The Forex Week Ahead: April 24 – 28th
USD There will be two types of US macro data out next week: GDP, and everything else. There is a wide range of expectations surrounding this one. Bloomberg consensus thinks Q1 GDP grew by just 1.2% in seasonally adjusted QoQ terms. The Atlanta Fed’s ‘nowcast’ is tracking just 0.5% growth. The New York Fed’s ‘nowcast’ is a deep outlier at 2.6%. Against these views that this is just the return of quirky Q1 seasonality, which itself continues to be debated among researchers, is the fact that much of the Q1 softness was in consumption and there is no evidence of a Q1 seasonality distortion to consumption over the years versus interpreting this year’s Q1 consumption softness as having been genuine. Durable goods orders: A solid headline rise is expected on Thursday partly thanks to a rise in airplane orders (Boeing reported 147 orders in March, up from 43 in February) but a mild rebound in core capital goods orders that exclude defence and aircraft is also expected following a small dip in February after four months of steady gains. New home sales: Tuesday’s tally for March will face the difficulty of following up a large 6.1% MoM rise in February. A moderation is likely. Pending home sales arrive two days later and face the same downside risk after a large 5.5% MoM rise in February. A third housing release will be the S&P CoreLogic Case Shiller house price measure for February on Tuesday and it will be shooting for a ninth consecutive monthly gain. The Conference Board’s Consumer Confidence index for April lands Tuesday. March’s reading was the highest since December 2000, and yet consumers weren’t driving any spending growth in Q1.
EUR The week will start with the French election results. Voters hit the polls today to choose which two of eleven candidates go on to the second vote on May 7th that will declare the ultimate victor who will have a Presidential mandate until 2022. Early polling suggests Le Pen and Macron are se to move forward to the second round with Macron hotly backed by bookmakers to take the second leg and the Presidency. The rest of the week’s sources of market risk are back end loaded to both Thursday and Friday. The ECB meeting on Thursday is not expected to result in material policy developments but the bias on potential future action will be evaluated in terms of signals about unwinding stimulus measures in future. It’s probably fairly obvious that the meeting’s outcome is at least partly conditional upon the outcome of the first round of French elections especially if the worst case scenario outlined above unfolds. Recent guidance from ECB officials has been somewhat contradictory. Executive Board member Benoît Coeuré said he thinks downside risks are gone but that it remains premature to change policy guidance (“we don’t see a reason today to change”). His Board colleague Peter Praet stated and note the plural reference that “we would say that risks are still tilted to the downside.” The latest reading for Eurozone CPI inflation will unfortunately come the day after the ECB meeting. Having said that, the ECB would have a fairly decent understanding of the likely outcome. As market-based inflation expectations have declined and following the slip in February’s CPI inflation figures, the reflation trade will be keenly paying attention to whether Eurozone inflation trends have halted prior progress.
GBP The surprise announcement by the UK Prime Minister, Theresa May, of a snap general election on June 8th The election announcement and expected strong majority outcome for Theresa May has led some to speculate that it could enable her to follow through on her recent more conciliatory soundings regarding Brexit and the transition phase. It also pushes out the potential timing of the next election to 2022, allowing her more time to negotiate a transition deal. First quarter GDP report will be released for the UK on Friday. The UK economy is thought to have grown by about ½% in Q1 over Q4 at a seasonally adjusted but non-annualized rate. That would keep it roughly within the range of the 0.5–0.7% pace of the past three quarters and continue to showcase at least temporary post-Brexit resilience.
JPY Bank of Japan’s latest policy decision combines with the country’s monthly data dump. The BoJ updates forecasts for growth and inflation at its meeting but no deviation from current policy is expected. That includes asset purchases at a pace of around ¥80 trillion per year, a ten year JGB target of around 0%, and a policy rate on some reserves of -0.1%. Governor Kuroda recently stated that “It’s premature to discuss in an exact way about exit strategy” and “The target is two percent—we’re still around zero percent. So it’s a long way to go.” Japan releases March readings for CPI, retail sales, household spending, industrial production, vehicle output and housing starts all on Thursday and Friday.
The Forex Week Ahead: April 24 – 28th