After a quiet week for data following the Easter celebrations, the economic calendar is looking busier over the coming seven days. However, political events could once again overshadow the statistics as France holds the first round of its presidential election on Sunday. Central banks will also be under the spotlight with both the European Central Bank and the Bank of Japan holding their scheduled policy meetings. In terms of data, the first estimates of US and UK GDP will be in focus, along with Australian, Eurozone and Japanese inflation numbers.
Markets on alert for French vote; ECB likely to choose its words carefully as taper talk rumbles on
German Ifo data will start the week on Monday, though much of the attention that day will be on the result of the French election. With the four leading contenders of France’s presidential race running neck and neck in the polls and with a high portion of French voters still undecided, a surprise outcome at Sunday’s first round of voting cannot be discounted. Should either the centrist Emmanuel Macron or the conservative Francois Fillon pass through to the second round, a market turmoil would be averted as they would be expected to seize the presidency in any run-off with the extreme candidates. However, even in such a scenario, a surprisingly high vote for the far-right Marine Le Pen would worry the markets as it would cast doubt on the projections that Macron or Fillon would be able to easily beat her in the second round. The euro, which has seen a surge in implied volatility this week despite firming against the US dollar, could come under heavy pressure in the event of any shocks.
In the meantime, economic data out of the Eurozone continues to be supportive of the euro. Germany’s Ifo business climate index is expected to improve further in April, with the current conditions index easing slightly. More business survey data will follow on Thursday with the release of the Eurozone economic sentiment index. However, all eyes on Thursday will likely be on the ECB as it holds its April policy meeting. No change in monetary policy is expected by the Bank, though ECB head, Mario Draghi, will likely stress in his press conference that the Eurozone recovery has not yet reached the threshold needed to begin removing the ultra-loose accommodation currently in place. Also to be watched are the flash CPI figures on Friday. The flash estimate of Eurozone inflation is expected to show annual CPI rising to 1.8% in April, with core inflation also edging upwards, to 1%.
BoJ meets as Japan moves further away from deflation
Like the Eurozone, Japan has also been enjoying solid economic data recently as inflation has turned positive and manufacturers are benefiting from the weaker yen. But as with the ECB, the Bank of Japan has signalled it’s not ready yet to pull the plug on its massive asset purchase program as inflation remains significantly below its target of 2%. The Bank is therefore expected to hold policy unchanged when it meets on Thursday.
The latest inflation data will follow on Friday, along with industrial output, unemployment and household spending figures. Core CPI, which excludes fresh food prices, is expected to rise from 0.2% year-on-year in February to 0.3% in March. The unemployment rate is forecast to move slightly higher to 2.9%, with the two-decade low jobless figure still not generating any wage growth. Industrial output and household spending figures are also released on Friday, with both data expected to show a negative number for the month-on-month rate in March.
Australian inflation to jump higher in Q1
Persistently low inflation has been the main factor that’s kept the option of a further rate cut by the Reserve Bank of Australia open even though the economy continues to perform strongly. Such expectations may be pared back sharply on Wednesday if the latest CPI numbers show Australian inflation rising back to within the RBA’s 2-3% target band as expected. Annual CPI in the first quarter of 2017 is forecast to increase from 1.5% to 2.2% y/y. But the RBA’s two measures of core inflation will also be watched by Aussie traders for any indication that the rise in the headline rate is sustainable.
UK GDP growth to slow in Q1 as consumer spending falters
Spendthrift UK shoppers appear to have turned cautious in recent months as British households face a squeeze from falling real wages. Retail sales fell in the first quarter for the first time since 2010 and this will likely take its tolls on quarterly GDP growth, which are due on Friday. The UK economy is forecast to have expanded by 0.4% quarter-on-quarter in the first three months of the year, notably weaker than the robust 0.7% rate seen in the prior quarter. A worse figure would likely add pressure on the pound just as traders become more bullish about the British currency following the call for a snap general election.
US GDP and durable goods to be watched
The US will also see the release of the preliminary estimate of GDP growth for the first quarter. But coming into focus beforehand will be the consumer confidence index on Tuesday and durable goods orders on Thursday. The Conference Board’s consumer confidence index is expected to fall from 125.6 to 122 in April, though this is still near 16-year highs. Actual data on consumer spending has not matched the survey indicators and this will likely be evident in the latest GDP estimate. In contrast, the manufacturing sector has been performing better and appears to maintaining its recent momentum. Durable goods orders are forecast to increase for the third straight month in March.
Attention will turn on Friday to the all-important GDP data as some analysts question the Fed’s more aggressive rate hike policy when economic growth remains moderate. The advance release of GDP growth in the first quarter is expected the show the US economy growing at an annualized rate of 1.1%, down from 2.1% in the prior period. A big upside surprise is unlikely given the softer consumer spending levels but a slightly stronger reading could provide the US dollar some much-needed support.