Fed's Yellen will have some dovish food for thought

June 6, 2016

The Main Macro Events This Week

United States: Fed’s Yellen will have some dovish food for thought following the May payrolls shortfall when she delivers a prime-time speech today on the economic outlook and monetary policy before the World Affairs Council of Philadelphia from 12:30 ET. The US economic calendar this week may be a little anti-climactic relative to the big May jobs setback on Friday, which upended rising odds favoring a June hike that were all but eviscerated. On tap is the revision of Q1 productivity (Tuesday), forecast to be upgraded to -0.5% (median -0.6%) from -1.0%, while unit labor costs may back up to 4.3% from 4.1%. Rounding out the session will be an update of April consumer credit, which is set to be cut in half to $15.0 bln from the surprise $29.7 bln surge in March. MBA mortgage applications are due (Wednesday), along with Yellen’s favorite JOLTS and the EIA energy inventories report. Initial jobless claims are expected to be steady at 267k (median 270k) for the June 4 week (Thursday), while the wholesale trade report may show a 0.1% gain for inventories and 1.3% rise in sales for April. Capping the meager week of data (Friday) will be Michigan sentiment, seen ebbing to 94.5 in June (median 94.0) from 94.7 and the Treasury budget gap is set to widen to -$61.0 bln in May (median -$60.0 bln) vs the tax-related $106.5 bln April surplus.

Canada: In Canada a busy week is highlighted by the May employment report and the Bank of Canada’s Financial Stability Report. Economic data begins with the May Ivey PMI (Tuesday), expected to slip to a seasonally adjusted 51.0 in May from 53.1 in April. Housing starts (Tuesday) are seen slowing slightly to 190.0k rate in May from 191.5k in April. Building permit values are expected to slip 1.0% m/m in April after the 7.0% tumble in March. The new home price index (Thursday) is seen improving 0.2% m/m in April after the 0.2% gain in March. The rate of capacity utilization (Thursday) is projected at 81.3% in Q1 from 81.1% in Q4. Employment is expected to nudge 5.0k higher in May after the 2.1k drop in April. The unemployment rate is seen steady at 7.1%. The Bank of Canada’s Financial System Review (Thursday) will be followed by a press conference. The Financial System Review is released twice a year.

Europe: With the ECB entrenched in wait-and-see mode and focused on implementing the March measures, all the while eying the wider implications of the UK referendum on the EU and the Eurozone, data releases may be an important factor in the short term policy outlook. Still, German manufacturing orders (today) in particular will be monitored carefully. We forecast a correction of -0.8% m/m (median -0.5%) in April, after the 1.9% m/m jump in March, with the latter still likely to lift production (Tuesday), however, by 0.8% m/m (median 0.7%). March industrial production numbers (Tuesday) will have been impacted by the earlier timing of the Easter holidays this year, which may not have been fully captured by the seasonal adjustment process and could lead to an upside surprise in the numbers. The final German HICP rate (Friday) is expected to be confirmed at 0.0% y/y (median same), and final Eurozone Q1 GDP (Tuesday) at 0.5% q/q. The numbers were stronger than initially expected and the breakdown is likely to show strong domestic demand and a pick-up in investment, but forward looking indicators already point to a slowdown in growth in the second quarter to around 0.3% q/q at best. The recovery is limping ahead, but even with the ECB’s very accommodative policy, it will take a long time for the output gap to close, especially as governments remain slow to implement unpopular structural reforms. The data calendar also includes French production and German trade data as well as national inflation numbers from the smaller Eurozone countries.

United Kingdom: Brexit polling will remain the central focus for sterling markets as the June 23 vote starts to loom large on the near horizon. Over the last week the “Leave” campaign, aided by immigration numbers hitting near record levels and their neatly coinciding proposals for a points-based immigration system, have narrowed the “Remain” camp’s lead. As of late Friday the FT Brexit tracker was showing 46% support “Remain” and 43% support for “Leave,” down from respective 47% and 41% levels that was being seen a week before. UK bookmaker Ladbrokes was showing that 71% of Brexit bets were for “Remain,” down from 81% a week before. The calendar this week is relatively quiet, featuring the May BRC retail sales survey (Tuesday), which we expect to show a rebound to +0.3% y/y in the headline same-store figure (median same) after the disappointing -0.9% y/y figure of April, April production data (Wednesday), where we anticipate a 0.0% m/m outcome (median same) after +0.3% m/m in March, and trade data (Thursday), where we project a near unchanged goods deficit of GBP 11.0 bln.

China: In China, the May trade surplus (Wednesday) is expected to widen to $53.0 bln from $45.6 bln in April. May foreign direct investment (Wednesday) is seen at up 3.0% y/y from the previous 6.0% outcome. May CPI and PPI (Thursday) is forecast at 2.2% y/y from 2.3%, and -3.3% y/y from -3.4%, respectively. May loan growth (Friday) is penciled in at 14.5% y/y from 14.4%, while May new yuan loans are expected to expand to CNY 700.0 bln from 555.6 bln previously. April leading indicators are tentatively due during the week. May industrial production and retail sales are expected to be released next weekend. Elsewhere in the region, India’s RBI meets (Tuesday) where rates are seen steady at 6.50%. April industrial production (Friday) is seen up 0.5% y/y from 0.1% previously, along with the May trade report. South Korea’s BoK meets (Thursday) with policy seen steady, and rates unchanged at 1.50%. Taiwan May CPI (Tuesday) is forecast to cool to 1.6% y/y from 1.9% previously, while May exports (Tuesday) are seen falling 7.0% y/y from -6.5% in April. In Malaysia, April industrial production (Friday) is forecast to have risen to 3.0% y/y from 2.8% in March. Philippines May CPI (Tuesday) is expected to tick up to 1.2% y/y from the prior 1.1% outcome. April unemployment data is due Thursday, with April exports due on Friday.

Japan: In Japan, preliminary April leading and coincident indices (Tuesday) are expected to rebound 0.5% m/m from -0.4% for the former, and rise 1.0% from the prior 0.4% gain for the latter. Revised Q1 GDP (Wednesday) is forecast to improve to 1.8% q/q from the initial 1.7% outcome. April current account surplus (Wednesday) is predicted to narrower to JPY 2,000 bln from 2,980.4 bln in March. First 20-day May trade data is also due (Wednesday). April machine orders (Thursday) are penciled in at -4.0% from the prior 5.5% increase.

Australia: In Australia, the Reserve Bank of Australia (Tuesday) meets, with no change anticipated to the current 1.75% setting for the cash rate. The data calendar is thin. ANZ job ads (today) are seen falling 0.2% in March after the 0.8% pull-back in April. The Melbourne Institute Experimental Inflation Gauge (today) is expected to rise 0.2% m/m in May after the 0.1% gain in April.

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