What Matters for Global Markets in The Week Ahead

 
   By Michael J. Casey 
 

        WRAP:
        With the first quarter data almost complete, various themes are emerging with regards to the global economic outlook. Asia, with the notable exception of India, is slowing, as the fallout from China's economic adjustment inevitably spreads across the region; the question is now whether that adjustment process can find a bottom and pave the way for a recovery. In Europe, by contrast, there have been some hopeful signs that the region's economies are back on a growth path, led by the U.K. and Germany; but there are still deflationary pressures and many areas of vulnerability, fueling doubts over the sustainability of the expansion. In the U.S., there's a wild card factor: although there was clearly a big slowdown in the first quarter (evidenced by the meager 0.2% GDP gain reported last week), it's not yet clear if this was a passing problem associated with cold weather or a true indication of a downturn in the cycle. Data out this week -- from Asian and eurozone purchasing manager reports to the U.S. Labor Department's monthly employment report on Friday -- will help clarify the picture in all these cases. And for good measure, we also have the prospect of another cliffhanger U.K. election.
        SUNDAY
        SOUTH KOREA: 8 p.m. EDT. (9 a.m Monday, Seoul). April HSBC manufacturing purchasing managers' index. [In March, PMI was 49.2.]
        South Korea's vital manufacturing base needs a jolt. A slowing Chinese economy and sluggish demand for its electronics exports in the U.S. and Europe doesn't help.
        CHINA: 9:45 p.m. EDT. (9:45 a.m Monday, Beijing). Final April HSBC manufacturing purchasing managers' index. [Mid-April PMI was 49.2 vs. 49.6 at end-March.]
        The mid-April reading was a significantly important result, in that it revealed the extent of the slowdown in China's important manufacturing sector. Let's see whether the final reading confirms that disappointing result. There was some heart taken from the competing China Federation of Logistics and Purchasing official manufacturing PMI, which came in stronger than expected last week, but even that result was only marginally above the 50 threshold that signifies expansion.
        INDONESIA: 11 p.m. EDT. (10 a.m Monday, Jakarta).
        --April HSBC manufacturing purchasing managers' index. [PMI was 46.4 in March.]
        --April consumer price index. [In March, CPI was +6.38% on-year, +0.17% on-month.]
        Indonesia is another once-high-flying Asian economy that's being hurt by a regional slowdown. The March PMI reading was deeply into contractionary territory and the lowest on record for this indicator. The only good news, perhaps, is that this slowdown is constraining inflation, which should give Bank Indonesia room to provide monetary stimulus.
        MONDAY
        WORLD: Various markets remain closed for May Day.
        INDIA: 1 a.m. EDT (10:30 a.m, Delhi). Markit April manufacturing PMI. [In March, index was 52.1.]
        Last month's manufacturing PMI marked an encouraging improvement from the previous 51.2 reading in February, and helped breed confidence that the investment inflows that have accompanied the new administration of Prime Minister Narendra Modi could finally be manifesting in higher demand and output.
        EUROZONE: 3:15 a.m-4 a.m. EDT. (9:15 a.m.-10 a.m., Brussels). Markit final April manufacturing purchasing managers indexes.
        --SPAIN: [PMI was 54.3 in March.]
        --ITALY: [PMI expected 53.5 vs. 53.3 in March.]
        --FRANCE: [Flash PMI 48.4 in mid-April vs. 48.8 end-March.]
        --GERMANY: [Flash PMI was 51.9 in mid-April vs. 52.8 end-March.]
        --EUROZONE: [Flash PMI was 51.9 in mid-April vs. 52.2 end-March.]
        Numerous indicators have suggested the eurozone is coming out of its funk, if slowly. There needs to be more confirmation of that and these PMI data could help to achieve that. Overall, the flash PMIs from mid-April suggested modest growth but without acceleration.
        BRAZIL: 9 a.m. EDT (10 a.m, Sao Paulo). Markit April manufacturing PMI. [In March, index was 46.2.]
        The March PMI provided yet more proof of the dysfunction in the Brazilian economy. And with inflation still running too high and the central bank continuing to raise rates to combat it, there's not much hope for an improvement soon.
        U.S.: 12:25 p.m. EDT. Federal Reserve Bank of Chicago President Charles Evans speech at the Columbus Economic Development Board Annual Meeting.
        The unofficial spokesman for the doves on the Federal Open Market Committee can be expected to reiterate his case for waiting beyond the end of this year to raise rates.
        U.S.: 3:10 p.m. EDT. (12:10 p.m., San Francisco) Federal Reserve Bank of San Francisco President John Williams speech at the Pacific Community Ventures annual luncheon.
        Mr. Williams is more of a centrist than Mr. Evans and of late has suggested a willingness to move toward a rate hike in the months ahead. Has the bout of weak first-quarter economic news softened his position on that?
        TUESDAY
        AUSTRALIA: 12:30 a.m. EDT (2:30 p.m., Sydney) Reserve Bank of Australia cash rate decision.
