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Week Ahead: US GDP and consumer confidence shake as inflationary pressure grows
It’s relatively quiet in terms of major announcements this week. The bulk of the key market-moving data will be coming from the US, as preliminary quarterly GDP figures are released alongside the latest CB consumer confidence sentiment. Both will be enlightening as to US economic sentiment as inflation stops lurking in the background and comes to the fore.
We start, though, with New Zealand. The Reserve Bank of New Zealand’s latest cash rate decision and statement is due early on Wednesday morning. No major changes are expected to the current official cash rate (OCR) of 0.25%, although inflationary pressures look like they are starting to make their mark on New Zealand’s economy.
RBNZ targets 2% inflation, which may have already been breached.
“We are forecasting a 0.6% increase for the quarter yielding 2.6% annual inflation. Another way of thinking about this is that CPI inflation for the three quarters to March 2021 was already 2.0%,” says Bank of New Zealand’s Head of Research Stephen Toplis.
While inflation is probably already here, the likelihood of a rate hike is low. ANZ’s Chief Economist Sharon Zollner and senior strategist David Croy suggest rates won’t rise until August 2022, rising to 0.75%. The pair also predict a further two rate increases across 2023, culminating in a final 1.75% figure.
Looking to US data, preliminary q/q GDP figures are released on Thursday, following up the advance reading from late April. At 6.4%, annualised US GDP growth was the second-largest since 2003, surging as the economy reopens again. Growth was stimulated by numerous sectors, including increased personal consumption, fixed residential and nonresidential investment, and government spending.
Preliminary readings are the mid stage of the overall GDP reporting process before the final reading is released at the end of the month. The advanced reading is generally the strongest indicator, but revisions to final figures are not uncommon.
US consumer confidence is in focus too. Friday sees the latest printing of the CB consumer confidence index. April’s reading beat expectations, rising from 109 points in Mach to 121.7. Consumers had more cash in their pockets, thanks to Biden’s stimulus cheques, and were happy to spend it.
However, inflation could cloud May’s Consumer Board readings. The preliminary reading for the University of Michigan Index of Consumer Sentiment dipped to 82.8 for May from 88.3 in April – a 6.2% month-on-month decline.
Consumer sentiment has taken a knock due to higher-than-expected headline inflation, recorded at 4.6% in April. This is the sharpest rate of increase since 2008. Headline inflation stood at 2.6% in March.
Increased consumer spending was a cornerstone of Q1 GDP growth. Should that retract as inflation grows, the calls for the Fed to shake up its monetary policy could become all the more louder as the year rolls on.
Major economic data
|Tue 25-May||9.00am||EUR||German ifo Business Climate|
|3.00pm||USD||US CB Consumer Confidence|
|Wed 26-May||3.00am||NZD||Official Cash Rate|
|3.00am||NZD||RBNZ Monetary Policy Statement|
|3.00am||NZD||RBNZ Press Statement|
|4.00am||NZD||RBNZ Press Conference|
|3.30pm||USD||US Crude Oil Inventories|
|Thu 27-May||1.30pm||USD||Preliminary GDP q/q|
|3.00pm||USD||Pending house sales|
|3.30pm||USD||US Natural Gas Inventories|
|Fri 28-May||1.30pm||USD||Core PCE Price Index m/m|
Key earnings data
|Tue 25-May||Intuit||Q3 2021 Earnings|
|Wed 26-May||Nvidia||Q1 2022 Earnings|
|Thu 27-May||Salesforce||Q1 2022 Earnings|
|Costco||Q3 2021 Earnings|
|Royal Bank of Canada||Q2 2021 Earnings|
|Toronto-Dominion Bank||Q2 2021 Earnings|
|Fri 28-May||National Bank of Canada||Q2 2021 Earnings|
Week Ahead: Apple and Tesla earnings, Fed meeting and US GDP in focus
Lots to bite our teeth into this week. We start with the Fed, although we’re not anticipating big things. An optimistic GDP outlook is coming for the US, though, while consumer confidence indicators are on their way.
Elsewhere, China’s manufacturing PMI data is released after 13 months of straight growth.
We’re also looking at another earnings charge as Wall Street reporting season rolls on with Apple, Facebook, Tesla, Alphabet and Microsoft all due to deliver quarterly numbers.
Fed meeting: no major changes ahead
America is gradually getting back to normality. The vaccine roll-out is picking up, people are returning to work and leisure, lockdown restrictions are easing and the economy is surging.
