Overview for 30 May 2022

02 Jun 2022

Major upcoming global economic releases and events

DateData / EventPreviousConsensus
31-May-22Australia building permits m/m (Apr)-18.5%2%
31-May-22Australia private sector credit m/m (Apr)-0.4%NA
31-May-22Europe core inflation y/y (May)3.5%3.5%
1-Jun-22Australia GDP growth q/q (Q1)3.4%0.7%
3-Jun-22Australia home loans m/m (Apr)0.9%-1%
3-Jun-22Europe retail sales m/m (Apr)-0.4%0.4%
3-Jun-22US unemployment rate (May)3.6%3.5%

Source: Bloomberg, UBS Global Research, Tradingeconomics.com

What to watch this week

AustraliaUSEurope
Domestic data was mixed last week, with Q1 GDP partials and May PMIs weaker than expected, but retail sales posting another solid gain in May.

Q1 GDP numbers will be published this week and the partial data released so far has been underwhelming. Both construction and capex data were weaker than expected in Q1, with both series registering negative numbers that were close to 2% below consensus. Covid-related disruption, and impacts from significant rain events suggest that the Q1 release could be soft this week. While Q1 may end up being weaker than expected, the domestic outlook remains strong. High commodity prices will provide a benefit to the domestic balance sheet, while the removal of mobility restrictions combined with pent up demand, high saving rates and a tight labour market should more than compensate for fears around rising interest rates.

In addition to the GDP print, building permits, private sector credit and home loan data are all due to be published in a busy week ahead.
US PMI data showed surprising weakness in the services sector in May, in a reversal of the recent strengthening trend. Other business surveys also pointed to slower activity in the period ahead and the durable goods order print was also weaker than expected in April.

The minutes from the recent Fed meeting were published last week, detailing that the 50bp hike was a unanimous decision and also showing that most participants thought that similar moves would be required over the coming meetings. Overall, discussion was focussed on concerns around the inflationary environment, the tight labour market and the need to rapidly increase rates toward neutral levels. The minutes support the view that there is little appetite for 0.75% rate hikes, but the key question from here is when the Fed will be prepared to slow the pace of hikes, and whether they will move beyond a neutral stance.

The week ahead sees a number of manufacturing indices and consumer sentiment data set for release ahead of non-farm payrolls, which is the highlight.
UK PMI data was a large underperformer relative to peers in May, with the headline index falling from 58.2 to 51.8. The European series edged lower from 55.8 to 54.9.

A relatively calm period in UK politics was interrupted last week by the report into allegations that Boris Johnson hosted parties at his Downing Street residence while the country was under strict lockdown conditions. The report highlights a number of gatherings attended by senior and junior government officials alike and outlines a leadership failure at the highest levels of the UK government. While the public been scathing, senior lawmakers have so far stood by their leader, who became the first British prime minister ever found to have broken the law while in office when fined earlier this year by the are gaining momentum once again.

European inflation and retail sales are the key releases this week.


Chart of the week—Australian retail sales


Australian retail sales posted a solid 0.9% gain in May, in line with expectations but below the 1.6% jump in April. Several months of strong gains have pushed the annual growth figure close to 10% as pent up demand and the absence of mobility restrictions provide a sound environment for consumer spending.

The outlook for the months ahead remains positive, as restrictions are unlikely to be reintroduced and high savings rates are likely to drive further spending. A stimulatory budget and the likelihood of a significant rise in the minimum wage are also expected to provide tailwinds. Looking further ahead, UBS expects spending to moderate as savings are drawn down and rate rises start to impact disposable incomes. Looking at it another way, by the end of the year there is an expectation that the current disconnect between consumer spending (which remains strong) and consumer sentiment (which has weakened) will be eroded by a reduction in consumption.

Financial market movements

INDICATOR
AS AT 27-MAY-22
1 WEEK CHANGE
1 YEAR CHANGE
3 YEAR CHANGE (ANNUALISED)
5 YEAR CHANGE (ANNUALISED)
EQUITIES
%%%%
S&P/ASX 200 Index
84,685.45
0.55
4.16
7.73
8.78
US S&P 500 Index
8,766.83
6.62
0.32
16.17
13.52
EURO STOXX
901.56
3.82
-3.46
7.69
4.30
UK FTSE 100 Index
7,644.23
2.67
12.07
5.41
4.09
Japan TOPIX Index
2,856.09
0.53
-1.15
9.34
5.75
MSCI World ex-Australia Index
6,617.89
5.29
-1.35
12.83
10.12
FIXED INCOME %BPBPBPBP
Australian 90 day bank bill yield
1.13
8.38
108.88
-10.20
-12.16
Australian 10 year bond yield
3.26  
-5.80
162.50
56.51
16.84
US 90 day bank bill yield
1.03
4.61
102.84
- 42.50
2.65 
US 10 year bond yield
2.74
-4.33
113.16
13.90
9.81
UK 10 year bond yield
1.92
2.40
110.70
31.93
18.03
German 10 year bond yield
0.96
1.90
113.50
36.76
12.61
COMMODITIES
%%%%
Gold
1,853.72
0.39
-2.26
12.98
7.91
Oil West Texas Crude
115.07
1.63
72.13
25.20
18.24
Iron Ore Spot Price Index
134.05
-0.18
-34.61
10.63
17.15
CURRENCIES%

%%%%
AUD:USD
0.72
1.72
-7.41
1.16
-0.76
EUR:USD
1.07
1.64
-12.19
-1.19
-0.78
GBP:USD
1.26
1.11
-11.21
-0.02
-0.35
USD:JPY
127.08
-0.63
15.97
5.06
2.69
NZD:USD
0.65
2.27
-10.06
0.14
-1.51
CHF:USD
1.04
1.83
-6.09
1.74
0.42
AUD:EUR
0.67
0.05
5.44
2.38
0.01
AUD:GBP
0.57
0.69
4.30
1.19
-0.41
AUD:JPY 91.01
1.06
7.38
6.28
1.91

*BP = Basis Point, Source: Bloomberg; ^TR = Total return.

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