        Since its quarter-rate cut in February, the RBA has kept the prospect of another one on the table. Now, with the Aussie dollar resurgent against its U.S. counterpart and the economy continuing to sputter in the face of weak prices for iron ore and other Australian commodity exports, there's a very good chance it will pull the trigger at this meeting. That would bring the cash rate to a record-low 2%.
        EUROZONE: 5 a.m. EDT (11 a.m., Brussels) March producer price index. [Expected +0.3% on-month vs. +0.5% in March; expected -2.3 on-year vs. -2.8% in March.]
        A rebound in oil prices is helping revive an upward trend in producer prices, but there continues to be deep-seated deflationary pressure in the intermediate goods sector, as is evident in the year-on-year measures of the PPI.
        U.S.: 8:30 a.m. EDT. March international trade in goods and services. [Trade deficit expected -$43.08 billion vs. -$35.44 billion.]
        U.S. exports have been hurt by a stronger dollar, but in the winter that weakness was accompanied by softer overall domestic demand, which hurt imports, and so led to a sharply narrower deficit in February. Now, that effect is seen as having worn off in March and the deficit is expected to have grown again. Importantly, the March trade data are a key lagging component in forthcoming revisions to the first-quarter GDP estimate. If the deficit is bigger than assumed in last week's preliminary GDP estimate -- which gave us a meager 0.2% quarterly gain -- the net negative impact on overall income could push GDP into a contraction for the quarter.
        U.S.: 10 a.m. Institute for Supply Management April non-manufacturing report on business. [Expected PMI 56.3 vs. 56.5 in March.]
        The services sector appears to be shrugging off the struggle in other parts of the economy. That's possibly a positive sign that weaker data elsewhere are the result of temporary postponements of manufacturing and construction activity during the cold winter rather than reflecting an underlying downturn in the economic cycle.
        U.S.: 8 p.m. (7 p.m, Minneapolis) Federal Reserve Bank of Minneapolis President Narayana Kocherlakota speaks at Southwest State University.
        Mr. Kocherlakota has become a notable dove. He is likely to cite the weak first-quarter data as a reason to hold off on rate hikes.
        CHINA: 9:45 p.m. EDT. (9:45 a.m. Wednesday, Beijing) HSBC non-manufacturing purchasing managers index. [PMI was 52.3 in March.]
        China's services sector is increasingly important for an economy that's transitioning to a consumer-led demand model. Although last week's CFLP non-manufacturing report kept the expansion in place, it was softer than the prior month's.
        WEDNESDAY
        INDIA: 1 a.m. EDT (10:30 a.m, Delhi). Markit April services PMI. [In March, index was 53.]
        Although last month's reading showed an easing in the index from 53.9, it was still comfortably in expansion territory and completed a solid first quarter for India's services sector, which includes its important tech services industry. Along with the improved manufacturing PMI, it underscores the improvement in India's economy this year.
        EUROZONE: 3:15 a.m-4 a.m. EDT. (9:15 a.m.-10 a.m., Brussels). Markit final April non-manufacturing purchasing managers index.
        --SPAIN: [PMI was 57.3 in March.]
        --ITALY: [PMI expected 51.8 vs. 51.6 in March.]
        --FRANCE: [Flash PMI was 50.8 in mid-April vs. 52.4 end-March.]
        --GERMANY: [Flash PMI was 54.4 in mid-April vs. 55.4 end-March.]
        --EUROZONE: [Flash PMI was 53.7 in mid-April vs. 54.2 end-March.]
        The mid-month readings for the eurozone's services sector suggested an easing in the rate of expansion, but they were still consistent with the broader notion of a recovery in the regional economy. France remains the trouble spot.
        U.K.: 4:30 a.m. EDT. (9:30 a.m., London) Chartered Institute of Purchasing & Supply/Markit final April non-manufacturing purchasing managers index. [March PMI was 58.9.]
        March's reading for this indicator was the strongest in a year. Given the importance of London's financial services industry to the British economy, it pointed to a solid expansion in the U.K.'s economic output overall. If this kind of growth continues, it could help convince the Bank of England to reconsider the prospect of a rate hike.
        EUROZONE: 5 a.m. (11 a.m, Brussels) March retail sales. [Expected +0.1% on-month vs. -0.2% in February.]
        For all the other signs of improvement in the eurozone economy, there still needs to be more solid indications that consumer spending is picking up.
        POLAND: Time N/A. National Bank of Poland interest rate decision.
        Exporters hoping that Poland's central bank might take actions to weaken the strong zloty will have been disappointed by the recent comments from board members. Andrzej Raczko said the exchange rate was "perfect" and that the zloty "is behaving very responsibly" and Jerzy Osiatynski said the benchmark rate could stay at its 1.5% level for as much as 20 months.
        (MORE TO FOLLOW) Dow Jones Newswires

