14 Apr 2017
The week ahead: Monday 17 April 2017
It is set to be a quiet week for markets, with a number of western countries enjoying a public holiday for Easter Monday (the US remains open).
In what is set to be a shortened week, tier 1 economic data is also in short supply. However, whilst the macro-economic calendar may be light, one thing that will be keeping markets on edge will be geopolitical developments, particularly with regards to North Korea and Syria. Certainly the former has ratcheted up tensions following President Trump’s decision to send a carrier battle group to the Korean Peninsula. One event that could trigger further tensions is this weekend’s anniversary of Kim Il Sung’s birth, where there are some fears that North Korea could carry out a further missile or even a nuclear test to mark the occasion.
China is the one country where economic data will be a focus. Monday will see the release of the usual monthly data (industrial production, retail sales), but also Q1 GDP figures. Monthly figures over Q1 have largely been solid, suggesting that growth in the first quarter is likely to remain robust. Our sense is that 2017 Chinese growth as a whole will see only a very marginal slowdown to 6.6% from 2016’s 6.7%.
Domestically the only official data set for publication is retail sales on Friday, where we expect headline sales to fall 0.5% m/m.
Euro area surveys, most notably the PMIs, have pointed to firming economic activity in the first quarter of 2017. April’s Euro area Composite PMI will be published next Friday, providing the first look at activity in Q2. We suspect that economic momentum has been maintained and we see the PMI holding steady at 56.4. Meanwhile, French election risks are likely to remain front and centre of investors’ minds. Over the last two weeks, French bond spreads have widened (the 10yr OAT spread over bunds stands at 72bps) and CDS prices have risen amidst rising anxiety over the potential result. Whilst Emmanuel Macron and Marine Le Pen are still seen as the favourites to advance to the runoff vote on 7 May, the notable development in the polls has been the surge in support for the left-wing candidate Jean-Luc Mélenchon. In some polls Mr Mélenchon is only 5% behind the top two candidates. Whilst seemingly unlikely, a second round vote between Le Pen and Mélenchon would be a worry for markets. The first round vote is set to be held next Sunday 23 April.
Stateside, the first indicators for Q2 will be of interest with both the Empire state and Philly Fed surveys due. The remaining main data points will focus on housing, with existing home sales, starts, permits and the NAHB index all published. Away from economic data and geopolitical developments, US equity markets will be driven by the US earnings season, with a number of major banks set to report.