As DB previews, the April FOMC gathering headlines a crowded economic events calendar this week.
The post-meeting statement, released Wednesday afternoon, should continue to strike a cautious tone. There will be no press conference and updated economic and financial forecasts will not be released. Few expect the FOMC to add the “balance of risks” sentence back into its communiqué at this point. Doing so would be quite bearish for risk assets as it would definitely open the door for a June rate hike. Over the past week, the probability of a June move increased, although the chances are still relatively low. At the time of this writing, the June 2016 fed funds contract was discounting a 23% probability of a 25 basis-point rate hike, compared to just a 14% probability one week ago.
One reason the Fed is expected to be cautious is Q1 real GDP, which is the second-most important event this week. While policymakers will not have the data when their meeting ends on Wednesday—the figures are released on Thursday—expectations will be for a soft print: consensus is 0.6%. Recall that the latter had been around 2% to start the quarter. A troubling aspect of the forecast is that most of the major categories of GDP likely moderated further after only 1.4% top-line growth in Q4 2015.
However, expectations of advance Q1 GDP could change based on the March data for durable goods orders (+1.0% forecast vs. -3.0% previously), released on Tuesday, and the advance international goods trade balance (-$60.0 billion vs. -$62.9 billion), released on Wednesday. Regarding the former series, aircraft orders should boost the headline, while orders excluding transportation are projected to increase modestly (+0.5% vs. -1.3%). Trade will potentially be more important for Q1 real GDP expectations, because of recent activity on the West Coast. Port data for March indicate that inbound loaded containers into Long Beach, Los Angeles and Oakland plunged -25% on a seasonally-adjusted basis relative to February. As a result, imports could have slowed dramatically last month. In this case, all else being equal, the trade deficit would be much narrower. Wall Street's suddenly biggest bear, Joe LaVorgna has been hesitant to change his GDP forecast, which was well below consensus at the outset of the quarter—most estimates have now come down—because some of the weakness in March imports could show up in lower inventories; if so, the net effect on GDP growth could be neutral.
On Friday, we get the March personal income and consumption data, which will provide more details on the quarterly profile of consumer spending, as well as the latest reading on core PCE inflation. However, because these data will already have been incorporated into the Q1 GDP figures, they will take on less significance. DB expects 0.3% gains in income and spending, compared to 0.2% and 0.1%, respectively, in February. Regarding core PCE inflation, a 0.1% increase is projected because of modest deceleration in healthcare prices. This would have the effect of lowering the year-over-year rate a tenth to 1.6%, which is the Fed’s yearend 2016 median projection. The tepid trend in inflation should also be evident in Friday’s ECI (0.7% vs. 0.6%) report. This series might improve modestly, but its year-over-year rate should remain at 2.0%. Finally, in terms of the factory sector, we get the April Chicago purchasing managers’ index (49.5 vs. 53.6) on Friday as well. The very soft April Philadelphia Fed survey (-1.6 vs. +12.4) increases the chances of a weak Chicago report. If this turns out to be the case, then the manufacturing ISM survey, which is released on May 2, is likely to fall back below 50.
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Here is the detailed daily breakdown of key events courtesy of Jim Reid:
- Kicking off the proceedings this morning we will see the April IFO survey readings out of Germany, shortly followed by the latest CBI orders data in the UK. In the US the only releases of note will be March new home sales and the Dallas Fed manufacturing survey.
- With little notable data due out in the morning on Tuesday, the highlight will be across the pond where the big releases will be the first readings for durable and capital goods orders in March. As well as that there’s more regional manufacturing data from the Richmond Fed, the flash services and composite PMI’s for this month and finally the S&P/Case-Shiller house price index data.
- Wednesday kicks off in China where the March industrial profits data and April consumer sentiment reading is due. In Europe we’ll get various confidence indicator readings as well as the advanced reading for Q1 GDP in the UK. Over in the US on Wednesday the March advanced goods trade balance reading is due along with pending home sales data. That’s before the main event in the evening with the conclusion of the two-day FOMC meeting.
- It’s set to be a busy start on Thursday morning. As well as the hotly anticipated BoJ meeting, we’ll also get CPI, retail sales and industrial production out of Japan. Over in China the Conference Board’s leading index is due out. In Europe on Thursday we’ve got more confidence data due out, along with the first read on CPI in Germany this month. There’s more important data in the afternoon too with the advanced reading for Q1 US GDP scheduled. Initial jobless claims and the Kansas City Fed manufacturing survey are also due out.
- We’re capping off a busy week for data with a busy Friday of releases. In Europe we’ll see France publish Q1 GDP, PPI and CPI. In the UK we’ll get mortgage approvals and net lending data, before the April CPI report for the Euro area along with the advanced Q1 GDP report is released. Before we take a breath, in the US on Friday we’ll see personal income and spending data for March, the PCE core and deflator readings for March and finally the last read for the University of Michigan consumer sentiment survey for this month.
Finally, here is all the above in table format.
Source: DB, BofA