Next week looks set to be data heavy in EMEA and Latam alongside a few central bank minutes
Given the latest decline in the flash manufacturing PMIs in Eurozone and Germany and the somewhat weaker confidence in the Czech industry in May, Czech PMI will most likely finish below the 57 mark.
The second GDP estimate might bring a slightly higher print compared to the flash estimate of 4.5%, as was the case in previous quarters. Most importantly it should confirm strong household consumption and accelerating investments.
Next week our focus will be on the US jobs report, Eurozone inflation and UK consumer credit. But what else will have our attention in developed markets?
High-frequency data suggests that after a respectable 2.3% annualised rate of growth in 1Q18, the US economy is likely to post something around the 3% mark in 2Q18. With inflation picking up – only the core PCE deflator is below the Federal Reserve’s 2% target, this should keep the Fed hiking rates “gradually”, and we certainly look for another 25bp move on 13 June 2018.
However, the market remains split on whether we will get one or two further hikes in the second half of the year. We currently favour two, citing the strong labour market and rising wages, which should be highlighted in this week’s jobs report. Unemployment at 3.9% has only been lower once in the past 48 years, and the lack of available workers is creating bottlenecks in the US economy. This suggests to us that wages will continue to bid higher, translating into rising inflation pressures.
Higher oil prices are also an issue that we will be watching. Gasoline prices are up 50 cents/gallon since the tax cuts equivalent to $900 per household were announced in December. Based on average annual consumption these price rises will cost drivers an extra $350 if maintained, so we see little downside risk to consumer confidence on the back of this. Higher mortgage rates are also a factor that may at the margin weaken sentiment. Nonetheless, it is important to remember that higher oil prices are no longer such an unambiguous negative for the US economy given the fact that the US is now the World’s number one producer. Jobs and investment in the sector are booming.
An intensified emerging markets sell-off will keep Asian financial assets under pressure and there is little the region's central banks can do about it
India’s GDP data for the final quarter of FY18 (ended in March 2018) is due on 31 May. The main positive for GDP growth in that quarter was the low base, while monthly indicators point no significant leap from the 7.2% year on year pace recorded in the previous quarter. Slower exports and wider trade deficit will drag GDP growth, while inflation accelerated above 5% to weigh down consumer spending.
However, slightly better industrial production growth informs the same about GDP growth, still supporting the consensus of a 7.3% GDP growth in the last quarter, though not enough to resuscitate investor confidence in the Indian rupee (INR).
The 5% year-to-date INR depreciation against the USD is the most among Asian currencies this year. Unlike its Turkish counterpart, the Indian central bank has no history of thrashing policy measures, as markets set their eyes on the Reserve bank of India (RBI) policy meeting in early June. The recent market rout makes the next RBI decision as good as a coin toss.
Discover what ING analysts are looking for next week in our global economic calendars