The dollar mounted a modest recovery on the back of firm U.S. data and hawkish Fed communications. NOK, SEK, and GBP outperformed while AUD, JPY, and CHF underperformed. We believe data this week will underscore the Fed’s hawkish stance, which should help the dollar and keep risk assets under pressure.

AMERICAS

Fed releases its Beige Book report Wednesday. The April 17 Fed Beige Book pointed at a healthy U.S. economic backdrop but suggested that firms’ ability to pass cost increases on to consumers had weakened considerably. Since then, inflation has proved to be sticky even as some signs of softening have been seen in the labor market and consumption. We expect a balanced tone in this report that will allow the Fed to take a wait and see approach with regards to easing.

Fed officials are likely to remain cautious. Mester, Bowman, Kashkari, Cook, and Daly speak Tuesday. Williams and Bostic speak Wednesday. Williams and Logan speak Thursday. Bostic speaks Friday. At midnight Friday, the media blackout goes into effect and there will be no Fed speakers until Chair Powell’s post-decision press conference June 12. Of note, the market sees less than 80% odds of a November cut, which is near the pre-May 1 FOMC lows.

Data highlight will be April PCE Friday. Headline is expected to remain steady at 2.7% y/y, while core is expected to remain steady at 2.8% y/y. However, we see some upside risks as PPI ex-trade, transportation, and warehousing (used in PCE calculations) accelerated to 4.4% y/y in April. The Cleveland Fed’s inflation Nowcast model sees both headline and core at 2.7% y/y. Looking ahead to May, the model sees both remaining at 2.7% y/y.

Personal income and spending will be reported at the same time. Income is expected at 0.3% m/m vs. 0.5% in March, while spending is expected at 0.3% m/m vs. 0.8% in March. Real personal spending is expected at 0.0% m/m vs. 0.5% in March. Of note, weak April retail sales warns of downside risks to the spending data.

Conference Board reports May consumer confidence Tuesday. Headline is expected to drop a full point to 96.0. If so, this would be the lowest since July 2022 and consistent with softer consumer spending activity. Nevertheless, positive real wage growth, rising house prices and a strong labor market suggest household spending will remain an important tailwind to GDP growth.

Regional Fed surveys for May will wrap up this week. Dallas Fed manufacturing will be reported Tuesday and is expected at -12.5 vs. -14.5 in April. Richmond Fed manufacturing and services will both be reported Wednesday, along with Dallas Fed services. May Chicago PMI will also be reported Friday and is expected at 41.0 vs. 37.9 in April.

We get a revision to Q1 GDP Thursday. Growth is expected at 1.3% SAAR vs. 1.6% previously, with personal consumption expected to be marked down to 2.2% vs. 2.5% previously. Of course, this is old news as markets are already looking ahead to Q2 and Q3. The Atlanta Fed’s GDPNow model estimates Q2 growth at 3.5% SAAR and the next update comes Friday after the data. Elsewhere, the New York Fed's Nowcast model estimates Q2 growth at 2.0% SAAR and the next update also comes Friday. Looking ahead, its first Q3 estimate comes out in early June.

Canada highlight will be Q1 GDP data Friday. Growth is expected at 2.0% SAAR vs. 1.0% in Q4. If so, it would be the strongest since Q1 2023. The Bank of Canada has penciled in 2.8% growth, driven by exports and consumption spending. The decline in retail sales volumes in February and March points to downside risk to the BOC’s forecast. The market sees 65% odds of a cut in June while a July rate cut is fully priced in.

EUROPE/MIDDLE EAST/AFRICA

Eurozone highlight will be May CPI data. Germany reports Wednesday and its EU Harmonised inflation is expected to pick up three ticks to 2.7% y/y. Spain reports Thursday and its EU Harmonised inflation is expected to pick up three ticks to 3.7% y/y. France and Italy report Friday and their EU Harmonised inflation readings are expected at 2.7% y/y and 0.7% y/y, respectively. Eurozone-wide CPI will also be reported Friday. Headline is expected to pick up a tick to 2.5% y/y while core is expected to remain steady at 2.7% y/y.

