian time, we get Australia’s GDP data for Q1. The forecast suggests that the nation’s rate of economic expansion doubled in quarterly terms. (+0.8% qoq from +0.4% in Q4). This is likely to drive the yoy rate up to +2.7% from +2.4%.
During the European morning, we get Switzerland’s CPI for May, but no forecast is currently available. In April, the nation’s inflation rate stayed unchanged at +0.8% yoy. So, even if we see a small acceleration, inflation would still be well below the SNB’s inflation goal and thus, it is unlikely to alter policymakers’ plans. At their latest meeting, SNB officials revised down their inflation forecasts and they now see inflation staying a tick below 2% even in 2020. Most importantly, the forecasts are based on the assumption that interest rates will remain at current levels for the entire forecast horizon.
On top of that, the Swiss franc strengthened notably due to the recent global uncertainties, especially due to the political turmoil in Italy. In our view, this is another factor supporting the case for the SNB to keep its interest rates and policy stance untouched.
Later in the day, from the US, we get trade balance data for April and the Unit Labor Costs Index for Q1. The nation’s trade deficit is expected to have widened somewhat, while the Labor Costs Index is anticipated to have accelerated somewhat, to +2.8% qoq from +2.7%.
We get April trade data from Canada as well. Canada’s building permits for the same month, as well as the Ivey PMI for May are also coming out.
On Thursday, Australia’s trade surplus is expected to have decreased in April, while German factory orders for the same month are expected to have rebounded to +0.6% mom from -0.9% in March. Eurozone’s final GDP for Q1 is expected to confirm that the Euro area economy slowed to +0.4% qoq in the first three months of 2018 from +0.6% qoq in Q4 2017.
On Friday, Asian trading, we get final Q1 GDP data from Japan. Expectations are for the final print to confirm the preliminary estimate and show that the Japanese economy contracted 0.2% qoq in the first three months of the year.The nation’s current account balance for April is coming out as well.
From China, we get trade data for May. Expectations are for the nation’s trade surplus to have declined to USD 32.5bn from USD 28.4bn. Both the nation’s exports and imports are forecast to have slowed to 6.3% yoy and 16.0% yoy, from 12.7% and 21.5% respectively.
Later in the day, the spotlight is likely to fall to Canada’s employment report for May. Expectations are for the unemployment rate to have held steady at its four-decade low of 5.8% for the fourth consecutive month, while the net change in employment is expected to show that the economy added 20.0k jobs during the month after losing 1.1k in April. Overall, the forecasts suggest that we are likely to get a decent report.
At its latest policy meeting, the BoC laid the ground for a July rate hike and hinted at faster rate increases thereafter. However, immediately the following day, the GDP data showed that the Canadian economy slowed on a qoq annualized basis in Q1, while the US decided to end a two-month exemption and impose steel and aluminum tariffs on imports from Canada (Mexico and the EU as well), with the nation hitting back. Thus, although a decent employment report could be encouraging news for BoC policymakers, the tit-for-tat tariffs make us skeptical with regards to the BoC’s future actions. Even if officials decide to push the hiking button in July, without any signs of ease in the global trade arena, they may decide to delay any forthcoming rate increases. The nation’s housing starts for April are also due to be released.
Finally, on Saturday, during the Asian morning, we get China’s CPI and PPI data for May. Expectations are for the CPI rate to have risen to +1.9% yoy from 1.8% in April, while the PPI rate is forecast to have ticked up to 3.5% yoy from 3.4%.
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