Macroeconomics: The Day Ahead for 7 June

A relatively quiet day to start the week, with the overnight China’s Trade data and Germany’s Factory Orders (missing m/m forecasts, underlining the risk of overplaying survey optimism) providing the highlights and little more than the Eurozone Sentix Investor Confidence and US Treasury Budget ahead. There will be a smattering of ECB and BoE speakers to digest, as the G7 agreement on a minimum 15% corporate tax now faces the much tougher challenge of actual implementation, which may prove to be rather more uneven. As for China’s trade data, while there will be the temptation to raise concerns about Chinese demand, there was so much evidence as is usual of seasonal disruptions (above all refinery maintenance closures), of imports catching up in some sectors as logistical delays unwind, or vice versa, that this would be an over-interpretations. What is clear is that the value of both imports and exports is a major contributor due to sky rocketing raw materials prices, and that in volume terms the evidence for a commodity super cycle emerging is thus far wholly unconvincing.

The Week Ahead – Summary preview: 

The new week kicks off with China’s trade data, with inflation and credit aggregates also due, the US has CPI, Trade Balance along with NFIB Small Business Optimism and Michigan surveys, while the UK looks to monthly GDP and the accompanying run of business activity data and BRC Retail Sales, German has Orders, Production and Trade, Japan awaits final Q1 GDP, Economy Watchers survey and BSI survey. While the below par US labour data gives the Fed some vindication in sticking with its patience narrative, US CPI will still need to be no worse than the expected 0.4% m/m on both headline and core that would bump y/y rates up to 4.7% headline and 3.4% core. China’s CPI is expected to rise quite sharply, but at 1.6% y/y vs. April 0.9% (thanks in no small part to base effects), it will remain well below the govt target of 3.0%; but the focus will be on PPI which is expected to jump to a 13-yr high of 8.9% y/y (from 6.8%).

The ECB and BoC hold policy meetings, with neither expected to change rates or QE volumes, but the policy messages will continue to diverge, with the BoC likely to hint strongly that it will likely taper its weekly QE volume (current C$3.0 Bln) at its July meeting. By contrast, the ECB will doubtless stick to a dovish line, with a fresh set of forecasts likely to see CPI still some way off its just below 2.0% target on a 3-yr time horizon, per se offering justification for this stance. But with hawks and doves again rather far apart, the question is whether it takes a leaf out of the BoE’s playbook, with a ‘technical’ move to reduce its monthly PEPP purchase volumes modestly, predicated on lower summer issuance.

Politically, following hot on the heels of the G7 Finance Ministers that agreed on a minimum 15% corporate tax rate, there is a G7 leaders meeting to end the week. Iran nuclear talks aimed at reviving the JCPOA will resume. Germany’s CDU/CSU will be looking to capitalize on a sharp improvement in the CDU’s vote share in the Sachsen Anhalt state election, while investors anxiously await the outcome of Peru’s presidential election.

A very busy week in the commodities space has OPEC, EIA and IEA oil market reports, China CASDE and USDA WASDE grain and soybean monthly supply and demand reports, as well as the ABARES quarterly Australian crop  and Malaysia’s Palm Oil Board reports. On the conference side of the equation, there is the week long Commodity Trading Week (at which a number of ADM ISI and ADM staff will be speaking) along with International Grains Council Conference. There are also the UBS Global Industrials and Transportation, RBC Global Energy & Power Executive & Deutsche Global Basic Materials conferences.

It will be a very modest week for corporate earnings, with Bloomberg News highlights the following as likely to be among the headline makers: Auto Trader, Brown-Forman, pet supplies e-retailer Chewy, CMC Markets, Spain’s Industria de Diseno Textil, Marvell Technology, software provider UiPath, Vail Resorts, Mitie Group, Central Bank of India, Campbell Soup, Dollarama and Japan’s Sekisui House. By contrast it will be a busy week for government bond issuance with the US heading the list with USD 120 Bln of 3, 10 & 30-yr, there are 5 & 50-yr conventional and 9-yr Index-linked auctions in the UK, while a busy week in the Eurozone has sales in   Germany. Italy, Austria, Netherlands & Portugal.