The coming week is looking to be a relatively quiet one with only a handful of major data releases to keep traders occupied. Inflation data out of Japan and the flash PMI readings for the Eurozone will be the main highlights, while the second estimates of first quarter growth for the UK and the US will be watched too. In terms of central banks, the Bank of Canada meets for its latest policy decision but FOMC minutes from the Fed will also come into focus. However, upcoming meetings, namely, the OPEC/non-OPEC meeting and NATO summit on May 25, and the G7 summit on May 26-27 look set to grab the biggest headlines.
Japan CPI to edge further upwards
GDP data released this week showed the Japanese economy had its longest streak of growth in over a decade at the end of the first quarter. Exports were the main driver of growth during the first three months of the year and the strong performance looks set to continue into the second quarter. Data out on Monday is expected to show Japanese exports rose by 7.8% year-on-year in April. This is down from 12% in March, but would make it the fifth straight month of annual growth.
More important data will follow on Thursday with the release of the latest inflation numbers. Core CPI, which excludes fresh food prices, is expected to rise from 0.2% to 0.4% y/y in April, marking it the highest in two years.
Eurozone PMIs to stay strong in May
Eurozone data will be scarce next week with only the flash PMI estimates standing out in the economic calendar, though the German Ifo business survey will be watched too. The euro area’s composite PMI from IHS Markit, which comprises the services and manufacturing components, is forecast to ease slightly from 56.8 to 56.6 in May in Tuesday’s preliminary reading, pointing to sustained momentum in the middle of the second quarter.
Germany’s Ifo business gauge is also out on Tuesday and its three indices, the business climate, current conditions and expectations, are forecast to improve further in May.
Economists push back timing of Bank of Canada rate hike
The Bank of Canada will be the only of the major central banks to hold a policy meeting next week. No change in rates is expected from the BoC when it meets on Wednesday as the Bank remains worried about the downward trend in core inflation. Growth indicators have been a bit more positive recently but not significantly enough to prevent economists from moving their forecasts of a BoC rate hike from the first quarter of 2018 to the second.
In the meantime, the central bank is facing pressure to act over the overheating housing market, but the uncertainty about future trading relations with the US may give the BoC the justification it needs to delay a rate hike.
UK Q1 growth likely to be unrevised
Britain’s economy lost momentum in the first quarter of the year, with growth more than halving to 0.3% q/q. The figure is not expected to be revised when the second estimate is released on Thursday. The more detailed publication will also include business investment breakdown, which should show how business spending fared at the start of 2017. Also to watch out of the UK will be the inflation report hearing on Tuesday before a parliamentary committee by the Bank of England governor, Mark Carney.
US durable goods and GDP data in focus
The US will have the busiest calendar next week, starting with the flash services and manufacturing PMIs on Tuesday. The manufacturing PMI is expected to rise slightly and the services PMI to hold steady in May’s flash reading. New home sales are also due on Tuesday and existing home sales will follow on Wednesday, along with the FOMC minutes. The Fed minutes of the May 2-3 meeting may provide some clues as to how many FOMC members are leaning towards a rate hike at the next meeting on June 13-14.
On Thursday, the advance goods trade balance is out along with the latest durable goods orders. Orders of durable goods, an indication of future factory output, are expected to drop by 1.3% m/m in April after rising for three straight months during the first quarter. Attention will then move onto the second estimate of US GDP growth for the first quarter on Friday.
The US economy saw a disappointing annualized growth of just 0.7% in the advance estimate, but the figure is forecast to be revised up to 0.9% in the second reading. This would still represent a below trend growth rate but the Fed is likely to be more concerned about the jobs market given how close the economy is to full employment.
Deal extension eyed at OPEC meeting; NATO and G7 summits under the spotlight amid Trump controversy
A meeting between OPEC and some non-OPEC countries on Thursday is expected to conclude with major oil producing nations agreeing to extend the current output deal by 9 months until the end of March 2018. No deal or a shorter extension would be negative for oil prices following the expectations built by the recent comments from the energy ministers of Saudi Arabia and Russia who signalled such a move. Crude oil prices hit a 4-week high this week in anticipation that oil producers will commit to further caps on output.
Meanwhile, the upcoming NATO and G7 meetings could have a bigger impact on the markets than usual as they will be the first to be attended by US President Donald Trump. The lack of unity or commitment by leaders at the NATO summit on Thursday, given Trump’s views on the organization, could add to the risk aversion already hanging over the market at a time when there is increased tension in North Korea and the Middle East.
The G7 summit on Friday-Saturday will also be important as Trump may use the event to further stamp his trade protectionist stance, while it will be interesting to see how other newcomers, the UK’s Theresa May, France’s Emmanuel Macron and Italy’s Paolo Gentiloni, will influence the tone of the meeting.