Let’s start with the good news… Cagliari Calcio will remain in Serie A next season after a brilliant 3-0 victory against Venezia yesterday, concluded by a splendid 3rd goal. Before that we got the US-China „deal“ agreement in Geneva last week, which basically brings a 90 days relief and renewed hopes for a long-term deal with less damageable conditions and consequences. More interestingly, it shows that a total decoupling is still out of scope for both US and China for the time being. In the same vein, Inter Milano will also need the help of my favorite team next Sunday -as it will play against Napoli- in order to win the Scudetto: I thus suspect some truce with a few good players making the trip Milano to Cagliari during the summer in case of a favorable outcome next week.
In the meantime, there are still plenty of uncertainties on markets and thus more questions than answers. Whether in terms of economic growth, inflation and monetary policy trajectories and subsequently about equities, rates and fx trends until the end of the year and beyond. My only conviction is that the outlook seems currently less foggy outside the US, with more limited downside -or nasty- surprises. Especially if you add the debt recurring concerns on the top, as illustrated with the downgrade of US Treasuries from Moody’s leading to higher US rates and a weakening USD today, while there is frankly nothing new or surprising per se in this decision.
As patience is unfortunately not one of my most recognized qualities, I will have to wait to know what will happen next… week for the Italian Scudetto, next month for the NBA title, next 3 months for the US-China trade deal, next 7 months for how financial markets will end the year, etc… Is it really a bad thing to have to wait (i.e. not being able to know quickly)? Of course, it’s always great to have insights or a hedge but it also brings less excitement and enthusiasm about things. Do you will enjoy life the same way if all the key dates and facts about your life (bad or good) will be set in advance? There can be no real full satisfaction without some efforts and suspense.
I am making this point because some markets commentators and brokers have recently drawn a great analogy between the seasons 8 and 9 of the mid-80’s Dallas TV series (season 9 was expunged from memories as a dream sequence of Pam Ewing, rendering the death of her husband Bobby Ewing in season 8 as just a nightmare) and what has happened on the market over the last 6 weeks as the S&P500 is now almost back to pre-Liberation day level. I was a teenager at that time but I remember very well the surprising “shock” with everybody speaking about that around me! So, I am looking forward for the next big surprise, bad or good, in sports or markets, hoping for more celebrations while trying to mitigate disappointments, and thus spending my days to guess-estimate or imagine what could go wrong or right. It is certainly time-consuming, often frustrating but certainly “livelier” than today binge-watching habits. That’s why you probably love this game as much as me.
Economic Calendar
It will be an overall light macro week ahead with the main highlight being the release of global preliminary PMI indices for May on Thursday. They may show some signs of improvement given the recent softening in US trade policy narrative as Bloomberg consensus suggests European economies may see an uptick in both manufacturing and services indices. In addition, we will also get the latest inflation figures in the UK, Canada and Japan, while this morning China released its April economic activity indicators.
After an improvement in March, China’s economy seems to have slowed again in April as economic agents turned perhaps more cautious due to the trade war. Industrial production yoy growth decelerated from 7.7% in March to 6.1% last month, fixed investment growth ticked down to 4.0% y/y from 4.2% in March and retail sales also slowed, from 5.9% y/y to 5.1%. We will see over the next few months if last week US-China „deal“ agreement in Geneva will provide some (sentiment) relief and materialize into a (short-lived?) activity rebound. Note that the 90 days truce will push the final, or just the next, deadline to beginning of August.
As far inflation is concerned, UK inflation is expected to reaccelerate from 2.6% in March to 3.3% in April and from 3.4% to 3.6% for headline and core index respectively… which may explain the hawkish 25bps rate cut from the BoE last week. At the opposite, Canadian headline inflation is foreseen to cross down the 2% threshold in April (falling to 1.6% from 2.3%), while the core-median and the core-trim indices may remain unchanged at 2.9% and 2.8% respectively. Note that the BoC has already slashed its target rate from 5% to 2.75% over the last 12 months on the back of weak growth, deteriorating labor market and less inflationary pressures than its northern neighbor. Finally, annual inflation rate is expected to have remained broadly stable last month in Japan (headline ticking down to 3.5% from 3.6% and core-core index ticking up from 2.9% to 3.0%). Keep in mind that Japan is the only G10 economy where annual inflation rate is higher now than one year ago… which may be explained by a central bank which have decided to remain well behind the curve (hiking slowly/patiently to bring rates higher)
Speaking about central banks, there will be a policy rates decision from the RBA tomorrow. A 25bps cut to 3.85% is widely expected but the tone may remain quite hawkish given the recent data (resilient activity and quite sticky inflation).
Concluding with corporate earnings releases, the focus will be on US retailers (Home Depot, TJX and Target), while we will get also the results of Vodafone and Marks & Spencer in Europe, as well as Baidu in China.
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