MON: Chinese Trade Balance
(Apr); EZ Sentix Index (May).
TUE: Australian Retail Sales
(Q1); German ZEW Survey (May); UK Prelim GDP (Q1); EIA STEO.
WED: Chinese Inflation (Apr); UK
GDP Estimate (Mar); US CPI (Apr).
THU: Banxico; New Zealand
Inflation Forecast (Q2); IEA OMR; OPEC MOMR.
FRI: US Uni of Michigan Prelim
Survey (May).

Note:
Previews are listed in day-order

Chinese Trade Balance (Mon): April’s Trade Balance will be
impacted by the COVID situation in China – which remains fluid and contingent
on zero transmissions in some places. Production was largely shuttered with
supply chain problems also rising. A recent piece by RBC suggested global
supply chain problems look set to worsen, as China’s COVID-19 lockdowns and
Russia’s invasion of Ukraine cause longer delays at ports and inflate costs.
Export growth is expected to fall to 3.2% (prev. 14.7%) and imports are seen
contracting 3.0% (prev -0.1%). Overall, the trade balance surplus is expected
at USD 50.65bln (prev. USD 47.38bln).

 

Chinese Inflation (Wed): April CPI Y/Y is expected to
tick higher to 1.9% (prev. 1.5%), although the PPI Y/Y is seen easing to 7.8%
(prev. 8.3%). Taking the Caixin PMI as a proxy, the composite release suggests
“Prices data showed the rate of overall input cost inflation moderated slightly
from March, but remained marked overall. Composite selling prices meanwhile
fell for the first time since May 2020, albeit only marginally”. Nonetheless,
as inflation remains rampant overall, Chinese policymakers are seemingly more
focused on growth, with markets expecting the PBoC and the government to both
maintain easy policies.

 

US CPI (Wed): Headline consumer prices are
seen rising 0.2% M/M in April (prev. 1.2%), and core consumer prices are
expected to rise 0.4% M/M (prev. +0.3%). Analysts will be watching the data to
see if the trends in the March CPI and PCE data–where annualised rates eased,
leading to many ‘peak inflation’ calls–will be seen again. Credit Suisse
expects the data will show a second month of slowing inflation, but notes that
consumer prices are still shooting well-above the Fed’s target. For the
headline, seasonally adjusted gasoline prices fell around 7% in the month,
which should drive the slowdown. For core, the Swiss bank believes that the
annualised rate of prices will pare back to 5.9% in April from 6.5% in March,
with used vehicle prices expected to ease for the third straight month. Shelter
inflation is expected to remain elevated, while services inflation is also seen
remaining high amid further reopening in April and the consumer shift in
spending to services from goods. “We expect the Y/Y readings in both headline
and core CPI inflation likely peaked in March, but inflation will still run
well-above the Fed’s 2% target,” CS writes, but warns that “Chair Powell has
laid out a base case of 50bps rate increases for the next two FOMC meetings,
but a significant upside surprise could leave room for more-aggressive
tightening.”

 

UK GDP (Thu): Investec’s analysts expect March
GDP will grow just 0.1% M/M (prev. +0.1%), and the 3m/3m rate is also seen
remaining at 1.0%. Investec says that the dynamics that we saw in the February
monthly data will be similar to those in the March report. “This would give
quarterly GDP growth in Q1 of +1.0% – somewhat slower than Q4’s +1.3%, but
firmly ahead of the Eurozone’s +0.2% and the US’s -0.4% (de-annualised) pace of
growth” Purchasing managers’ data suggest that manufacturing may have
contracted again, although services output will likely have remained positive,
and the bank sees less drag in March than February from human health and social
work activities, as much of the slowdown in Covid vaccinations and testing
appears to have taken place earlier. However, it adds that the potential for a
rebound in hospitality, entertainment and recreation after the peak of the
Omicron wave of Covid infections was probably largely exhausted by March. “More
generally, the data on hospitality and recreation output will shed light on the
extent to which the weakness in retail spending in late Q1 was due to high
inflation squeezing households’ purchasing power, or a rotation in spending
towards services, unwinding more of the pandemic shift in sales patterns,”
Investec writes, “the more spending on consumer services suffered too, the more
of a worrying signal this would be for the further outlook for activity.” The
bank says declining GDP will be hard for the UK to avoid in Q2 since this
period will include the impact of higher utility bills as well as an additional
bank holiday, but says that the depth and magnitude remain uncertain.

