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WEEK IN FOCUS: French Election To Set The Tone Early Doors, With Questions Surrounding Growing Dissent Within The BoE

The final round of the French election will set the tone early in the week. Centrist independent Emmanuel Macron and the far-right National Front’s leader Marine Le Pen face off, with the polls set to close at 20:00 CET on Sunday 7th May. Polls have hovered around a 60:40 split in favour of Macron for some time now although there is a notable amount of “undecided” voters, with a low participation rate expected. Exit polls are expected to be released by mainstream media shortly after 20:00 CET.

Chinese FX reserve data will also be released on the 7th although less attention is being paid to the release as fears over a Chinese economic hard landing recede. For what its worth they stood at USD 3.020tln in March.

North America: -

April’s CPI headlines the US docket next week, and is slated for Friday. Analysts expect headline CPI to moderate to 2.3 Y/Y from 2.4%, with the M/M release expected to rebound by 0.2% after last month’s 0.3% fall. The core release is expected to print at a steady 2.0% Y/Y, with the M/M seen at 0.2% after last month’s 0.1% fall. Gasoline prices played a large role in last month’s M/M decline, with telephone services pushing the core lower. Wells Fargo suggest that these are largely “one- off factors.”

US retail sales data for April will also be released on Friday, with producer prices for the same month and the preliminary University of Michigan sentiment index for May headlining the soft data.

Europe: -

German data headlines the European docket with industrial output, industrial orders and trade data for march due tspanough the week, although all the focus will fall on the GDP (Q1) and CPI (March) releases due Friday.

UK: -

The key risk event for the UK will be the Bank of England’s (BoE) monetary policy decision on Thursday. All of those surveyed expect the Bank to leave its monetary policy settings unchanged, with the vote expected to be 7-1 (prev 8-1 after deputy governor Charlotte Hogg was forced to step down). Kristin Forbes (a soon to be outgoing member) is expected to be the sole dissenter, although HSBC note that ‘some members’ were apparently getting closer to joining her in March (with eyes on Michael Saunders as a potential dissenter this time out). But they said that this was dependent on further upside news on activity and inflation. Since then the GDP release indicated slower growth and worries over sustained negative real wage growth are beginning to solidify, although the recent GBP uptick will provide policymakers with a degree of comfort. It is also worth noting that April’s PMI set has also provided an encouraging start to the quarter.

The Bank will also release its latest Quarterly Inflation Report (QIR).

HSBC note that “the growth rate more than halved in Q1 and Retail sales volumes fell in Q1. This was  the first quarterly decline since Q413 – indicating that higher inflation and stagnant wage growth are starting to bite. We think the Bank will nudge its growth forecasts down a touch to process the Q1 news, and also reduce inflation slightly to reflect stronger sterling and lower oil prices.”

Tuesday will see the releases of March’s output and trade data. Analysts expect the trade deficit to narrow to GBP 11.65bln from GBP 12.46bln. IHS note that “while it is notable that imports had been lifted in February by erratic items which include gold and aircraft. In volume terms, UK exports of traded goods rose 0.8% month on month in February and were up by 4.1% on a tspanee-month/tspanee-month basis. It looks likely that a markedly reduced contribution from net trade may have been a factor in UK GDP growth slowing markedly in Q1. Nevertheless, the overall evidence suggests that UK exports are benefiting from the weakened pound as well as decent global growth, and this remains a key hope for the economy going forward. Additionally, latest manufacturing surveys are encouraging overall on foreign orders. Meanwhile, softer domestic demand is expected to increasingly weigh down on UK import volumes.”

The tier one data will be supplemented by the Halifax house price and BRC retail sales releases

APac: -

Chinese trade data from April is due on Monday, with analysts looking for the surplus to jump to USD 35.5bln from USD 23.9bln. Exports were likely helped by continued strength in foreign demand for electronics and machinery and the waning of external uncertainty, with the latest PMIs pointing to strong export demand, although there was some moderation. HSBC suggest that “import growth likely remained robust amidst the strong domestic recovery.”

Chinese inflation data for April is due to be released on Wednesday with analysts looking for CPI to tick up to 1.1% Y/Y from 0.9%, while the median estimate expects a PPI to moderate to 6.9% from 7.6% last time out. HSBC suggest that “food prices are likely to contract, exerting downward pressure on the headline reading, although the pace of contraction likely eased. We expect non-food inflation to have remained stable, although there were upward adjustments to domestic energy prices.” Base effects are also expected to begin to ease out of producer prices.

For the Antipodeans, the focus in Australia will fall on the budget release. TD Securities expect spending to be brought forward to flatter next year’s deficit to AUD 26bln. Budget leaks have been thin, so big-picture plans to boost revenue/cut spending could appear (and are much needed). A lack of fiscal reform (not spend the higher revenues via the temporary terms of trade boost) and no commitment to surplus could see S&P downgrade Australia to AA+/stable by Q3.”

Friday brings about the releases March’s retail sales and Q1’s real retail sales, with analysts look for 0.3% and 0.5% against prior readings of -0.1% and +0.9% respectively, following a questionable dip in February. The surveyed range is notably wide as well.

Across the Tasman in New Zealand the focus will fall on the Reserve Bank of New Zealand’s monetary policy decision on Wednesday evening (Thursday local time). Expectations are for the central bank to leave its Official Cash Rate (OCR) unchanged at 1.75%. HSBC believe that the “higher-than-expected Q1 CPI inflation and a lower NZD should see the RBNZ lift its inflation forecasts.” Although HSBC stresses that it expects the “Reserve Bank to remain firmly on hold and take a cautious approach with its policy rate outlook,” which is with consensus. As a result the bank’s forecast is set to come under more scrutiny, with the near term inflation expectations set to revised upwards on the back of a stronger Q1 CPI print and a lower than (RBNZ) forecast NZD. However, these factors do not necessarily result in higher than expected medium term inflation, especially alongside an extended period of muted wage growth. Growth remains healthy, migration remains elevated and dairy prices have held up. Goldman Sachs will be “watching for more constructive comments on the global backdrop as the growth outlook continues to improve and downside risks ease.”  In terms of future policy moves HSBC posit that “given the higher starting point for inflation, the projected start of the next tightening phase in the RBNZ’s policy rate forecasts is expected to be brought forward from the late 2019 timeframe indicated in February. We retain our view that the RBNZ will lift its cash rate from Q1 2018.” Goldman expect the Reserve Bank to “gradually step towards a more hawkish stance towards the end of the year.” Westpac are a little less optimistic, looking for the “projections to be consistent with an OCR hike by late 2018.”
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