EUROPEAN EQUITY OPEN: Lacklustre start following soft China activity data; ZEW, GDP ECB-speak ahead, as well as US retail sales and debt ceiling talks

EUROPEAN OPEN: It is a lacklustre start to the European session on Tuesday, following disappointing China activity data overnight, which came after disappointing Empire manufacturing data out of the US on Monday. In the UK, data showed that the unemployment rate rose a touch in March; The ONS said that both employment and unemployment both rose again in the first three months of 2023; the number of those neither working nor looking for work continues to fall, although the number of people not working due to long-term sickness rose to a new record. The stats office added that the number of people on employers' payrolls fell in April for the first time in over two years. We recap on the release below. Meanwhile, on the equity specific news front, Diageo (DGE LN) is in focus after a 13F filing by Berkshire Hathaway showed that it purchased a new stake in the alcoholic drinks maker. Delta Air Lines (DAL) is in talks for a large order of Airbus (AIR FP) A350 and A330neo wide-body aircraft. On the earnings front, Vodafone (VOD LN) begins strategic review in Spain, is working to turnaround its German business, and will cut 11k jobs globally; it also forecast flat earnings ahead. Energy names will note that the US Department of Energy announced a plan to buy 3mln barrels of crude oil to add to the Strategic Petroleum Reserve. Our full equity specific briefings for May 16th can be accessed here and here.

REVIEW - UK JOBS DATA: The UK added 182k jobs in March, topping consensus expectations for 160k.The ILO Unemployment Rate rose to 3.9% in March (it was expected to be unchanged at 3.8%). the UK stats office said there were 556k working days lost in March due to labour disputes, up from 332k in February. Average earnings excluding bonuses rose by one-tenth to 6.7% in March, a little short of the expected 6.8%. For the April components, the Claimant Count rose by 46.7k, while the HMRC Payrolls Change for April showed a contraction of 135k. Some analysts suggested that the cooler jobs data may give ease pressure on the MPC to lift interest rates again at its June meeting.

DAY AHEAD:

• Our full interactive day ahead calendar can be accessed here, a pdf version can be accessed here.


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  EUROPEAN DATA/SPEAKERS: Eurozone flash GDP data is expected to show growth of 0.1% Q/Q in Q1. From Germany, the ZEW survey is likely to see economic sentiment fall to -5.5 in May from 4.1. Italian final consumer prices for April are out in the European morning. On the speaker's front, ECB President Lagarde will speak at the an award ceremony in Cologne, but there will till be a text release.


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  US DATA/SPEAKERS: The highlight is the US retail sales data for April, where the headline is expected to rise 0.8% M/M after falling 0.6% in March; the core metric and the Control Group are also both seen rising. On the retail front, weekly RedBook data will be released before the open. Retailer Home Depot (HD) will also report Q1 metrics today (expectations are here). Meanwhile, April manufacturing output is seen rising a touch following the fall in March. From Canada, the rate of annual inflation is seen easing, data is expected to show. Business inventories are seen unchanged in March; the NAHB housing market data is also expected to be unchanged. The Fed speakers will be out in force again, with Mester (2024), Bostic (2024), Logan (voter) and Williams (voter) all scheduled to make comments. 


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  DEBT CEILING TALKS (20:00BST/15:00EDT):  President Biden has scheduled a debt limit meeting with Congressional leaders on Tuesday, and will meet with House Speaker McCarthy at 15:00EDT/20:00BST. Republican leaders have reportedly rejected a list of proposals sent by the White House to reduce the deficit by closing tax loopholes. McCarthy said he was not confident of getting a deal this week based on what the administration is currently offering, adding that talks were nowhere near to getting a debt ceiling deal by the weekend. McCarthy reportedly wants bilateral talks between President Biden and himself. Meanwhile, Treasury Secretary Yellen reiterated that the US could default as early as June 1st without a debt ceiling hike, adding the actual date for default could be a number of days or weeks later than estimated. Yellen said the Treasury has already seen the borrowing costs increase substantially for securities maturing in early June.


