The Week Ahead – Prelim May PMIs, Central Banks, and Inflation in Focus

On the Macro

It’s another busy week ahead on the economic calendar. Prelim private sector PMIs, the FOMC meeting minutes, and US inflation numbers will define monetary policy divergence over the near term. However, US debt ceiling updates will also move the dial.

For the Dollar:

Prelim private sector PMIs for May kickstart the week on Tuesday. While weaker private sector PMI numbers would fuel recessionary jitters, investors should consider the employment, input and output price inflation, and new order sub-components.

On Wednesday, the FOMC meeting minutes will influence ahead of GDP and jobless claims on Thursday.

US Core PCE Price Index, personal spending, and personal income wrap up a busy week. Sticky inflation would fuel bets on a June interest rate hike and remove the chances of an H2 2023 rate cut.

With the economic calendar on the busy side, investors should also consider FOMC member chatter.

For the EUR:

It’s a relatively busy week for the EUR. Eurozone consumer confidence numbers for May kickstart the week. An unexpected slump in confidence would weigh on the EUR/USD. Sticky inflation and an elevated interest rate environment could test consumer sentiment and signal a shift in spending plans.

Prelim private sector PMIs for France, Germany, and the Eurozone will provide direction on Tuesday. A more marked contraction in the German manufacturing sector would weigh on the EUR/USD and question the ECB economic outlook following the weak German factory orders and industrial production numbers.

On Wednesday, the German Ifo Business Climate Index and sub-components will draw interest ahead of German Q1 GDP and GfK Consumer Climate numbers on Thursday.

With private sector activity and the German economy in the spotlight, investors should monitor ECB commentary.

With a busier economic calendar, investors should also consider ECB commentary. Executive Board members Andrea Enria (Tues/Fri), Luis de Guindos (Mon/Tues/Thurs), Frank Elderson (Mon), ECB Chief Economist Philip Lane (Mon/Fri), and ECB President Christine Lagarde (Wed) are on the calendar to speak.

For the Pound:

It is an important week ahead for the Pound. On Tuesday, private sector PMI numbers will draw interest. We expect the Services PMI to have more impact. However, the UK CPI Report will be the more influential report, due on Wednesday ahead of retail sales numbers on Friday.

A pickup in service sector activity, sticky inflation, and an unexpected rise in retail sales would fuel bets on a BoE interest rate hike.

With inflation in the spotlight, investors should also monitor Bank of England commentary.

Andrew Bailey, Huw Pill, Silvana Tenreyro, and Catherine Mann will attend the Treasury Select Hearing on the May Monetary Policy Report.

 

Bank of England Governor Andrew Bailey (Wed) and Jonathan Haskel (Tues/Thurs) are also on the calendar to deliver speeches.

For the Loonie:

It is a quiet week ahead on the economic calendar for the Loonie.

RMPI numbers will be in focus on Tuesday ahead of manufacturing and wholesale sales figures on Wednesday.

While the stats will draw interest, crude oil inventories and market risk sentiment will likely have more impact.

Out of Asia

For the Aussie Dollar:

It is a quiet week for the Aussie Dollar. Retail sales figures for April will draw interest on Friday. A sharp pickup in spending would question bets on an RBA pause, following the weaker employment numbers last week.

For the Kiwi Dollar:

For the Kiwi Dollar, it is a big week ahead.

Investors must wait until Wednesday to consider retail sales figures for Q1. A marked fall in consumption would ease pressure on the RBNZ to maintain a hawkish monetary policy stance.

While the Q1 numbers will provide direction, the RBNZ monetary policy decision and press conference will be the main event. Investors should be mindful of the April surprise interest rate hike in April.

For the Japanese Yen:

It is a quiet week for the Japanese Yen. Machinery orders for March will draw interest on Monday. An unexpected fall in orders would muddy the waters after the better-than-expected Q1 GDP numbers. Prelim private sector PMIs will influence on Tuesday, with the services PMI likely to garner more interest.

However, Tokyo inflation numbers will also move the dial on Friday. April nationwide inflation numbers raised bets on a tweak to the Bank of Japan’s monetary policy stance. The Friday figures would need to be hotter than expected to put more pressure on the Bank of Japan.

Out of China

There are no economic indicators from China to shift investor sentiment toward the Chinese economy. Wholesale inflation and manufacturing PMIs revealed a weak demand environment, signaling a waning post-COVID economic recovery.

With economic indicators flashing red, the PBoC will be in the spotlight on Monday. However, economists expect the PBoC to leave 1-year and 5-year loan prime rates unchanged at 3.65% and 4.30%, respectively.