Macroeconomics: The Day Ahead for 27 May

The US dominates the data schedule via way of Durable Goods Orders, revised Q1 GDP, weekly jobless claims, Pending Home Sales, with Australia’s Q1 CapEx (much stronger than expected at 6.3% q/q and likely to prompt upgrades to forecasts for next week’s Q1 GDP) and weaker than expected German GfK Consumer Confidence (mirroring France yesterday) to be digested ahead of Italy’s confidence surveys and South African PPI. As expected the Bank of Korea held rates at 0.50% overnight, but followed the RBNZ in signalling that rates will rise in 2022, with its latest economic forecasts upgrading 2021 GDP to 4.0% y/y from 3.0%, and 2021 CPI to 1.8% from 1.3%. Going forward the divergence in G20 central bank rate outlooks will start to drive some currency volatility as fund managers snatch at any currency offering higher yields, above all where politics does not pose a substantive risk. There are numerous ECB speakers and BoE’s Vlieghe on the schedule of G7 central bank speakers. The US completes this week’s refunding with USD 62.0 Bln of 7-yr, while a busier day for corporate earnings features Canadian banks (CIBC, RBC and Tor-Dom), along with Dell, HP, Lenovo, Gazprom, VMware, Tate & Lyle and Gap. Increasingly attention needs to be given to the colossal rise in usage of the Fed’s Reverse Repo window, which surged to $432 Bln on Tuesday (see chart, noting that all prior spikes have been quarter end related), as the Effective Fed Funds Rate continues its seemingly inexorable slide towards 0%, well below the Fed’s mid-point Fed Funds target of 0.125%. At some stage soon (by tomorrow or early next week), the Fed will have to address this, either by raising the rate it pays on excess reserves (0.10%), say by 5 bps, or on Reverse Repos from the current 0.0%. The risk of some ill-informed knee-jerk market reactions of the genus ‘OMG rate hike!’ is likely quite high, given that so many market participants do not understand how money markets work.

** U.S.A. – Durable Goods, Q1 GDP, Pending Home Sales **

Q1 GDP is seen revised only marginally to 6.5% from 6.4%, on the back of a small upward revision to Private Consumption to 11.0%, but this will likely be dismissed as historical. Of more significance will be Durable Goods which are seen posting a solid 0.8% m/m rise on headline and ex-Transport, as signalled by solid survey Orders measures, while Non-defence Capital Goods ex-Aircraft is expected to rise 1.0% m/m, with headline perhaps a little stronger than consensus given a pick-up in Boeing’s net orders to 40 from 31, and a favourable seasonal adjustment. But with supply disruptions in focus it will be Shipments (forecast 0.8% m/m) that get particular attention, along with Unfilled Orders that have posted m/m gains of 1.6%, 1.6% and 1.0% in the January through March period. Weekly jobless claims have been trending lower for the past three weeks and are expected to dip to a fresh pandemic era low of 425K, but still around double pre-pandemic lows. While some states have terminated enhanced benefits programmes, bowing to pressure from employers about skills shortages, the impact will more likely be seen in coming weeks than in this report, though much will also depend on schools re-opening for “in person” teaching. A close eye will be kept on Continued Claims as this covers the Payrolls survey week, with the consensus looking for a drop to 3.680 Mln from 3.751 Mln, but still above the 3.653 Mln seen in the April Payrolls week. Pending Home Sales are forecast to post a rise of 0.5% m/m, though the surge in prices seen in Existing Home Sales (Median 4.7% m/m and Average 3.3% m/m) imparts considerable risk of a m/m drop as affordability becomes a more substantial headwind.