Economic Analysis

Inflation in the US jumped in April, and CPI data from the Euro-Zone and Canada this week is also expected to show an increase in inflation.

In the UK, first-quarter GDP fell 1.5%, close to estimates of -1.6%. However, the March GDP report was positive, posting a healthy gain of 2.1%, above the consensus of 1.5%. Industrial production rose 2.1% in March, an 8-month high and above expectations of 1.0%.

German inflation came in at 0.7%, confirming the preliminary estimate.

The main story last week was the rise in US inflation in April, which was much stronger than expected. Core CPI increased (year over year) by 4.2%, up from 2.6% previously. The PPI also rose sharply, gaining 6.2% from 4.2% prior to that. Despite the sharp rise in inflation, the Fed reiterated that there are no plans to curtail the massive stimulus program.

US retail sales for the month of March were disappointing. The headline reading slowed to 0.0%, down from 9.8% in the previous release and shy of the 1.0% estimate. Core retail sales contracted 0.8%, down sharply from 8.4% and shy of expectations of 0.5%.

euro

GDP: Tuesday. The eurozone economy contracted 0.6% in the fourth quarter, its third decline in four quarters. Another 0.6% decline is expected in the first quarter.

Inflation Report: Wednesday. We are seeing mounting inflationary pressures in the Eurozone, which could force the European Central Bank to reassess its ultra-loose monetary policy. The core CPI rose in the euro area and is expected to reach 1.6% from 1.3%. However, the core CPI is expected to decline to 0.8%, down from 0.9%.

PMIs: Friday in France in Germany and the entire Eurozone. Manufacturing continues to show strong growth. Germany is leading the way, and the April Manufacturing PMI estimate stands at 66.0. The estimate for the euro zone is 62.0 and France is 58.6. The service sector has been underdeveloped, due to the ongoing lockdown in Western Europe. But it is showing a slight expansion. The estimate is 52.0 for Germany, 52.5 for the Eurozone and 53.0 for France. Level 50 separates contraction from expansion.

Sterling pound

Employment report: Tuesday. The UK employment numbers are not expected to change from the previous release. Wage growth and unemployment rate are expected to remain unchanged at 4.5% and 4.9%, respectively. The number of unemployed is expected to rise to 25.6 thousand from 10.1 thousand.

Inflation Report: Wednesday. Inflation has picked up in the US, and April data may point to a similar story in the UK. The core CPI is expected to rise from 0.7% to 1.4%, while the core CPI is expected to rise to 1.3%, up from 1.1%.

Industrial demand forecast from the CBI: Thursday. Sales volume forecasts have been in negative territory for more than two years, but the May estimate stands at zero, up from the -8 April reading.

Retail sales: Friday, 6:00. Retail sales shined for the month of March, up 5.4%. April is also expected to be strong, with a 4.5% estimate.

Manufacturing PMI: Friday. Manufacturing continues to show strong growth, with readings well above the 50 level, which separates contraction from expansion. The estimate for April stands at 60.7, after the March reading of 60.9 (revised up from 60.7).

PMI services: Friday. Business activity has significantly accelerated as the UK continues to reopen the economy. The PMI rose to 61.0 in March (revised from 60.1) and the estimate for April stands at 62.2 points.

Australian dollar

AIG Services Index: Sunday. The index jumped to 51.4 in October, up sharply from 36.2 previously. It was the first reading in expansionary territory (over 50) since November 2018. Will we see another positive reading in November?

ANZ job announcements: Monday. The index continues to strengthen, improving to 9.4% in October. Will the rally continue in the November issue?

Business Trust NAB: Tuesday. The National Australia Bank index rebounded in October with a reading of 5, ending a series of three consecutive falls. We are now waiting for the November data.

Westpac Consumer Confidence: Wednesday. Consumer confidence slowed to 2.5% in November, down sharply from 11.9% previously. Investors are hoping for another reading in positive territory.

MI inflation forecast: Thursday. The Melbourne Institute version is a useful gauge of actual levels of inflation. The index rose to 3.5% in October, up from 3.4% previously. Will it continue to rise in the November reading?

Canadian dollar

Housing starts: Monday. Housing starts jumped to 335,000 in March, from 246,000. The April release is expected to slow down to 250K.

Purchases of foreign securities: Wednesday. Foreign investment in Canadian securities jumped to C $ 8.52 billion in March, the highest level in 3 months. We are now awaiting the April data.

Consumer Price Index Report: Wednesday. The headline CPI (year over year) is expected to rise to 4.3% in April from 3.2%. The Bank of Canada's core CPI, the central bank's preferred gauge, is expected to rise to 1.3%, slightly below the March reading of 1.4%.

ADP Employment Report: Thursday. The ADP report for March indicated that the economy created 634,000 new jobs, a significant number. Will we see another sharp gains in April?

BoC Financial System Review: Thursday. The Bank of Canada publishes an Overview of its Financial System twice a year. Aside from data on the status of banks, the post also includes economic data.

Retail sales: Friday. Retail sales (monthly) fueled in February, as the headline and core readings produced a gain of 4.8%. The March consensus stands at 3.7% for the headline reading and 4.0% for the core retail sales. Investors are closely watching consumer spending, and any major deviation from expectations is sure to move the Canadian currency.