Macroeconomics: The Day Ahead for 20 May

While the week thus far has had quite a lot of first division data (CPI, GDP), today’s array of second tier or survey data may be of greater importance, above all from the aspect of being more timely. On the to digest list are Japan’s Trade (better than expected, but look at attached chart in terms of base effects) and Machinery Orders (bounce missing forecasts underlining soft domestic demand highlighted in GDP data), Australian Unemployment (strong shift to full time from part time), German PPI & provisional Exports and Taiwan Export Orders, while ahead lie the UK’s May CBI Industrial Trends and US Philly Fed Manufacturing surveys, along with US weekly jobless claims. The events schedule has a busy run of ECB (both Lane and Lagarde), BoE and Fed speakers and the BoC’s Financial System Review accompanied by an expected no change rate decision in South Africa, with the Black Sea Grain conference also getting underway. Meanwhile the US Commerce Secretary hosts a summit with tech sector leaders to address the global semiconductor shortage, and tech companies will be the focal point in terms of corporate earnings with the likes of Tencent, Applied Materials and Palo Alto Networks reporting, along with Russia’s Gazprom amongst others. Govt bond supply comes via way of multi-tranche auctions in France and Spain, while the US sells 10-yr TIPS.

Yesterday’s spike in volatility in many asset ‘riskier’ asset classes serves as a timely reminder about the dangers of skewed positioning, above all highly leveraged, and that central bank reassurances about looking through the current rise in inflation and maintaining current policy settings is no insurance against the all too palpable lack of market liquidity, i.e. depth, nor of regulatory tightening or political interventions, as per the example of China’s statements on stabilizing commodity markets yesterday. The FOMC minutes will be the other talking point, though there really should have been no surprise that ‘a number of participants suggested that if the economy continued to make rapid progress toward the (policy-setting) Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases”. The likes of Kaplan and Mester have been flagging this view for some time, and as ever the point is that “a number” means a relatively small minority, but it is only when the likes of Clarida and Brainard along with Powell shift their view, will tapering becoming a reality to confront.

** U.S.A. – Weekly Jobless Claims / May Philadelphia Fed Manufacturing **

– As much as this week’s Initial Claims are for Payrolls survey week, the read across during the pandemic in correlation terms has been negative, a further modest decline to 460K from 473K. As ever PUA and PEUC claims are of greater relevance, and will again be of critical relevance and remain high, and all the more so in coming weeks with 15 states terminating these programmes early against a backdrop of employers complaining that enhanced & extended benefits are disincentivizing people from returning to work. Continued Claims are seen only marginally lower at 3.630 Mln from 3.655 Mln. As for the Philly Fed Manufacturing Business Outlook Index, this is projected to drop back from a 48-yr high of 50.2 to a still extraordinarily robust 41.0, with a reminder that this is not a composite index of the components. The focus will be on both current and outlook readings, last month’s outlook index also surged to match last June’s 28-yr high, as well as prices, delivery times and unfilled orders, along with CapEx intentions, which as the attached chart of all equivalent regional Fed surveys are elevated, but mostly below early 2018 levels.