Eurozone disinflation is well on track and supports the case for the ECB to begin easing in June. Cipollone speaks Sunday. Vujcic, Lane, and Holzmann speak Monday. Schnabel and Knot speak Tuesday. Villeroy speaks Wednesday. Vujcic (twice) and Panetta speak Friday. Most ECB officials remain cautious about the pace of the easing cycle after it begins cutting in June.

ECB reports April inflation expectations Tuesday. Short-term expectations have fallen but remain near 3%, while longer-term expectations remain stuck near 2.5%. Both are well above the 2% target and should keep the ECB cautious.

Eurozone reports April money supply data Wednesday. M3 growth is expected at 1.3% y/y vs. 0.9% in March. If so, it would be the highest since April 2023.

Eurozone retail sales data for April start rolling out. France reports sales Monday and consumer spending Friday. In between, Spain reports retail sales Wednesday.

German May IFO survey will be reported Monday. Headline is expected at 90.5 vs. 89.4 in April, driven by a rise in both current assessment and expectations to 89.8 and 90.8, respectively. June GfK consumer confidence will be reported Wednesday and is expected at -22.4 vs. -24.2 in May.

U.K. reports April money and credit data Friday. Money growth is consistent with a recovery in economic activity and house prices. Broad money (M4) rose 0.5% y/y in March from -1% in February and a low of -3.9% in September 2023. Meanwhile, net mortgage approvals for house purchases (an indicator of future borrowing) increased to 61.3k in March, the highest since September 2022.

Swiss highlight will be Q1 GDP data Thursday. Growth is expected to remain steady at 0.3% q/q, while the y/y rate is expected to pick up a tick to 0.7%. The State Secretariat for Economic Affairs (SECO) projects production-based real GDP to have increased at a below-average pace of 0.2% q/q in Q1 as growth in the service sector is offset by a weak performance in industry. Nevertheless, the SNB has scope to ease further with core CPI at just 1.2% y/y in April. The swaps market sees over 50% odds of another rate cut in June, while a September cut is fully priced in.

ASIA

Japan highlight will be Tokyo CPI Friday. Headline is expected at 2.2% y/y vs. 1.8% in April, core (ex-fresh food) is expected at 1.9% y/y vs. 1.6% in April, and core ex-energy is expected to remain steady at 1.8% y/y. Overall, the bar for an aggressive BOJ tightening cycle is high as underlying inflation remains in a firm downtrend. Indeed, the market is pricing in only 70 bp of tightening over the next three years. Ueda and Uchida speak Monday. Adachi speaks Wednesday.

Key April real sector data will also be reported Friday. IP is expected at -1.1% y/y vs. -6.2% in March, retail sales are expected at 1.8% y/y vs. 1.2% in March, and housing starts are expected at -0.2% y/y vs. -12.8% in March. The economy hit a soft patch in Q1, and weakness may carry over into Q2. No wonder the BOJ remains so cautious.

Labor market data will be key. The unemployment rate is expected to remain steady at 2.6%, while the job-to-applicant ratio is expected to remain steady at 1.28. Despite the relatively tight labor market, wage pressures remain relatively low. Another reason for the BOJ to remain cautious.

Australia highlight will be April CPI Wednesday. Headline is expected to fall a tick to 3.4% y/y. If so, it would be the first deceleration since December but would remain above the 2-3% target range. The RBA remains on alert but with inflation likely to ease in the coming months, we do not see the need for further tightening.

April retail sales Tuesday will also be important. Headline is expected at 0.3% m/m vs. -0.4% in March. A major reason the RBA held the policy rate steady in May was to mitigate against the risk that consumer spending remains subdued for a more prolonged period. Consumer spending contracted more than expected over Q1, but stabilization in real disposable income points to a modest recovery in consumption growth.

New Zealand highlight is May ANZ business survey Tuesday. The April survey showed a clear weakening in activity as the Own Activity Outlook index fell 8 points to a seven-month low of 14.3. However, inflationary pressures are persisting as the Cost Expectations index is the highest since September 2023. Sticky domestic inflation is a major reason the RBNZ discussed the possibility of increasing the policy rate last week. However, the market thinks otherwise and is pricing in a cut in November.