Macro Features in the Week Ahead
- * Inoculation efforts combined with fiscal and monetary support and built-up demand will provide major economies a boost in the short term, although the recovery will not be uniform or smooth.
- * The UK reports April CPI on Wednesday where a slight month over month increase is expected to lift the year-over-year rate.
- * Japan will report Q1 GDP on Tuesday where a roughly 1% quarter-over-quarter contraction is expected.
- * The US will report April housing starts and new home sales where economists are anticipating a small pullback in an otherwise strong market.
We are halfway through the second quarter. Interest is not so much on Q1 data, even though Japan will report GDP for the January-March period. April data may also get short shrift as May reports begin tricking in. Even the May data may be overwhelmed, but the growing sense that the investment climate is changing.
Investors accept that the vaccine rollout plus fiscal and monetary support to varying degrees and pent-up demand will give the major economies a near-term lift. However, as the recent US employment data seemed to suggest, the recovery, even under the best of circumstances, is likely to be bumpy and uneven, driven by a lack of uniform re-opening and supply chain disruptions. Strong demand in some sectors is coming at the same time some supply constraints (e.g., shortages, bottlenecks, low inventories, and geopolitical issues, including the cyber-attack on the largest US gasoline pipeline and blacklisting of Huawei and SMIC, China’s largest chip manufacturer).
To be sure, it is not just in the US that inflation expectations are elevated. Germany’s 10-year breakeven is at the upper end of where it has been for the last seven years. It was last below 1.0% on February 22 and approached 1.50% last week. Since the end of Q1, the UK’s 10-year breakeven moved above 3.50% for the first time since 2008. Japan’s inflation expectations are nothing to write home about, but with the 10-year breakeven it 20 bp is back to pre-Covid levels.
Bannockburn Global Forex