Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
- Digesting Korea GDP ‘beat’, China Industrial Profits and BoJ ‘hold’; awaiting Riksbank, UK CBI Retailing, Brazil IPCA-15 inflation, US Consumer Confidence and House Prices; Germany, Italy & US auctions and further rash of ‘real economy’ corporate earnings
- US Consumer Confidence: vaccinations, improving labour demand, lifting of activity restrictions expected to give further boost after March surge
- Japan: no surprises from BOJ, inflation forecasts underline no prospect of BoJ tightening any time soon
- China Industrial Profits flattered by base effects and lack of LNY manufacturing downs; liabilities continue to climb
- Reflation trade: sideways oil, but grains and industrial metals building a fresh head of steam
EVENTS PREVIEW
A much busier day awaits above all statistically, accompanied by the BoJ and Riksbank policy meetings, BoC’s Macklem testifying to Canada’s parliament on last week’s ‘semi-hawkish’ Monetary Policy Report, and plenty more corporate earnings. There are the overnight Korea’s Q1 GDP and China’s Industrial Profits to digest, while ahead lie Italian Confidence and UK CBI Retailing surveys, Brazil’s IPCA-15 inflation, US Consumer Confidence and House Prices. In corporate earnings terms ADM, AMD, GE, Jiangxi Copper, Pulte Group and Visa are likely to be among the headline makers, while Italy sells I-Ls and a Zero, Germany 7-yr and the US 2-yr FRN and 7-yr. While the focus for the week in terms of inflation data will be on the Eurozone, Japan and the US (PCE deflators), today’s Brazil’s IPCA -15 inflation may be most significant, given that these are projected to see the y/y rate climb to 6.25% from 5.52%, and keeping the pressure on BCB’s COPOM to stick to a fairly aggressive tightening path (market discounting 5.50% in October vs. current 2.75%). Talking of inflation, the continued / renewed surge in grains and industrial metals prices, and a degree of resilience in oil prices (see various charts) despite demand concerns, would suggest that the reflation trade is anything but over, even if there is a clearly speculative component to it, and that markets continue to focus rather too narrowly on oil prices as their inflation proxy.
The overnight run of data saw South Korea’s Q1 GDP beat forecasts on strength in Exports and Business Investment in facilities, along with a modest recovery in Private Consumption (1.1% q/q vs. Q4 -1.5%); Q2 GDP is seen maintaining this pace, but H2 will likely see a marked slowdown. China’s Industrial Profits slowed less than many had expected to 92.3% y/y, leaving Q1 up 137% y/y, though the fact that manufacturing closures around the Lunar New Year were much lower than normal and the obvious base effects flatter the outcome. Given concerns about China’s SOE and industrial debts, the fact that industrial sector liabilities were up 9.0% y/y is also worth noting. As for the BoJ, there were never going to be any surprises, with the current FY CPI forecast revised down to 0.1% from 0.5% y/y, 2022 seen at 0.8%, and the initial forecast for 2023 at 1.3%, thus confirming that the BoJ expects to continue to miss its CPI target on a longer-term basis.
** U.S.A. – April Consumer Confidence **
Following on from last month’s surge to 109.7 from 90.4 in February, paced both by a rise in expectations to 109.6, its best level since July 2019 on the back of an improving labour market (see chart), and a 1-year high for Current Situation, a more modest headline rise to 112.0 is anticipated. Rapid vaccine rollout, easing activity restrictions, improving labour demand (though wage growth remains sluggish given colossal labour market slack) should all help to underpin. House Price indicators for February are also due, with both FHFA and CaseShiller measures seen up 1.0%, which would see the former push up towards 13.0% in y/y terms and the latter to 11.8%, underlining that affordability will present an increasing headwind to the housing sector.
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Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
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