        May 03, 2015 18:00 ET (22:00 GMT)
        U.S.: 8:15 a.m. EDT. Automatic Data Processing Inc. April national employment report. [Expected +200,000 jobs vs. +189,000 in March.]
        The first read on whether the end of winter has boosted hiring -- as always, this indicator will be viewed as a possible harbinger of the more important official jobs report on Friday.
        U.S.: 1:30 p.m. EDT. Federal Reserve Bank of Atlanta President Dennis Lockhart speech at Baton Rouge Rotary luncheon.
        Mr. Lockhart is a moderate and respected voice on the FOMC. So the dovish tone he sounded last month in response to the disappointing first quarter data and its impact on Fed decision-making was possibly an important indication that the committee's consensus was shifting toward a longer wait before raising rates.
        THURSDAY
        U.K.: Time N/A. General election
        The election is looking too close to call. Ultimately, that seems to reflect disenchantment with all three major parties. Despite all the mudslinging over issues such as immigration, Labour's tax proposals and the Tories' vague promise/threat of a referendum over EU membership, the broad shape of economic policy in the U.K. is not likely to be significantly changed. Even so, if there were to be another hung parliament and a protracted period of political uncertainty, it may weigh heavily on the pound even though the most recent economic data show signs of a solid economic recovery.
        GERMANY: 2 a.m. EDT. (8 a.m., Berlin). March manufacturing orders. [Expected +1.1% on-month vs. -0.9% in February.]
        The data have been erratic, but the general consensus is that German factories are growing solidly.
        FRANCE: 2:45 a.m. EDT. (8:45 a.m, Paris) March industrial production index. [Expected -0.2% on-month vs. unchanged on-month in February.]
        In contrast to Germany's, French industry continues to struggle.
        NORWAY: 4 a.m. EDT (10 a.m., Oslo) Norges Bank monetary policy decision.
        Norway's central bank has kept the prospects of another rate cut on the table. It can't be ruled out at this meeting.
        CZECH REPUBLIC: 7 a.m. EDT. (1 p.m., Prague) Czech National Bank interest rate decision.
        With its benchmark interest rate at just 0.05% and its exchange rate policy geared entirely toward maintaining a weak koruna, there's not a lot more that the Czech central bank can do to sustain monetary stimulus. On the other hand, so long as inflation stays subdued and there's competitive pressure from a weaker euro, there's little incentive to tighten policy, either.
        U.S.: 8:30 a.m. EDT. Unemployment insurance weekly claims report. [Initial claims expected 280,000 vs. 262,000 in prior week.]
        Last week's sharp drop in jobless claims was a strong indication that, despite first-quarter economic weakness, the U.S. labor market has tightened considerably. Even with an 18,000-claim bounceback expected for this week, the picture remains one of greater job security for American workers.
        JAPAN: 7:50 p.m. EDT. (8:50 a.m. Friday, Tokyo) Bank of Japan Monetary April policy meeting minutes.
        The major move to come out of last week's meeting was a postponement in the BOJ's target date for achieving its 2% inflation target. It will be interesting to see how that was debated, especially given that Governor Haruhiko Kuroda's hyper-easy monetary policy has come under some criticism from one or two board members.
        FRIDAY
        GERMANY: 2:00 a.m. EDT. (8:00 a.m, Berlin) March industrial production index. [Expected +0.4% on-month vs. +0.2% on-month in February.]
        Expected to show continued solid expansion in Germany's powerful industrial sector.
        SWITZERLAND: 3:15 a.m. EDT (9:15 a.m., Zurich). April consumer price index. [In March, CPI was +0.3% on-month, -0.9% on-year.]
        How much has the revived strength of the Swiss franc affected Switzerland's inflation readings? A key motive for the Swiss National Bank's original policy of imposing a ceiling on the franc versus the euro was to limit deflationary forces in the economy. After that policy was abandoned in January, the fear was that deflation would become even more entrenched -- hence the adoption of negative interest rates. March's CPI result wasn't as bad as people expected, though it will be important to strip out the effect of energy prices to gain a clearer picture. If it's perceived that core deflation remains a problem, the SNB may have to take further action, including a return to ad-hoc currency interventions.
        BRAZIL: 8 a.m. EDT. (9 a.m, Sao Paulo). April consumer price index. [In March, CPI was +1.32% on-month, +8.13% on-year.]
        Brazil badly needs to see inflation come down if its economy is to escape the grip of the central bank's super-high interest rates.
        U.S.: 8:30 a.m. EDT. April employment report. [Non-farm payrolls expected +220,000 jobs vs. +126,000 in March; unemployment expected 5.4% vs. 5.5%; average hourly wages expected +0.2% on-month vs. +0.28% in March.]
        As always, this will be a closely watched report. This time, Fed watchers will be eagerly looking for clues as to whether or not March's weak reading was an anomalous outcome of cold winter weather or whether it signaled an end to the trend of labor market strengthening seen prior to that month. Either way, people will calibrate their expectations for the timing of the Fed's rate hike based off of these numbers.
        CHINA: 9:30 p.m. EDT. (9:30 a.m. Saturday, Beijing).
        --April producer prices index. [In March PPI was -4.6% on-year, -0.1% on-month.]
        --April consumer price index. [In March, CPI was +1.4% on-year, -0.5% on-month.]
        China is grappling with disinflationary forces, much like the developed nations of North American and Europe.
        (END) Dow Jones Newswires

        May 03, 2015 18:00 ET (22:00 GMT)

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