Inflation data will dominate over the coming week as the UK and the US will release April CPI figures, while the Eurozone will publish its final CPI readings. The UK will remain in focus with the release of retail sales and unemployment numbers but Japanese GDP data could prove to be the biggest market mover as it is likely to influence Bank of Japan policy.
Flurry of UK data may get side-lined by Brexit developments
Following the Bank of England’s stern warning this week about the implications on the UK economy of an exit from the European Union, sterling will remain under the limelight next week as key UK indicators are released. Starting with inflation figures on Tuesday, annual CPI is forecast to remain unchanged at 0.5% in April and could be a sign that the recent pick-up in prices is moderating. Core CPI is expected to ease to 1.4% from 1.5%.
Unemployment data is due on Wednesday and the jobless rate is expected to stay at 5.1% in the three months to March. Wage growth data could be mixed though as total average weekly earnings growth in the three months to March are forecast to slow to 1.6% from 1.8%, but excluding bonuses, the underlying trend could edge higher from 2.2% to 2.3%.
Lastly, retail sales numbers out on Thursday are expected to show the volume of retail sales bouncing back from -1.3% m/m in March to 0.6% in April. Weaker-than-expected readings could add more pressure on the pound as they would heighten concerns about the weakening growth outlook ahead of the EU referendum.
No changes to Eurozone inflation estimates expected
It will be a quieter week for the Eurozone with the only main data being the final estimates of euro area inflation in April due on Wednesday. The final reading of Eurozone CPI is forecast to remain unrevised at -0.2%, with core CPI (excluding food and energy prices) also expected to be unrevised at 0.7%. If confirmed, this would represent a worrying deterioration in Eurozone inflationary pressures, particularly the core rate as it’s watched closely by the ECB and had accelerated to 1% only in March.
US housing market likely strengthened in April
Housing data for April will dominate the US calendar next week with housing starts and building permits out on Tuesday, and existing home sales out on Friday. All three indicators are forecast to show an improvement from March. The housing market remains a bright spot in the US economy even as consumer spending has slowed in the first few months of the year. Also important are the latest inflation figures out on Tuesday. Annual CPI is expected to rise to 1% in April from 0.9% in March. This would still be below January’s peak of 1.4% but with core inflation already running at 2% or above, the Fed may be running out of time on how long it can pause before resuming its rate hike cycle.
Other data to watch out for the US are industrial and manufacturing production figures out on Tuesday. Industrial output is forecast to show the first positive growth in three months, and is expected to grow by 0.2% m/m in April.
Japan to escape technical recession
It will be an important week for Japan as the first estimates of first quarter GDP growth are published on Wednesday. Japan’s economy is expected to have expanded by 0.1% quarter-on-quarter in the first three months of the year. This compares with a contraction of 0.3% in the final quarter of 2015. Positive growth would mean Japan avoided a technical recession, which is defined as two consecutive quarters of negative growth. However, a weaker reading would for sure fuel expectations that the Bank of Japan may ease monetary policy by July, which would likely send the yen lower in the currency markets. The yen has appreciated by around 12% against the dollar since December, complicating the job of Japanese policymakers.
Also due next week for Japan are machinery orders out on Thursday. Machinery orders in March are estimated to have increased by 0.5% m/m, although this would still be a fraction of the 9.2% slump of the previous month.
Australian jobless rate to edge higher
The Australian dollar looks set to end the week 1% lower against its US counterpart as it continues to come under pressure following the surprise rate cut by the Reserve Bank of Australia earlier this month. Next week’s latest employment data are unlikely to change the view that the RBA will cut rates further in the coming months. The Australian economy is forecast to add 12.5k jobs in April, down from 26.1k jobs in March. The unemployment rate is expected to rise slightly to 5.8% while wage growth is forecast to remain unchanged at 2.2%.