Core April CPI to Rebound

US Key Points

• April core CPI likely to rebound to 0.4% from 0.3% in March.
• Betting markets see former President Trump as most likely to win the 2024 presidential elections.

Europe Key Points

Jump to Europe section

• Russia’s Victory Day (Monday) will see President Putin address the Russian nation. This could bring clarity on Russia’s next steps, although it is hard to say in which direction it will go. 
• The week will see the recent deluge of ECB policy-makers comments continue (see here for our latest overview of ECB comments). 
• UK GDP, German ZEW survey and industrial production dominate data, alongside final April EZ CPI outturns. 
• It’s the final heavy week of Q1 earnings releases for European countries. 

US

Fed

As expected, theFed announced QT and a 50bp hike.  In addition, Chair Powell indicated that the Fed would hike 50bp in June and July.  An acceleration in inflation would be needed for the Fed to pickup the pace of hiking after July (please see FOMC Review).

The speakers this week are Williams, Barkin, Waller, Mester, Bostic, Kashkari, and Daly.  The two most important speakers Williams and Waller will speak on Tuesday, before the Wednesday CPI. Still the most important info of the week we can glean is how FOMC meeting participants are looking at the CPI, that is expected to rebound to 0.4%. 

Data  

Headline NFP confirmed steady labor market momentum, though wage growth is slowing.  Non-mortgage household credit increased by much more than expected.

This is a data light week. The most important data will be the CPI. The consensus expect a higher core than headline increase, which reflects a MoM decline in gas prices in April, by contrast with about a 20% MoM increase  in March.  Core however is expected to rebound to 0.4% MoM from 0.3% MoM in March and I agree.  I will also be looking for a rebound in median price and trimmed mean CPI from 5.9% and 6.8% MoM saar.

The other key release is the U Mich consumer confidence.  There was an unexpected rebound in March, which was not replicated by the Conference Board consumer confidence index. The consensus expects a somewhat lower print than In March.  In view of the good NFP number and increase in non-mortgage household credit, I see a risk of positive surprise.

I agree with the consensus on PPI and import prices.  A positive surprise in the core indices could be a sign that China’s 0 covid policy and the Ukraine crisis are starting to impact manufactured goods supply chains.

Events/Political Developments 

The Senate GOP primary election in Ohio saw the victory of a candidate supported by former president Trump. Betting market currently see Mr. Trump as most likely to win the 2024 presidential elections, followed by Florida governor De Santis and President Biden with equal odds.

Links to New York Fed POMOs/TOMOs:  Repos, Treasury, MBS, CMBS

Europe

Russia’s Victory Day (9th May)

While it passes much of the rest of the world by, Victory Day (marking the end of the war vs Nazi Germany in 1945) is big news in Russia. The day will see Putin address his nation in the context of the ongoing war in Ukraine. The concern and uncertainty at this point is what this speech will entail. For some analysts, the expectation is that the progress made thus far could be sufficient for him to declare ‘victory’ once again over enemies he has dubbed as ‘Nazis’.

Such a declaration of victory might look attractive as a PR win for the President, but others, including the British Defence Secretary Ben Wallace, fear the day could instead herald a greater call to arms from the Kremlin. Thus far Russia has had great difficulty in achieving its (likely) initial objectives (taking the capital and forcing regime change). A shift from declaring the conflict a ‘special operation’ to declaring it a ‘war’ would allow Russia’s military to take more drastic action to achieve its goals. This could include officially deploying conscript troops in the warzone, and even declaring a mass mobilization of the population.

A declaration of war, and a subsequent escalation of the conflict would doubtless drive a reaction from the West, and with it, risk-off moves across global markets. Trading on the day therefore may be cautious, with lighter than usual volumes around the situation, and headlines closely watched for signs of which way it might go.

Data

March (and with it Q1) UK GDP data is released on Thursday. Expectations are for modest gains in March, supported by industrial and construction output, but sapped by slowing services. This would leave Q1 up around 1%. Given the current feeling, the market reaction to a surprise would probably be somewhat asymmetric. A negative miss would likely add further to fears of greater BoE dovishness, while an outperformance would probably be largely overlooked given the bleak path ahead.

In Europe, ZEW surveys are expected to show another drop lower in expectations, with the reading for Germany predicted to fall to the pandemic-driven lows of 2020. Elsewhere, industrial production for March is released. The expectation there is for Eurozone manufacturing output to have declined by 1-2% across the bloc. Final readings for April CPI are released for Germany, Spain, and France no changes are expected there from preliminary outturns.

European Earning Releases

It is a busy week in European earning releases – the last one of the Q1 earnings season. Sector-wise, releases are concentrated in Financials, Utilities and Industrials. Major releases include: Bayer, Endesa (Tue); E.ON, Compass Group (Wed); Siemens AG, Allianz, Merck, Telefonica, BT Group, Atlantia (Thu); and DT (Fri).

Other G20 Countries

This week the BoJ will publish its summary of opinions and the RBA’s Bullock will be speaking.

Key data releases this week include China’s credit, CPI, PPI, retail sales, IP, and trade balance.   

Links to BOJ Rinban , BOE OMO

COVID-19 Monitoring

Dominique Dwor-Frecaut is a macro strategist based in Southern California. She has worked on EM and DMs at hedge funds, on the sell side, the NY Fed , the IMF and the World Bank. She publishes the blog Macro Sis that discusses the drivers of macro returns.

Henry Occleston is a Strategist, who focuses on European markets. Formerly, he worked in European credit and rates strategy at Mizuho Bank, and market strategy at Lloyds Bank. He holds a BA in Economics from Durham University, and an MSc in Economics & Social History from the University of Oxford.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)