RBC Capital Markets

Week ahead: The calendar has UK employment report (see GBP), New Zealand Q1 CPI, UK CPI, Australia retail sales (see AUD), and European ‘flash’ PMIs (see EUR & GBP). The Bank of Canada (see CAD) and ECB policy meetings also feature this week.

GBP: The labour force survey data (Tuesday) will miss the recent reopening measures. The furlough scheme has kept the labour market frozen, and we anticipate a small uptick in the LFS estimated unemployment rate to 5.1%. Meanwhile, falling clothing and footwear prices have contributed to weaker headline CPI in January and February. The March BRC shop price index found that clothing retailers continued to discount heavily last month. That should counter some of the expected upward contribution from motor fuels as last year’s large oil price decline drops out of the annual comparison. We therefore expect headline CPI (Wednesday) to rise 0.7% y/y. Finally, we should see a pronounced improvement in the 'flash' services PMI (Friday) to 59.5, given the limited reopening of hospitality, leisure, and consumer-facing services that started on April 12.

EUR: After the ECB started pushing back against rising bond yields, Thursday’s ECB meeting will be an opportunity to take stock. Real yields are low, break-evens rising again, corporate bond spreads low, and little sign of stress in the equity markets. We thus expect this ECB meeting to have less impact on markets. Advance indicators point to another record- breaking euro area manufacturing PMI (Friday), and we look for the headline index to rise to 63.1. While services activity likely recovered in much of Europe, a new lockdown in France means that we expect the euro area services index to fall to 48.9 from 49.6 in March.

AUD/NZD: The RBA is in “wait and watch” mode, and the RBA minutes (Tuesday) are somewhat dated, with domestic data in the past fortnight generally surprising to the upside. The labour market’s leading indicators continue to suggest less labour-shedding in Q2 after the end of the JobKeeper measure than we initially feared. We anticipate some recovery in preliminary March retail sales (0.5% m/m) following the end of the VIC/WA lockdowns, albeit tempered by the Greater Brisbane lockdown in late March.

CAD: Today’s first full federal budget in more than two years will be closely followed for updates on the spending and funding plans. Overall, the FY20/21 budget deficit should come slightly below the C$381.6bn estimate from the Fall Economic Statement, while an approximately C$160bn deficit is expected for FY21/22. See RBC Economics’ full preview for further details. RBC Economics meanwhile forecasts a 0.6% m/m rise in March headline CPI (Wednesday), which would move the YoY rate to 2.3%, marking the beginning of a period of pronounced base effects that should extend until May. Our economists expect the BoC to taper its QE purchases on Wednesday. Specifically, we see bond purchases falling from C$4bn/week to C$3bn/week, with reductions across the curve but mostly concentrated in the 2y sector. No change in the overnight rate is expected, but there will be attention to the forward guidance on rates.


Asia has seen a relatively quiet session in G10 FX, with EUR weakness contrasting with GBP strength the only notable development. There do not appear to have been headlines behind this, with our traders noting this is flow driven instead. In EM FX, the picture is more complicated, with INR underperformance derived from continuing local Covid concerns. In contrast to this, a benign US currency manipulator report has helped to remove near-term obstacles for TWD, and could also benefit THB too.

Looking ahead, it is likely to remain quiet with little notable in terms of data due in G10 apart from SEK central bank speak. In EM, BRL economic activity, an ILS rate decision (hold) and COP imports data are due.

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