“You can see the economy opening, you can see the riderships [sic] on airplanes going up and people going back to restaurants,” Fed Chair Jerome Powell said in a recent Economic Club interview. “I think we’re going into a period of faster growth and higher job creation and that’s a good thing.”
So, what does this mean for the week’s Fed rate decision? The FOMC meets this week amidst speculation that the current “easy money” strategy may not be the right one.
With three stimulus deals pumping more liquidity into the economy, and historically low rates, ominous inflation war drums are sounding for some. However, we’re not likely to see any wholesale changes this week, with no change expected to rates until at least 2023 and bond purchases continuing at the current pace at least until later this year.
Powell has laid out the criteria for a major policy shift:
- Effective complete recovery in the labour market
- Inflation reaching 2%
- Inflation running above 2% for a sustainable period of time
None of those boxes have been ticked thus far. Even so, jobs numbers are improving. The unemployment rate nudged down to 6% with last nonfarm payrolls. The extra liquidity afforded by Biden’s stimulus deals may also pump up consumer good prices too. Conditions for a rate change are swirling around.
But don’t go into the FOMC press conference expecting a blitz of new policy changes. The course is a steady one from here on out.
US quarterly GDP set to soar as economy roars
With the US economy roaring back to life, US GDP forecasts for the first quarter are electric.
Q4 2020 saw GDP growth revised upward from 4.1% to 4.3% as US consumers splash their stimulus cash. Consumer spending has been the key driver, but other areas of business investment are helping an economic surge. Exports rose 22.3%. Business investment in intellectual property, inventories and residential housing was up too.
All very good – but the real surge could be about to begin. Estimates for Q1 2021 GDP are exceptionally high.
The Atlanta Fed forecasts a whopping 8.3% at its latest GDP estimates dated April 16th. The key driver here is personal income. In January, household wealth increased by $2 trillion, alongside a 2.4% rise in spending. Combined with the other factors at play, like higher nonfarm payrolls, consumer spending, and industrial output, the recipe for high GDP growth is all there.
Extra household stimulus cheques are on their way. As vaccine rollout progresses, and further sectors are opened to individual spending, it’s likely GPD growth will surge. The challenge, then, is sustaining it.
Can US consumer confidence stay high?
It seems highly likely: consumer confidence hit a one-year high in March and things have only improved since then regards vaccines, reopening and stimulus. Given the way the vaccine rollout and economy are performing, this will probably be the case in April too.
Let’s look at March’s data to gauge April sentiment. Last month, consumers were upbeat about the jobs market. They were feeling cheery as restrictions on small-businesses are lifted. The thought of extra free cash from stimulus cheques is lifting the mood.
Big ticket items like cars, houses and household appliances are on US consumers’ shopping lists going forward as a savings glut plus extra government money is increasing spending power.
In point terms, the Confidence Board’s survey jumped 19.3 points to hit 109.7 in March. That’s the highest it has been for a year, and the highest points leap since April 2004.
March’s mood was good. Will we see the same in April?
China manufacturing PMI: can the sector bounce back?
China’s manufacturing PMI data is released this week as the nation’s economic recovery gains traction.
March’s index showed an increase over February’s numbers, rising from 50.6 to 51.9. While growth is still historically low for Chinese manufacturing, a reading over 50 implies the sector is still expanding. In fact, PMIs have shown growth readings for 13 straight months.
Production capacity was closed during Lunar Festival but it’s been back online. This is partly responsible for the PMI rise, but there are more important factors at play. Namely, the global economic recovery.
Orders are up, which means Chinese plants are busier. The US stimulus cheques are feeding into higher demand for consumer goods – great news for Chinese factory owners. Additionally, domestic and international orders of machinery like excavators are helping prop up sectoral growth.
Future prospects are buoyed by big spending plans overseas. Joe Biden’s mammoth infrastructure plan, if it passes, is being hungrily eyed by Chinese construction machinery and materials manufacturers. There’s profit to be had stateside.
China is on course for a bumper first quarter according to China’s National Bureau of Statistics. GDP growth has clocked in at a record 18.3%, following an economic surge that completely outpaces the US stellar growth.
While the short term outlook is encouraging, questions around sustainability remain. Exports, fuel for China’s manufacturing fire, were up 38.7% overall in Q1 2021, but those eye-watering numbers have been tempered by somewhat by the drop in export activity between February and March. A cause for concern to be sure, so this week’s PMI release will be interesting to watch.
Tech-heavy week ahead for earnings season
Wall Street prepares for another earnings barrage this week. As ever in earnings season, the reports are coming thick and fast.
