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Markets are particularly concerned about the ability of central banks to bring inflation back to target without seriously affecting growth expectations. In this context, high-frequency figures such as US retail sales (Tuesday) are especially important. Other than that, not many figures will be released this week. Attention will therefore be focused on the statements made by representatives of central banks. A whole series of public appearances by ECB representatives are on the agenda, and we get the minutes of the ECB meeting in April. The exchange rate of the British pound will be determined by the inflation rate in the UK in April, which will be announced on Wednesday. Below are the main currencies in detail.
There were no key numbers last week, so investors were guided by concerns about things like natural gas supplies and their impact on industrial production. Sentiment data was also poor, but it's worth noting that the PMI numbers are more important – and they still clearly point to growth. The composite index is well above 55 (50 means no growth or contraction of the economy is expected), so there does not appear to be a high risk of recession. The change in rhetoric from the ECB, which is now hawkish, has not yet had an effect on the single currency, but this seems to us to be a matter of time. The many speakers and the minutes of the April meeting could provide a counter-trend this week – in the form of a rally in the euro.
The first quarter's GDP figures were weaker than expected, although some components (strong investment, weak government and private consumption) were marginally more positive. In terms of this week's inflation data, we expect the headline number to jump again to the highest level in decades, probably above 9%, and the core figure to also rise sharply, probably above 6%. The exchange rate of the pound seems to have stabilised recently, at least against other European currencies. A significant recovery against the US dollar is not yet in sight. That will only be possible if the Bank of England adopts a more hawkish tone. This week, no less than six MPC members are ready to speak publicly. These performances could provide information about what is going to happen, but it is still early days.
The secondary data on the U.S. economy did not change the picture much last week: there is full employment and the economy is suffering from supply constraints, but is still growing. This week's manufacturing numbers and retail sales will provide an up-to-date insight into the state of the U.S. economy, but not much is likely to change. Currency traders will once again be guided by the storms in the bond and equity markets this week. In our view, the knee-jerk flight to safety has been overdone, and the U.S. dollar will give back some of its recent gains once the stock market stabilizes.
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On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here to subscribe.
