What Matters for Global Markets in The Week Ahead

 
   By Michael J. Casey 
 
 
WRAP: 

        The three main regions of the world continue to go their separate ways and data this week should accentuate that. A surprise rate cut Sunday by the People's Bank of China--its third in six months--underscores how much authorities in Beijing are concerned about a protracted slowdown in their economy. We'll have more of a chance to gauge the extent of that slowdown this week with Chinese data out on fixed asset investment, industrial production and retail sales, as well as a window into how China's woes are affecting its neighbors, with the Bank of Korea holding a policy meeting. In the eurozone, there is mounting optimism over an improving regional economy, which is expected to be confirmed in first-quarter GDP date this week. But overhanging all that are the knife-edge negotiations between the eurozone and Greece, which go into overdrive this week ahead of a Tuesday deadline for Greece to pay 750 million euros to the International Monetary Fund. In the U.S., questions still loom over whether the first-quarter slowdown was part of a longer-term trend or a weather-influenced blip. Retail sales and industrial production data will go some way to helping assess that. One thing seems sure, though, the U.S. labor market has tightened, which should be confirmed by the weekly jobless claims report. Is that going to be enough for the Federal Reserve to start laying the groundwork for a rate increase later this year?
        U.K.: 7 a.m. EST. (12 p.m., London). Bank of England monetary policy decision.
        A soft inflation outlook has over time kept the BOE from moving toward higher interest rates in a hurry. So there won't be much news from this meeting, as per usual. However, with other data pointing to a pickup in the economy, a rise in oil prices counteracting the disinflation forces, and a clean result in last week's UK election removing the threat of political uncertainty, perhaps the BOE will start to shift toward a slightly more hawkish posture.
        EUROZONE: Time N/A. Eurogroup meeting of eurozone finance ministers, with Greece on the agenda.
        With a whopping EUR750 million payment due to the IMF on Tuesday, Greece's touch-and-go finances are coming down to the wire. That will loom large over this meeting, with the Greek government eager to assure a rollover of its official loans from the eurozone and IMF and the Eurogroup still very unenthused about Athens' commitments to overhauling its economy.
        SWEDEN: 3:30 a.m. EDT. (9:30 a.m., Stockholm).
        --April consumer price index. [In March, CPI was +0.1% on-month, +0.2% on-year.]
        --Sveriges Riksbank monetary policy meeting minutes published
        After a series of dramatic rate cuts and a bottoming out and rebound in oil prices, inflation is starting to move in the upward direction that the Sveriges Riskbank has wanted. More signs of acceleration here could take the prospect of a yet another rate cut off the table. But inflation is still a long way from the central bank's 2% target.
        U.S.: Time N/A. Federal Reserve Bank of San Francisco President John Williams speech at New York Association for Business Economics event.
        Last week, Mr. Williams indicated that he is "very optimistic" about the outlook for the U.S. economy but didn't weigh in on what that meant for the timing of an interest rate increase. This time, his audience is likely to press him on that.
        JAPAN: 7:50 p.m. (8:50 a.m.) March balances of payments. [Current account surplus expected 2.1 trillino yen vs. 1.44 trillion yen in February; trade balances was 143.1 billion in deficit in February.]
        Despite weak exports and a continually deteriorating trade balance, inflows and foreign exchange gains from Japanese offshore investments continue to keep the country's current account in surplus. February's current account surplus was the biggest since 2011 and economists expect it to be much higher again. This has solidified Japan's role as a net external creditor and helped to assuage concerns that its external balances might turn into a deficit and make it harder to service the government's giant debt load.
        CHINA: 1:30 a.m. EDT. (1:30 p.m., Beijing)
        --April fixed assets investment. [Expected +13.5% on-year, unchanged from +13.5% in March.]
        --April industrial output. [Expected +6% on-year vs. +5.6% in March.
        --April retails sales. [Expected +10.6% on-year vs. +10.2% in March.]
        Economists are looking for a bounceback after some disappointments in the first quarter. But with the People's Bank of China cutting rates on Sunday, there seems to be broad recognition that the Chinese economy is slowing faster than authorities would like.
        EUROZONE: 1:30 a.m.-5 a.m. EDT. (7:30 a.m.-11 a.m., Brussels). Preliminary GDP estimates.
        --FRANCE: [Expected +0.4% on-quarter vs. +0.1% in 4Q; +0.7% on-year vs. +0.2% in 4Q.]
        --GERMANY: [Expected +0.5% on-quarter vs. +0.7% in 4Q; +1.2% on-year vs. +1.4% in 4Q.]
        --ITALY: [Expected +0.2% on-quarter vs. 0.0% in 4Q; -0.2% on-year vs. -0.5% in 4Q.]
        --EUROZONE: [Expected +0.4% on-quarter vs. +0.1% in 4Q; +0.7% on-year vs. +0.2% in 4Q.]
        Economists are looking for final confirmation that the first quarter marked a positive rebound in the eurozone economy, spurred perhaps by the anticipatory effect of the European Central Bank's quantitative easing.
        U.S.: 8:30 a.m. EST. April retail sales. [Expected +0.1% on-month vs. +0.9% in March; ex-auto expected +0.5% vs. +0.4% .]
        Payback from strong auto sales in March is seen pulling down the headline number, but the overall trend for retail sales going into the warmer months of spring is positive.
        JAPAN: 2 a.m. EDT. (3 p.m., Tokyo). April preliminary machine tool orders. [In March, tool orders were up 14.6% on-year.]
        This indicator is a useful leading indicator of future industrial activity.
        U.S.: 8:30 a.m. EDT.
        --Unemployment insurance weekly claims. [Initial claims expected 275,000 vs. 264,000.]
        --April producer price index. [Expected +0.2% on-month, unchanged from March; expected core (ex-energy and food) +0.1% vs. +0.2% in March.]
        If there is any number that must be making the Fed think about the need to raise rates it's the remarkably low unemployment claims figures. Results as low as those we've been seeing are consistent with very tight labor conditions. And yet despite that tight labor market, there's no sign that wage pressures are feeding into broader measures of inflation such as the producer price index. That's having the opposite effect, and keeping the Fed on hold.
        SOUTH KOREA: 9 p.m. EDT (10 a.m. Friday, Seoul). Bank of Korea Monetary Policy Committee meeting & decision
        The Bank of Korea has been very reluctant to cut rates despite a significantly weaker economy. Since its last meeting, another disappointing manufacturing survey result was released. Will that be enough to force it into action? Might the rate cuts by the PBOC influence the BOK?
        U.S.: 9:15 a.m. EDT. April industrial production & capacity utilization. [Industrial output expected unchanged vs. - 0.6% in March; capacity utilization expected 78.3% vs. 78.4%.]
        Industrial production seems to have been hit hard by the cold winter in the first quarter and by the strength of the dollar. Has that been reversed in the spring?
        U.S.: 10 a.m. EDT. University of Michigan mid-May survey of consumers. [Expected sentiment index 96.0 vs. 95.9 at end of April.]
        The hope is that warmer weather and a rosier job outlook is making consumers feel better and enticing them out of the hibernation that persisted through the first quarter.
        Write to Michael J. Casey at michael.casey@wsj.com
        (END) Dow Jones Newswires

        May 10, 2015 18:00 ET (22:00 GMT)

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