There’s a bit of a tech focus to earnings this week. Apple, Amazon, Facebook, and Tesla are all reporting in. Tesla will be interesting, purely to see the impact its decision to spend billions on bitcoin has had on its financials. Previous reports suggest it has made more profit from the crypto this year then selling cars.
Apple’s financials come after the company’s 2021 launch event. A shiny new colour the iPhone twelve, plus a rainbow of hues for iMacs, Apple TV updates, and more have all been launched – but the focus is very much on iPhone 12 sales. With six out of every ten smartphones sold in Q1 being an iPhone, Apple could be looking at another record breaking quarter.
We also see oil majors ExxonMobil, BP, Shell, TOTAL, and Chevron share earnings, which probably won’t be as colossal as Apple’s. ExxonMobil says resurgent oil prices means figures may be better than expected but could be facing a chilling $800m loss thanks to the Texas Big Freeze. Will we see more hefty losses for the majors?
See below for a roundup of this week’s reporting large caps.
Major economic data
|Mon 26-Apr||9.00am||EUR||German IFO Business Climate|
|Tue 27-Apr||Tentative||JPY||BOJ Outlook Report|
|Tentative||JPY||Monetary Policy Statement|
|Tentative||JPY||BOJ Press Conference|
|3.00pm||USD||CB Consumer Confidence|
|Wed 28-Apr||All day||All||OPEC-JMMC Meeting|
|2.30am||AUD||Trimmed Mean CPI q/q|
|1.30pm||CAD||Core Retail Sales m/m|
|1.30pm||CAD||Retail Sales m/m|
|3.30pm||USD||US Crude Oil Inventories|
|7.00pm||USD||Federal Funds Rate|
|7.30pm||USD||FOMC Press Conference|
|Thu 29-Apr||2.00am||NZD||Final ANZ Business Confidence|
|1.30pm||USD||Advance GDP q/q|
|1.30pm||USD||Advance GPD Index q/q|
|3.00pm||USD||Pending House Sales|
|Fri 30-Apr||2.00am||CNY||Manufacturing PMI|
|9.00am||EUR||Germany Prelim GDP q/q|
Key earnings data
|Mon 26-Apr||Tesla||Q1 2021 Earnings|
|Vale||Q1 2021 Earnings|
|Canadian National Railway Co.||Q1 2021 Earnings|
|Philips||Q1 2021 Earnings|
|Tue 27-Apr||Microsoft||Q3 2021 Earnings|
|Alphabet (Google)||Q1 2021 Earnings|
|Visa||Q2 2021 Earnings|
|Novartis||Q1 2021 Earnings|
|Texas Instruments||Q1 2021 Earnings|
|Starbucks||Q2 2021 Earnings|
|HSBC||Q1 2021 Earnings|
|GE||Q1 2021 Earnings|
|3M||Q1 2021 Earnings|
|AMD||Q1 2021 Earnings|
|BP||Q1 2021 Earnings|
|Mondalez||Q1 2021 Earnings|
|Chubb||Q1 2021 Earnings|
|Capital One||Q1 2021 Earnings|
|Wed 28-Apr||Q1 2021 Earnings|
|Apple||Q1 2021 Earnings|
|QUALCOMM||Q2 2021 Earnings|
|Boeing||Q1 2021 Earnings|
|Moody’s||Q1 2021 Earnings|
|NOVATEK||Q1 2021 Earnings|
|Spotify||Q1 2021 Earnings|
|Ford Motor Corp||Q1 2021 Earnings|
|Thu 29-Apr||Amazon||Q1 2021 Earnings|
|Samsung||Q1 2021 Earnings|
|MasterCard||Q1 2021 Earnings|
|China Construction Bank||Q1 2021 Earnings|
|McDonald’s||Q1 2021 Earnings|
|Royal Dutch Shell||Q1 2021 Earnings|
|Bank of China||Q1 2021 Earnings|
|Sony||Q4 2020 Earnings|
|Caterpillar||Q1 2021 Earnings|
|TOTAL||Q1 2021 Earnings|
|Airbus||Q1 2021 Earnings|
|S&P Global||Q1 2021 Earnings|
|Gilead||Q1 2021 Earnings|
|Sinopec||Q1 2021 Earnings|
|BASF||Q1 2021 Earnings|
|Baidu||Q1 2021 Earnings|
|Equinor||Q1 2021 Earnings|
|Fri 30-Apr||Alibaba||Q4 2020 Earnings|
|ExxonMobil||Q1 2020 Earnings|
|AstraZeneca||Q1 2021 Earnings|
|BNP Paribas||Q1 2021 Earnings|
|Colgate-Palmolive||Q1 2021 Earnings|