 

Banxico Preview (Thu): At its March meeting, the
Banxico voted unanimously to hike rates by 50bps to 6.5%, as the market had
expected; analysts also noted that the central bank did not describe the 50bps
increment of the hike as „on this occasion“, which might be taken as
a sign that it is comfortable with lifting rates by that magnitude at future
meetings. Banxico continues to take a data-dependent approach. Since the March
meeting, the latest bi-weekly CPI data showed inflation rising to 7.7% Y/Y in
the first part of April, amid broad-based price gains. Additionally, Q1 GDP
data rose 0.9% Q/Q, a little short of the 1.1% analyst forecast, and although
it was an encouraging start the year, analysts note the risks that lie ahead.
„Looking ahead, the economic outlook remains challenging,“ Pantheon
Macroeconomics said, „for a start, inflation will remain too high for
comfort, disposable income is under renewed strain, remittances from the US
likely will slow as the US housing market continues to roll over, and Banxico
likely will continue to tighten to at least 8.25% over the coming
meetings.“ Pantheon also notes that there is increased political
uncertainty after President Lopez Obrador’s populist policies, which will act
as a headwind to capex and business sentiment. Internationally, the war in
Ukraine is keeping inflation pressures alive, China’s lockdown is having an
impact on not only the domestic economy, but the global economy too, while the
Federal Reserve in the US is pursuing a hawkish trajectory. Other analysts have
said that this will keep the prospect of a 75bps rate hike at the Banxico’s May
meeting on the cards.

 

New Zealand Inflation Forecasts
(Thu): The
RBNZ’s quarterly survey of inflation expectations is expected to show a sharp
rise in forecasts over short-term horizons – namely the one and two-year
timeframes. Westpac suggested the jump higher in revisions in the Q1 release
underpinned the case for a 50bps hike in April. “A result in that vein would
support our forecast for another 50bp OCR hike in May,” Westpac says.

 

This article originally appeared
on Newsquawk.

Robert Holzmann is the Governor of Austria’s central bank and thus a Governing Council member of the European Central Bank.
On policy direction ahead 9do not he is towards the less dovish end of the ECB spectrum):

„I think it would be appropriate to take at least two or even three steps. These could be smaller ones, i.e. 0.25 percentage points each. If this were to happen by December, it would have the effect that by 2023 the deposit rates for banks, which are now minus 0.5 percent, would be in positive territory,“ 
„You’ll still be quite a bit away from the natural nominal interest rate. So there is still a long way to go. But it would be a good signal to the public.“

Info via Reuters 
–
The ECB will be, and is, slower to hike than other DM central banks. Think Fed, BoE, BoC, RBA, RBNZ. Not as slow as the BoJ though. 

ECBs Holzmann ponders the rate hike path

People’s Bank of China will launch a 100-billion-yuan ($15 billion) relending facility:

to support the transport, logistics and storage sectors

„Monetary policy should coordinate with fiscal and industrial policies to jointly boost the confidence of market players, stimulate market drivers, support the real economy and achieve the goal of stable growth,“ the bank said.