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  PREVIEW - US RETAIL SALES (13:30BST/08:30BST): US retail sales are expected to rise 0.8% M/M in April (prev. -0.6%). The ex-autos measure is seen rising 0.4% M/M (prev. -0.4%). The Retail Control is expected to rise 0.3% (prev. -0.3%). Bank of America's April 'Consumer Checkpoint' report presented further signs that consumer spending was softening; total card spending per household dropped to -1.2% Y/Y, the first negative Y/Y reading since February 2021. Seasonally-adjusted spending was up 0.3% in April M/M, however. BofA said that in aggregate, the labour market landscape remains solid, but its data suggested some deterioration at the higher end of the income distribution. "Unemployment is rising fastest amongst higher-income households, while their pay growth is weakest," BofA said, "higher-income spending growth on discretionary items has also fallen below lower- and middle- income households." With that said, BofA highlights that consumer savings buffers remain elevated, and its own internal data on household savings and checking balances shows the median balance continues to be over 40% higher than the average in 2019 across all income cohorts.


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  ENERGY: The IEA will release its monthly oil market report. After hours, the API will publish its weekly gauge of energy inventories; this week, analysts look for crude stocks to draw 1.3mln, distillates to build 0.2mln, and gasoline to draw 1.0mln.


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  RECAP - OVERNIGHT: On Wall Street, a short squeeze in US regional banks helped risk assets to rise on Monday though fresh catalysts were scant. The upside in stocks supported broader pro-risk assets such as oil and activity currencies, with the DXY lower on the session. Treasuries bear-steepened on chunky corporate issuance and overhanging inflation woes. Data was downbeat, with the Empire manufacturing survey plunging. Debt ceiling issues remain in focus (see below). Our US market wrap is here. APAC stocks were mixed as participants digested weaker-than-expected Chinese activity data (see below). Japanese stocks were underpinned by earnings results, and the TOPIX climbed to a fresh 33-year high. China was mixed: Hong Kong was supported by strength in tech stocks after Alibaba announced to merge its DAMO Academy autonomous driving lab with its Cainiao logistics network, while ‘Big Short’ investor Michael Burry reportedly boosted bullish bets on JD.com and Alibaba. But the mainland was subdued after disappointing activity data from China in which Industrial Production, Retail Sales and Fixed Assets Urban Investment all missed analysts’ forecasts. In Australia, RBA minutes said its surprise decision to raise rates was a difficult, given there remain factors that could lead to higher inflation; members also stated that the forecast for interest rate hikes were based on a technical assumption. Our APAC wrap is here.


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  REVIEW - CHINA ACTIVITY DATA: China's April activity and spending data disappointed expectations. Retail Sales rose +18.4% Y/Y in April, improving from 10.6% Y/Y in March, but missing the consensus estimate for +21.0% Y/Y. Industrial Output rose by 5.6% Y/Y in April, rising from a rate of 3.9% Y/Y in March, but short of the 10.9% estimate. The rate of urban investment pared to 4.7% Y/Y in the month, missing expectations of 5.5%, although the Urban Unemployment Rate fell to 5.2% from 5.3%. "Growth on most indicators accelerated in y/y terms in April. But this was due to a weak base for comparison from a year ago when Shanghai and several other cities went into lockdown," Capital Economics explained, adding that in seasonally-adjusted M/M terms, the outturn was mixed. "The recovery in consumer spending regained some momentum and investment growth held steady but industrial activity contracted," it said, adding that "while the boost from reopening should still underpin a further recovery in the near-term, the bulk of China’s rebound is now behind us." CapEco says that the recovery still has some legs, although will likely fizzle out in H2, as fiscal support is being unwound, the rebound in credit growth is stalling, while the housing market appears seems to be struggling for momentum. Additionally, global economic challenges may prevent a pick-up in Chinese exports.

16 May 2023 - 08:10- Research Sheet- Source: Newsquawk