Macroeconomics: The Day Ahead for 7 May

There is a statistical bonanza to end the week, headlined by the overnight China Trade and US labour data, accompanied by Japanese wags, German & French Industrial Production and Trade, UK Construction PMI, Canada Unemployment, Mexico CPI and Brazilian Retail Sales. On the central bank front there are the RBA’S SOMP to digest and speakers include ECB’s Lagarde and BoE’s Broadbent and his departing and dissenting colleague Haldane. In the commodities space, China’s key imports data are accompanied by the CNGOIC monthly report on Chinese Grains & Oilseeds and StatsCan reports on wheat, canola, barley and durum inventories. Another busy day for corporate earnings features two of Japan’s trading behemoths, Mitsubishi Corp and Sumitomo Corp, BMW, Mytileneos and Siemens, while across the pond Liberty Media, Nikola and Plug Power may capture some headlines. While markets appear to have dismissed the Fed’s semi-annual financial stability report, and rather focus on the Fed resolutely sticking to the ‘patience’ and ‘outcome based’ narrative on policy (even if Kaplan is clearly dissenting), the warnings on liquidity risk should be heeded, above all as risks will crystallize once the Fed allows taper talk. In effect the Fed stability report is as close to a Fed admission of a risk asset bubble as one will get, above all as it continues to pour oil on fire with its QE. The SEC’s review of short-selling rules will also have to be watched closely, above all now that Gensler has taken over the reins of the SEC. Next week’s schedule is replete with major data: US CPI, PPI, Retail Sales, Industrial Production and Michigan Sentiment; China CPI, PPI and Credit Aggregates; UK Q1 prov. GDP, Industrial Production, Index of Services, Trade, BRC Sales, RICS House Prices. There are also OPEC and WASDE monthly reports, the Queen’s Speech in the UK, and plenty more corporate earnings around the world.

The German and French Industrial Production data underline the point that as much as Factory Orders and sector PMIs remain strong, supply chain disruptions are impeding manufacturing output, as evidenced above all in the German data by a meagre 0.7% m/m, with headline Production boosted above all by Construction Output that surged 10.8% m/m. The German Trade data saw strength in Exports and Imports, above all boosted by demand from China and the US, and despite continued weakness in exports to the UK which dropped a further 13.2% m/m, though imports from the UK did improve on the month (1.6% m/m).

** China – April Trade data **

While the absolute y/y numbers continue to be heavily distorted by base effects, the much stronger than expected 32.3% y/y rise in Exports attests to two things, continued strength in demand from the US as the economy rebounds, as well as some production displacement from India due to the surge in infection rates; the latter will likely persist throughout Q2. Imports were broadly in line with forecasts at 43.1%, with the details on commodity imports offering few surprises. Strength in Soybean imports attests mostly to delayed arrivals from Jan/Feb, above all from Brazil, which should continue into May. Copper imports remained at higher than usual levels (485K T), again primarily due to shipping and logistical issues (Japan, South Korea and South America), and will likely remain elevated into May, before reverting to more the more typical levels (300K-400K T). Crude Oil Imports (-0.2% y/y) had been expected to fall in Q2 on a combination of seasonal refinery maintenance shutdowns and higher prices, though anecdotal evidence suggests that some refiners have cut short shutdowns as refining margins improve, possibly giving a boost to May Imports. Shipping delays from Australia due to a typhoon early in the month also accounted for the dip in Iron Ore Imports, and should rebound in May with demand and output remaining strong. Overall it suggests that Trade will continue to give a solid boost to Q2 GDP, even if it starts to fade towards quarter end as western economies start t re-open. The unexpected rebound in China’s Services PMI echoes other indicators suggesting a marked improvement in private consumption, with strength in Orders and Employment, though also in Input and Output prices.

** U.S.A. – April Labour data **

Echoing the trend seen in weekly jobless claims (but note from the attached charts, PUA claims are of greater relevance) and aided by easing leisure and entertainment restrictions, US Payrolls are expected to post another strong increase of up to 1.0 Mln, with Private Payrolls seen up 925K. But an improvement in the U-6 Underemployment Rate and Labour Force Participation (last 61.6%) rates would carry much greater weight with the Fed in terms of considering some tapering of its QE programmes. As lower paid services jobs increase, this will bear down on Average Hourly Earnings, with base effects adding to the downward pressure, with a drop of -0.4% y/y expected from March’s 4.2%, and again underlining what a useless metric this is for gauging wage price pressures.