RBC Capital Markets
Week ahead: The highlights of the week’s calendar include the RBNZ meeting (see NZD), UK public finances (see GBP), Germany IFO survey, Sweden Q1 GDP, US durable goods orders, and US personal income & spending (see USD).
GBP: The April public finance release (Tuesday) is the first of the 2021/22 fiscal year for which the Office of Budget Responsibility (OBR) has estimated total borrowing (PSNB) needs of £233.9bn. Given the elevated estimates, any change to the assumptions underpinning them can have large implications.
Based on the better-than-expected borrowing outturn for 2020/21, the winter lockdown's limited impact on economic activity and our own UK GDP forecasts, RBC estimates that total borrowing for 2021/22 will be £204bn. Along with the full FY estimate, we look for an April borrowing (PSNB) estimate of £34.9bn. The OBR's monthly CGNCR borrowing forecasts published alongside the Budget forecasts showed an expected CGNCR of £42.3bn for April, while we anticipate a £37bn figure.
USD: The April personal income and spending report (Friday) is expected to feature a snapback following the previous month's reported income surge from stimulus payments. The prior month’s gain in overall spending was also significant, and while we don’t expect a repeat, our forecast of just below 1% m/m is still rather firm. Other US data releases include new home sales, durable goods orders, and core PCE inflation.
AUD: Low rates, elevated business confidence, a stronger recovery and an extension of tax incentives for capex should continue to underpin robust business investment in Australia. The partials are mixed for Q1 with softer capital imports against another robust increase in non-residential approvals. We look for an increase of ~2% q/q in the Q1 capital expenditure and expected expenditure report (Thursday), with current FY plans likely to be revised up from the last survey but still down on last year.
NZD: The RBNZ policy meeting (Wednesday) is widely expected to see current policy settings held steady, but the policy statement and press conference will be closely watched for any indications of a tapering in asset purchases being considered.
CAD: Flash April manufacturing sales (Tuesday) is expected to show a dip (prior +9.0%m/m), weighed down by another pullback in auto production. Overall manufacturing hours worked also fell 1.1% in the month. Friday’s Q2 Canadian Business Survey will likely show businesses, especially those in the hospitality and travel sectors, still highly reliant on government support.
Other parts of the survey should also help to gauge how they are weathering what will hopefully be the last round of stringent lockdowns. And rapid progress in vaccination efforts may see fewer businesses worrying about volatile or insufficient demand. Government support measures are largely set to extend through the summer, at which point the economic recovery could be well underway. BoC Deputy Governor Lane will appear on a panel on the future of digital currencies on Wednesday as well.
The gyrations in commodities and cryptocurrencies markets are the main attraction, with FX stuck as a sideshow overnight. We saw very range bound markets overnight, with no significant movers in the currency space. The same cannot be said for commodities, with steel and iron ore prices jolted by China official comments and oil prices stabilizing amid scope for more Iran headlines. For now, commodity currencies seem to have selective hearing with NOK slightly higher and AUD unchanged on the day.
Clues from central bankers remain vital, with CNH taking note of PBoC comments over the weekend. Following the reaction to the FOMC minutes, Fedspeak continues to deserve focus. Brainard, Mester, George and Bostic are on the calendar today, alongside a UK Parliament Treasury Committee appearance from the BoE. Until then, it may be a muted start to the week in the European session and we continue to watch other asset classes for direction.
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