3 Numbers: German retail, Spanish & Italian CPI, US personal income
- German retail sales may have say on easing
- Spanish inflation extremely week
- US consumers tighten up spending
Yesterday’s US gross domestic production revision showed the economy was contracting by 1 percent during the first quarter (see Markit’s report), and next week brings us the critical European Central Bank’s (ECB) policy setting meeting. This could put the market’s focus on how the US economy is recovering from its slump and how the last-minute data will influence the urgency of the European Central Bank to act in a decisive manner (see my ECB preview).
Another thing to watch out for is the apparent disconnect between bond and stock markets. Until recently, bond yields and stocks have moved in tandem. This makes sense, as a bad economy equals lower inflation outlook, which is good for bonds but bad for stocks. Since mid-April, bond yields have fallen and stock prices have risen. Market lore says that the bond market is more “intelligent” than the stock market. This could suggest that stock markets are in for a negative surprise soon. It may be that both the bond and stock markets are betting on even easier monetary policies and the US bonds are bought for their relatively high yield, as yields have dropped in other bond markets recently. See the blog articles by Macronomics, Marc to Market and Zero Hedge for more on this.
German retail sales: could weakness influence European Central Bank policy? Photo: Thinkstock
Germany April Retail Trade (06:00 GMT). German economic expectations have declined somewhat during the past couple of months, and retail sales are expected to decline by 0.4 percent from a month ago. The series is notoriously volatile as it is, and the signal value is correspondingly low. As many investors seem to think that the EUR zone's monetary policy is more or less decided by the Germans, weak numbers could be interpreted as further support to the ECB’s monetary easing at its next week’s meeting.
Spain May Harmonised Index of Consumer Prices (07:00 GMT). Spain’s flash inflation estimate is expected to show an increase of 0.2 percent from year ago, slightly lower than April’s increase of 0.3 percent. After flat-lining at zero and even dipping to the negative side during the beginning of the year, it is hoped that the disinflation is not turning into outright deflation. The economy was weak in the first quarter, and the gross domestic production growth was tweaked down from 0.6 percent to 0.5 percent yesterday. The Wall Street Journal reminds us the little growth Spain has had comes from massive fiscal deficit spending. Even a small increase in inflation would not change the big picture – Spain needs easier monetary policy coming from the ECB. Italy’s May flash inflation estimate will be published at 09:00 GMT, and an increase of 0.4 percent from year ago is expected, slightly lower than April’s 0.5 percent.
US April Personal Income & Outlays (12:30 GMT). The US consumer has been in a good mood during the first quarter, even though the economy was not that hot. This is revealed through personal spending, but also via personal income, both of which have increased at a relatively high rate in recent months. Now the consensus expects Aprils’ numbers to cool down a bit. Personal spending is expected to have risen by 0.1 percent from March, when spending increased by a robust 0.9 percent. Personal income is seen to have increased by 0.4 percent from March, which saw a more moderate increase of 0.5 percent. Of interest could be the Personal Consumption Expenditures price index, which in March increased by 1.1 percent from a year ago. The low and stable price index shows few inflationary pressures at the moment, as the index has been bouncing between 1.2 and 1.1 percent since the middle of 2013. Ready and willing consumers with low inflation sounds like the perfect combination for the asset markets.
Helsinki-based Juhani Huopainen blogs at MoreLiver's Daily. His specialities include options (also exotic), the euro crisis and EURUSD. For more of his insightful commentary on our social trading site please click here.
- Edited By Adam Courtenay