Six Events To Watch Next Week

US Q1 GDP 

The government shutdown, the unusually cold weather, and what seems to be a typical pattern for weakness in Q1, coupled with the dramatic decline in the equity prices in Q4 18 (and the knock-on impact from the wealth effect) depressed expectations for growth at the start of the year. It looked like the economy was stagnating or worse. The inversion of parts of the yield curve was seized upon as further evidence that the end of the expansion was at hand. The Atlanta Fed's GDPNow tracker began the quarter with a 0.3% projection and, after the retail sales report, stands at 2.8%. The median economist forecast according to Bloomberg is 2.2%, which would match the Q4 18 pace. Some economists have a more dour estimate of 1.5%.

We are neither as optimistic as the Atlanta Fed nor as pessimistic as the naysayers. Our expectation is for around 2% growth. The report is released at the end of the week and a few days before the May 1 FOMC meeting. There is little chance of a change in policy, but it would appear that some of the cross-currents that had concerned Powell & Co have abated. 

Australia Q1 CPI  

The market continues to favor a rate cut by the Reserve Bank of Australia later this year. The forward rate implies about a 31 bp easing in rates by year-end, while the overnight index swaps are consistent with around a 75% chance of a cut. Yet recent data have been robust, with the composite PMI moving back above 50 and full-time jobs growth averaging 37k a month in Q1, the most since July 2017. Chinese officials appear committed to strengthening the economy, and Australia is often seen as a proxy of sorts for China.

The quarterly CPI matched the four-year peak of 2.1% in Q2 18 and has eased since. Headline CPI is expected to have slowed for its third consecutive quarter in Q1 19. Prices are expected to have risen by 0.2% in the first three months of the year for a 1.5% year-over-year pace, down from 1.8% in Q4. The underlying rates (trimmed mean and the weighted median) are also expected to have slowed. The easing of price pressures gives the RBA scope to cut when the economic outlook justifies it. Based on the current information set, we pencil in a cut in late Q3. 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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