We will have the previous FOMC meetings’ minutes. Still, at the same time, we have lots of other microdata from across the globe that together will give us a brighter outlook on what’s happening in the global economy, including ith the PCE deflator and the inflation expectations figures from the UK and PMIs from Germany, Europe, the UK, US, as well as RBNZ and BPoC Rate Decision meetings.
US Economic Outlook
Markit PMIs data for both manufacturing and service sectors will be out on Tuesday. The May initial estimates show that both sectors can face weakness, with manufacturing expected to slow down to 50.0 (Down from 50.2) and the Service sector must ease to 52.6 (down from 53.6). This pessimistic PMI outlook will accompany a weaker outlook for the housing market. While building permits with another fall (-1.5% decrease) in May estimated at 1.416M, April New home sales are also expected to fall by -4% to a 663k pace from 683k in March. Sales were 623k in February and 648k in January.
We will have two essential data and news to watch on Wednesday and Thursday. However, both are data that are already priced in. Wednesday’s FOMC minutes will guide the pace for further rate hikes; however, Fed speakers during the week will also have the same mission and should be considered. On the GDP front, pessimists return as the market expects a downward Q1 GDP growth revision at 0.9% from a 1.1% pace in the advance report. The main reason for the decrease in GDP is the decrease in exports and retail and wholesale inventories.
Unfortunately, this disappointing outlook does not end here. While initial jobless claims for the week ended May 19 are expected to increase towards 250K applications, Personal Income/Consumption and Durable Goods Orders also have signs of weakness. Even though personal income is expected to rise by 0.4% in April, which will be better than in March, PCI and Core PCI price indexes are both expected to stay unchanged, which will be worrying about the inflation fate. On top of them, April Durable Goods orders are expected to fall by -1.0%. Transportation orders should fall by -2.5%, after a 9.0% rise a month earlier. Durable orders ex-transportation are pegged to fall -0.2%, after a 0.2% raise in March. Defense orders are expected to tick up 0.1%, following a -0.6% March drop.
In summary, these numbers and data will likely convince the Federal Reserve to pause its contractionary policies at this level, at least for the short term, and to watch the results of decisions made so far. That means that US stock markets can continue the very slight bullish trend, and of course, the growing trend of the dollar can also weaken and even stop and prepare for some decrease.
European Economic Outlook
Eurozone will be a light week with Purchasing Managers Index numbers and IFO Business Climate, Assessment & Expectations. On Tuesday, we will have PMI numbers from most Eurozone countries and overall EZ manufacturing and service PMIs. Looking at market expectations, most consensus estimates are about reducing most economic sectors in Europe and the Eurozone. On top of that, the German IFO Business Climate is forecasted to fall to 93.4 in May, down from 93.6, while the Business expectations are also a bit pessimistic, at 91.7, down from 92.2.
The UK will also publish its April PMI numbers on Tuesday, expected to slow down compared to a month ago, like Eurozone and US. In addition, the British inflation numbers will publish on Wednesday, which should be watched closely. UK inflation in April was supposed to stay at 0.8% compared to March, but inflation should fall to 8.3% annually.
With these expected data, Euro and GBP can decrease against the USD and most of their rivals.
Asia and Oceania Economic Outlook
China will start the week with a PBoC interest rate decision. Since August 2022 prime rate has been 3.65%, and it is not expected to be changed in this meeting as well. After a sharp rise in the first months of 2023, the Chinese economy faced some difficulties recently. With weaker global economic expectations, Chinese export also can suffer. Therefore, it is logical to see the central bank hold the rates at the current low levels.
In Japan, the service PMI number should be released early Tuesday, which is expected to be in good condition in the range of 55. However, the most focus in Japan will be Tokyo inflation numbers that must be out on Friday.
In Oceania, the RBNZ meeting on early Wednesday will be in focus. The RBNZ should scale its tightening policy for another 25 bps interest rate hike to 5.50% and then end its current rate hike cycle. The RBNZ has already raised rates by 400 bps since October 2021. This expected rate hike can help the Kiwi to gain some power against its crosses.