Week In Focus
May 23rd - 27th
NEW ZEALAND RETAIL SALES (MON): Analysts at Westpac are forecasting NZ retail sales will rise 2.2% in Q1 vs +8. 6% in Q4 (which was mostly driven by growth in durable items; hospitality remained weak). "Much of the Q1 rise is related to a lift in new car sales, with households rushing to beat the price change for less energy-efficient vehicles," Westpac says. The data is unlikely to shift the dials much given the quarterly nature of the release and since the release will be on the eve of the RBNZ - most analysts anticipate that the central bank will increase rates by 50bps
EZ FLASH PMI (TUE): Expectations are for the flash May manufacturing metric to decline to 55.0 from 55.5, services to rise to 57.9 from 57.7, leaving the composite at 55.0 vs the previous 55.8. The April report was characterised by an increase in the services print from 55.6 to 57.7, whilst the manufacturing metric fell to 55.5 from 56.5. S&P Global noted that the "data highlighted the growing emergence of a two-speed economy across the euro area as faster service sector growth starkly contrasted with a slowdown across manufacturers". Looking ahead, Nordea expects "rising prices, monetary tightening, and dwindling household savings to take its toll on both the manufacturing and the service industry. The service sector, however, is likely to stay robust in the coming months, while the cyclical manufacturing industry is set for a large slowdown as tightening of financial conditions and reopening of the economy will skew consumption back towards services and away from goods". From a policy perspective with an end to the ECB's APP as of July 1st and a July 21st rate hike firmly baked into the market consensus, the upcoming PMI release is unlikely to have much sway on the June 9th ECB announcement. However, market participants will be cognizant of forthcoming releases to assess the extent of the expected slowdown in the region and whether this narrows the "window of opportunity" for the ECB to move on rates before an expected pause either later this year or early 202.
UK FLASH PMI (TUE): Expectations are for the flash May services metric to decline to 58.1 from 58.9, manufacturing to slip to 55.2 from 55.8, leaving the composite at 57.4 vs the previous 58.2. The April report saw survey respondents cite subdued consumer demand due to squeezed household finances and rising prices for essential items whilst "businessto-business spending was hit by higher operating expenses, inflation concerns and geopolitical uncertainty". This time around, analysts at Investec expect "business activity in the service sector may have declined a little further as rising prices weighed on discretionary spending volumes". On the manufacturing front, Investec cautions that the past weakening in orders is expected to translate into somewhat more subdued output. From a policy perspective, the release is unlikely to have much of an impact on the June MPC decision to lift rates. However, a downbeat release which emphasises subdued activity as a result of squeezed household incomes could prompt some market participants to further question current pricing which looks for five 25bps hikes by year-end. This comes as policymakers at the BoE continue to stress that they are walking a tightrope between controlling inflation and avoiding a recession.
US PERSONAL INCOME, SPENDING, PCE (FRI): Analysts often use CPI and PPI data as a proxy for how the PCE report - the Fed's preferred measure of inflation - might look. April's CPI data disappointed expectations; although the annual measures narrowed, the rate of core inflation picked-up, challenging the notion that we are now past peak inflation. Producer prices for April gave credence to that argument, with wholesale prices rising by double-digits for the fifth straight month, a sign that firms were continuing to pass on the costs of higher prices to consumers, or face margin erosion. Citi's analysts, however, argue that we may have better news on the PCE front. PCE doesn't match CPI, they both have different methodologies. But Citi says that legislated cuts in Medicare payments could help the situation, and project core PCE will rise 0.3% M/M, matching the rate seen in the previous two reports. Any slowing of the metric may reignite calls of peak inflation, while any upside surprise could be taken as an indication that the Fed will not waiver from its hawkish rhetoric, and will continue its expeditious trajectory of tightening policy until inflation is back under control.