On Wednesday last week the PBOC announced similar support for the coal industry:

the Bank increased targeted re-lending quota of an additional 100 billion yuan to aid clean energy development

Info via state media outlet China Global Television Network (CGTN.com)
—
This tool from the PBOC will give financial institutions more incentives to boost lending at lower funding costs.
PBOC Governor Yi Gang:

The ongoing saga of the attempt to restart talks to revive Iran’s 2015 nuclear deal with world powers in … still ongoing. 
A couple of weekend updates.
The Financial Times reported the EU’s foreign policy chief Josep Borrell told the news outlet that he was seeking a “middle way” to end the impasse

FT link, which is gated
Yahoo ungated snippet

Aljazeera have an ungated report separately:

EU coordinator Enrique Mora to visit Tehran on Tuesday (he is the EU coordinator for talks on restoring Iran’s 2015 nuclear deal with world powers)
Iran making positive statements on the planned visit: “Considering the EU’s role in exchanging viewpoints between Tehran and Washington, Enrique Mora’s trip to Tehran can be regarded as a new step for constructive negotiations surrounding the few but important remaining issues,”. But added, less positively: „Iran has remained in the negotiations despite “the persistence of hostile approaches by the US against our country” that it said goes against the spirit of constructive negotiations.“

Pretty much every weekend we get some form of update on these negotiations. Talks to revive the nuke deal between Iran and the world have been on hold since March, though. Do not hold your breath. 

Shanghai officials today said the covid outbreak was under ‚effective control‘ on Friday and that cases have been on a ‚continuous downward trend‘ since April 22.
The city has been under lockdown since April 1 and there’s no visibility to when that will end. About 2.3m people are in sealed-off areas while 16.7m are in lower-risk ‚prevention zones‘ but how those rules are applied are a point of frustration for residents.
The latest number of cases was 4024 yesterday but the vast majority of those were in quarantine centers. There were 245 locally transmitted cases reported on Saturday.
A survey of Japanese manufacturers on Thursday showed how difficult it is to re-open factories under ‚closed loop‘ rules. According to the SCMP:

The
Shanghai Japanese Commerce & Industry Club said on Thursday of 54
firms that responded to a survey it conducted between April 27-30, 63
per cent responded that their factories had yet to resume operations.

Out
of the 37 per cent that have resumed operations, over three-quarters
said production was at or below 30 per cent of normal levels.
That’s a bit dated now but underscores how difficult it will be to reestablish supply chains.
Meanwhile, the centre of the outbreak appears to be moving to Beijing where the Chaoyang district ordered another round of mass testing along with a stop to construction work and office closures. On Saturday, 78 cases were reported compared to 68 a day earlier.
Here’s a great chart from Exante showing what looks like a de facto lockdown in Beijing:

   

US April non-farm payrolls +428K vs +391K expected
Canada April employment 15.3K vs. 55.0 K estimate
Fed’s Barkin wants to raise rates as ‚fast as feasible‘
Kashkari: The Fed must follow through on its forward guidance ‚at a minimum‘
Fed’s Kashkari: We have to do our best to achieve our dual mandate
ECB’s Elderson: Weaker incoming data don’t suggest so far that we’re entering recession
Baker Hughes oil rig count rises by 5 to 557 in the current week

Markets:
Gold up $7 to $1883WTI crude up $2.34 to $110.60US 10-year yields up 5 bps to 3.12%EUR leads, CAD lagsS&P 500 down 23 points to 4123 — first streak of 5 weekly losses since 2011
The non-farm payrolls report was right down the fairway. Jobs were a bit high but unemployment a tad disappointing. The main focus was on avg earnings and those were a fraction below consenus. That led to a brief dip in USD/JPY and short-dated yields but it didn’t last.
Instead, it was equities and deleveraging taking over once again. A swoon in stocks and bonds and several fledgling rallies lent some support to the dollar but the FX market was largely sidelined in this episode. Cable skidded along the bottom near 1.2340, as did the Australian dollar.
The loonie came under some selling pressure and USD/CAD rose above 1.2900 but couldn’t get above last week’s high of 1.2914 and there was some selling as risk trades made a bit of a stand late and oil — once again — found a bid.
In all those noise, the resilience in crude may be a true slgnal.  Oil closed the week above $110 to end a series of lower highs in what looks like a break from the wedge. That it could make the move in such a dicey market adds credence to the break. Natural gas though reversed on Friday to $8 after touching $9.
In Europe, the EU continues to debate a ban on Russian oil but Hungary might block it; there’s talk of giving them an 18-month timeline. Slovakia is also looking for an exception. There isn’t much chatter on the Iran nuclear front.
In USD/JPY, the pair added 42 pips on the day but it was all in Asia and we stayed within the range in New York trade. However it was the ninth week in a row of gains for the pair in what’s been an absolute screamer of a trend trade.

