US: More eco data on tap to shape Fed expectations
Friday’s nonfarm payrolls was another Goldilocks for the markets, suggesting a still-tight labor market but rising unemployment levels. This has kept Fed expectations hinting at a pause in June to allow for further evaluation of the pass-through but a rate hike for July has been priced in as prices pressures are still rampant. This rhetoric will again be tested in the week ahead with the ISM services report due on Monday and initial jobless claims out on Thursday. Bloomberg consensus expectations point to stronger May ISM services print of 52.4 from 51.9 previously. The prices paid component will also be key, after a very strong print of 59.6 in April which suggested that the Fed will have to keep its foot on the pedal. Jobless claims will likely remain sub-250k but expected to rise ahead as more industries are announcing layoffs given the uncertain economic outlook.
Eurozone: German data in focus as recession concerns grow
Recent data has highlighted that the Germany economy slid into a recession in Q1 as dwindling global demand added downside pressures on the industrial economy. This makes German data a key focus in the week ahead, with April trade data due on Monday, factory orders for April out on Tuesday and industrial production released on Wednesday. March factory orders saw a huge over 10% MoM plunge and industrial production was also down 3.4% MoM. Early indicators from German car manufacturers suggest that pressures have ramped up further in April, suggesting further downside risks for Q2 growth as well. Meanwhile, the disappointing Q1 GDP growth from Germany suggests that the final print of Eurozone GDP growth, due on Thursday, may also see a downward revision. If the quarterly growth print goes into negative territory, this means that Eurozone is also in a technical recession after Q4 GDP printed -0.1% QoQ. EURUSD and EURGBP may face downside pressures this week if Eurozone growth risks escalate.
China: CPI expected to tick up in May, PPI deflation to widen
Economists participating in the Bloomberg survey anticipate a modest recovery in China’s CPI inflation during the month of May. Projections indicate an increase to 0.2% Y/Y from 0.1% in April's 0.1 Y/Y. This revival is anticipated to be attributed to the low base last year and upward pressure on food prices, offsetting a deceleration in energy prices and other non-food items due to sluggish demand. Conversely, consensus forecasts paint a gloomier picture for the PPI in May, projecting a wider deflationary trend attributed to diminished commodity prices. Economists predict a PPI inflation rate of -4.2% Y/Y for May, compared to April's -3.6% Y/Y.
China: New RMB loans expected to see a seasonal surge
According to the latest Bloomberg survey, economists anticipate a seasonal upswing in new RMB loans during the month of May. Projections indicate a rise to RMB1,688 billion, surpassing April's figure of RMB719 billion. However, it is worth noting that this May's estimate falls short of the RMB1,890 billion recorded in the same period last year, reflecting a comparative decrease. Furthermore, the survey highlights expectations for a seasonal increase in new aggregate financing during May, reaching RMB1,757 billion compared to April's RMB1,217 billion. Nonetheless, this projected figure remains significantly below the RMB2,842 billion recorded in May 2022. The primary factor dampening aggregate financing growth stems from the subdued issuance of corporate bonds.
China: Export growth to slow and imports to contract
According to Bloomberg's consensus forecasts, China is anticipated to experience a deceleration in export growth, measured in USD terms, during the month of May. Projections indicate a decline of -2% Y/Y, a significant drop from the 8.5% Y/Y growth observed in April. Similarly, the median forecast in the Bloomberg survey suggests that import growth in USD terms is expected to exhibit a slightly more negative trend in May. Projections indicate a contraction of -8% Y/Y, compared to the -7.9% Y/Y decline in April.
Japan: Wage growth expected to quicken, but not enough for a BOJ move
Japan’s April wage growth numbers are due on Tuesday, and likely to have accelerated as a result of the pay raises agreed in the spring wage negotiations. Nominal wage growth is expected to come in at 1.8% YoY from a revised 1.3% YoY in March while real earnings are expected at -2% YoY from -2.3% YoY in March. Gains in wages are expected to pick up further in May, but still won’t be enough to drive any expectations of a policy move from the Bank of Japan, as wage growth remains below the 2% inflation expectation and won’t be enough to ensure sustained price pressures going forward. JPY is likely to remain a play of US yields for now, as well as that of risk sentiment with economic growth concerns accelerating.
