Last week’s highlights
Australia Q1 GDP contracts
Australian GDP contracted for the first time since 2011 in the three months ending March 2020. Economic activity during the period fell 0.3%, which was in line with the median forecasts.
This follows a 0.5% expansion in the previous quarter.
On a yearly basis, Australia’s GDP grew 1.4%, slowing from a 2.2% increase earlier. In a separate report, retail sales plunged 17.7% in April. The data was somewhat better than the forecasts of a 17.9% decline.
US manufacturing and services activity remain in contraction
The services sector contracted at a slower pace in May than economists’ predictions. The ISM’s non-manufacturing PMI rose to 45.4, rising from 41.8 in April.
The employment index in the sector rose slightly to 31.8 from 30.0 previously.
Earlier in the week, the manufacturing PMI saw a strong recovery. Manufacturing activity measured by ISM rose to 43.1 from 41.5 in the previous month.
Eurozone private sector continues to remain in contraction
Private sector business in the eurozone continues to reel under the effects of the pandemic lockdown.
The latest survey results from IHS Markit showed that the final composite index rose to 31.9 in May. This follows the indicators hitting a record low of 13.6 in April.
According to the report, the eurozone GDP might contract by over 9% during this year.
Bank of Canada keeps interest rates unchanged
The Central Bank of Canada kept interest rates steady at 0.25% at its meeting last Wednesday. The rate was left steady at 0.5% and the deposit rate at 0.25%.
The central bank said that while the effects of the Covid-19 had peaked, there were still a lot of uncertainties.
The BoC maintained its commitment to supporting the Canadian economy including asset purchases. The BoC also expects lower inflation to persist temporarily before picking up in a couple of months.
ECB expands its Pandemic Emergency Purchase Program
The European Central Bank did not disappoint last week as it expanded on its existing PEPP program. Adding an additional 600 billion euro, the PEPP now stands at 1.3 trillion euros.
The purchases are expected to continue into June 2021. The increase was more than expected and showed the markets that the ECB was committed to pursuing an accommodative policy.
US labor market posts a sharp rebound
The official payrolls report for May saw a surprising rebound in the jobs market. After falling 20.7 million in April, payrolls rose 2.51 million during the month.
This was contrary to the expectations of another month of declines. Unemployment fell from 14.7% in April to 13.3% in May.
Upcoming Economic Events
US Consumer prices to stay flat in May
The monthly inflation report is due on Wednesday, June 10th. Economists forecast that there will be no change to the inflation report for May. This comes following a 0.3% increase in headline inflation on a month over month basis.
Excluding food and energy, forecasts indicate that the core inflation rate will rise at a slower pace of just 1.3%, following a 1.4% increase a month ago.
Fed to keep policy steady
The Fed Reserve will be holding its monetary policy meeting this week. No major changes are forecast.
The central bank will most likely leave interest rates at 0.25%, unchanged.
Later in the week, however, we will get to see the first-quarter GDP report.
Forecasts are grim, suggesting that year over year growth in the first quarter will rise just 1.9%. This marks a slower pace of increase from 2.2% in the final quarter of 2019.
UK economy to contract 18% in April
The United Kingdom is set to see one of the steepest contractions in recent history. Economists forecast that the monthly GDP will drop over 18% in April.
This coincides with the UK’s economy entering into a lockdown due to the pandemic. However, investors are broadly pricing in this sharp decline so the market impact will be less volatile.
China producer prices to fall at a slower pace
The monthly producer price inflation report out of China is due this week on Wednesday. Economists forecast that inflation at the factory gate will continue to fall, albeit at a slower pace.
Expectations are for the headline PPI to decline by 2.6% in May. This marks a slower pace of decline following a 3.1% slump previously. Consumer prices, on the other hand, are forecast to rise 3.7%, up from 3.3% previously.
Eurozone revised GDP for Q1 to remain unchanged
The revised first-quarter GDP estimates out of the eurozone will be published on Tuesday, June 9th. Economists do not see any major revisions being made. As a result, the Q1 GDP for the eurozone is set to contract 3.8%.
This will be the same pace of declines as in the earlier forecasts. Besides the revisions to the GDP, the quarterly employment change report is also due.
Forecasts show a 0.3% change, which also marks the same as per the previous revisions.