Have a great weekend.

Week ago today, the month of April ended with the NASDAQ index down over 13%. The market rallied on Monday, Tuesday, and Wednesday getting the month of May off to a good start. However yesterday’s sharp declines, and follow through selling today push the major indices lower on week. In other words the markets snatched defeat from the jaws of victory.
A look at the final numbers shows:

Dow industrial average -98.6 points or -0.3% at 32899.38. The index close at 32977 last Friday. The index fell -0.23% this week.
S&P index -23.51 points or -0.57% at 4123.35. The index closed at 4131.92 last Friday. The index fell This week -0.21% this week
NASDAQ index -173.02 points of -1.4% at 12144.67. The NASDAQ closed at 12334.64. The index fell -1.54% this week.
Russell 2000 fell -31.58 points -1.69% at 1839.56. It settle that 1864.10 last Friday. The index fell 1.37% this week.

This was the first stretch of five weekly declines in the S&P 500 since May-June 2011 and the first five-week losing streak in the Nasdaq since 2012.
Next week CPI data takes center stage. More Fed speak as well.

The US 10 year yield is approaching 2018 peak The US 10 year yield is trading just off the high for the day and week at 3.134%. The current yield is at 3.126%. Looking at the weekly chart, the yield is at the highest level since November 2018. The high yield in 2018 reached 3.248%. That is the next upside target. Move above that yield and the yield is at the highest level since April 2011. A little history of the rates vs the Fed funds rate: The Fed Funds target rate in 2018 peaked at 2.25% to 2.5%. The current target rate is 0.75% to 1.0%. Clearly the market is pricing in additional fed hikes. The last fed hike back in 2018 was in December 2018 when they increased the target rate to 2.25% to 2.5% from 2.00% to 2.25%. the 10 year rate was around 2.9% in December 2018 as the market started to think in terms of „that is it“. The Fed cut rates in July 2019 and stepped down to 1.5% in November 2019. The 10 year yield was around 2% in November 2019 In reaction to Covid, they slashed rates 0.0% to 0.25% in March 2020 where it stayed until March 2022. The 10 year yield bottomed in March 2020 at 0.333% right as the Fed cut to the lows. The Fed hiked by 0.25% basis points to 0.25% to 0.5% in March 2022. The 10 year yield was at 2.15%. They hiked 50 basis points last week to 0.75% to 1.00%. In 2022, the rate low was at 1.529% in early January. The current yield is up 1.59% from that low. What we know is the 10 year yield peaked a month before the last rate hike and bottomed the month of the last Fed funds rate cut. The current fed rate is not at the high. The Fed is still 100 to 150 pips from what is a neutral rate at 2.0% to 2.5% (where rates peaked). Hence the desire to get there as fast as possible. The Fed is behind the curve and behind the market. The market is leading.   Does the current 10 year yield just 12 basis points from the December 2018 peak means the market is near the neutral rate ceiling? Yes it seems that way IF the terminal rate is at 2.5%. However, if the terminal rate is going to be higher, there is room to roam to the upside at least given the price action from the last time the rates were near this area as compared to the Fed Funds target.

Richmond Fed President Thomas Barkin told MNI he wants to raise rates as ‚fast as feasible.‘ He doesn’t rule out a 75 basis point rate hike, but says current pace already accelerated. „Anything would be on the table,“ he said.Read it here.Comments from Bostic are due imminently.

There is still some time to save the day but the weekly chart on the S&P 500 isn’t a pretty picture.

The last time the market fell six weeks in a row was in 2011.