Central banks: RBA and Bank of Canada may go for hawkish holds
The Reserve Bank of Australia faces a tough meeting this week on Tuesday. RBA’s moves have thoroughly confused the markets as it resumed rate hikes in a surprise move last month despite softer inflation. Now, this month has brought inflation edging higher once again to reaffirm price pressures. April CPI rose to 6.8% from 6.3% previously and 6.4% expected. But some would argue that the quarterly CPI prints remain more important than the monthly prints, and next quarterly print is only due in end-July. This gives room to the RBA to hold rates again but continue to keep the door open for further tightening in the months ahead. The other option for the RBA could also be to respond to monthly inflation print with a smaller rate hike – say taking the cash rate to 4% from 3.85% currently.
A very similar setup is seen for Bank of Canada, where policy announcement is due on Wednesday. Although no rate hike is expected, but stronger-than-expected GDP and CPI metrics, as well as a buoyant housing market have brought some possibility of a 25bps rate hike and a rate hike for July is priced in with 90% probability. A hawkish commentary could bring that higher, supporting CAD which has also been boosted by the surge in oil prices.
This French semiconductor firm is poised for growth amidst AI giants
Beneath the technology giants dominating the AI landscape, a modest French semiconductor company named Soitec is poised to report earnings this week. Soitec is a French-based semiconductor company with a market value of €4.6bn and revenue of €863mn in the past year up 48%. The company has 2,000 employees with 20% of those people working in R&D. The company possesses a patented engineering substrate solution that facilitates the precise layering of wafers crucial to chip manufacturing.
Analysts are very positive on the company expecting revenue to grow to €1.9bn in the FY26 (ending 31 March 2026) with EBITDA growing from currently €276mn to €731mn as the operating margin expands. Analysts have a price target of €189 compared to the current price of €130 (45% upside potential) but shares of Soitec are down 15% this year reflecting a very different development than what we have seen in US semiconductor stocks.
Recognizing the company’s significance, Peter Garnry, Saxo’s Head of Equity Strategy, draws attention to the earnings announcement from Soitec on Wednesday and suggests heeding the company’s progress.
Apple holds Worldwide Developers Conference
Apple’s Worldwide Developers Conference commences today. Analysts are expecting the company unveil a mixed-reality headset, and an update to the MacBook Air or might be to the Mac Studio workstation as well.
Earnings this week:
- Monday: Science Applications International
- Tuesday: J M Smucker, Thor Industries, Ciena
- Wednesday: Campbell Soup, Brown-Forman, Smartsheet, GameStop, Voestalpine, Inditex, LXI REIT, Soitec
- Thursday: Toro, Vail Resorts, DocuSign, Trip.com
- Friday: NIO
Key economic events this week:
- MON: Chinese Caixin Services PMI (May), German Trade Balance (Apr), EZ/UK/US Final Services and Composite PMIs (May), EZ Sentix Index (May), US Durable Goods (R), ISM Services PMI (May).
- TUE: RBA Announcement, EZ/UK Construction PMI (May), EZ Retail Sales (Apr)
- WED: BoC Announcement, Australian Real GDP (Q1), Chinese Trade Balance (May), German Industrial Production/Output (Apr), US Goods Trade Balance (R) (Apr), Canadian Trade Balance (Apr), US-UK Meeting in Washington
- THU: Japanese GDP (Q1), EZ GDP (R) and Employment Final (Q1), US-UK Meeting in Washington
- FRI: Chinese Inflation (May), Canadian Jobs Report (May)
- THIS WEEK: China Aggregate financing, New RMB loans, M2 (May)