The main focus of the coming week will be the non-farm payrolls numbers out of the US as a positive report could pave the way for a June rate hike by the Fed. Japan will also have a busy data week, while Eurozone flash inflation and UK PMIs will be important too.
Eurozone flash CPI to show inflation falling
It will be a very quiet start to the week as Chinese, UK and US markets will be shut for a public holiday on Monday. However, ECB President Mario Draghi’s hearing before the Economic and Monetary Affairs Committee in the European Parliament may give traders something to talk about. European Central Bank policymakers have been careful recently not to lead the markets on with premature expectations of a scaling back of the Bank’s stimulus program. Therefore Draghi is unlikely to stray much from familiar language on Monday.
In terms of data, the Eurozone’s economic sentiment index will kick things off on Tuesday, with the index expected to improve further in May. On Wednesday, the flash estimate of CPI for May is forecast to reveal a drop in headline inflation in the euro area from 1.9% to 1.5% year-on-year. Core inflation is also expected to ease, supporting the ECB’s view that underlying price pressures remain muted. The region’s unemployment rate for April is also due on Wednesday and the April producer prices will follow on Friday.
Japan industrial output to bounce back in April
There will be flurry of data releases out of Japan next week, starting with household spending, unemployment and retail sales figures on Tuesday. Household spending is expected to jump by 1.1% month-on-month in April after falling 2% in March. Annual retail sales are also forecast to be positive in April and the unemployment rate to hold steady at 2.8%. On Wednesday, industrial production data will likely show the second quarter got off to a strong start for Japanese manufacturers. Industrial output is forecast to increase by 4.3% m/m in April after a 1.9% drop in March.
Aussie data eyed amid growth concerns
Recent indicators out of Australia have been mixed, raising some concerns about the strength of the economy. Building approvals out on Tuesday will be watched closely following an unexpectedly large drop in March when they plunged by 13.4%. They are forecast to rise by 3% in April. On Thursday, attention will turn to the first quarter capital expenditure data, as they could provide a clue to the first quarter GDP figures due on June 7.
Capital spending is forecast to rise by 0.8% quarter-on-quarter, which would be an improvement on the prior quarter’s 2.1% decline. Retail sales data out on Thursday will also be important following two consecutive months of falls in February and March. This has worried the Reserve Bank of Australia as it could mean Australian households have become more concerned about paying down their debt than spending. Retail sales are forecast to rise by 0.3% m/m in April.
Canada to report robust GDP growth
Canadian growth is expected to accelerate in the first quarter of this year, supporting the Bank of Canada’s recent more upbeat assessment of the economy. GDP figures out on Wednesday are forecast to show annualized growth increasing from 2.6% in the fourth quarter to 3.6% in the first three months of 2017. A strong figure would likely provide the Canadian dollar some needed support following Thursday’s sharp plunge in oil prices.
UK manufacturing and construction PMIs eyed after weak GDP
As the June 8 general election date approaches, sterling has had to battle a combination of disappointing UK data as well as a narrowing lead for the Conservatives in the polls. Following this week’s surprise downward revision to UK growth in the first quarter, investors will be looking for evidence that the slowdown isn’t becoming more pronounced. The Markit/CIPS manufacturing PMI due on Thursday is expected to ease in May, falling from 57.3 to 56.5. The construction PMI is also forecast to worsen, declining from 53.1 to 52.7 in May. However, both figures remain comfortably above 50, which separates expansion from contraction.
May NFP awaited as investors ponder June rate hike
It will be a relatively busy week for the US next week, starting with personal consumption expenditure data on Tuesday. Personal consumption is forecast to rise by 0.4% m/m in April after zero growth the prior month. Personal income is also expected to increase by 0.4% m/m, while the core PCE price index (the Fed’s preferred measure of inflation) is forecast to increase by 0.1% m/m.
Also out on Tuesday is the Conference Board’s consumer confidence index, which is expected to ease slightly in May. The Chicago PMI will follow on Wednesday, along with pending home sales, and on Thursday, the ADP employment report should give some clues to Friday’s non-farm payrolls figures. But before then, the ISM manufacturing PMI will be watched closely. The ISM manufacturing PMI is forecast to decline slightly in May by 0.2 to 54.6, though it is on track to hold above 50 for a ninth straight month.
The week’s highlight is expected to come from Friday’s crucial employment report. Non-farm payrolls are forecast to increase by 185k in May. This would be down on April’s 211k but still well above the 100k level that is considered to indicate a healthy labour market. The unemployment rate is expected to remain at 4.4% and average hourly earnings to rise by 0.3% m/m.
A solid set of figures would be positive for the US dollar as they could provide the Fed with the incentive it needs to raise rates at its policy meeting next month. However, a weak report would sharply lessen the odds for a June tightening. It follows Wednesday’s FOMC minutes for the May meeting that showed the committee was less confident about the growth outlook.