The dollar gained limited traction last week. NOK, NZD, and CAD outperformed while JPY, SEK, and GBP underperformed. The dollar’s resilience last week was noteworthy, but its fate will largely be determined by the major U.S. data reports this week: CPI. PPI, and retail sales. We see upside risks and so believe the dollar rally will continue.

AMERICAS

Fed officials were very cautious last week. Virtually all signaled that rate cuts were not imminent and as a result, market adjusted Fed easing expectations. Odds of a June cut have fallen to 5% vs. 10% at the start of last week, while July odds have fallen to around 25% vs. 40% at the start of last week. September odds have fallen to 75% vs. nearly 90% at the start of last week, while a November cut remains fully priced in.

There are plenty of Fed speakers this week. Mester and Jefferson speak Monday. Cook and Powell speak Tuesday. Kashkari and Bowman speak Wednesday. Barr, Harker, Mester, and Bostic speak Thursday. Waller and speak Friday. Kugler speaks Saturday and Powell speaks Sunday. We expect the Fed to remain cautious but of course, it will all come down to the data and this week, we get three big readings.

April PPI will be reported Tuesday. Headline is expected to pick up a tick to 2.2% y/y, while core is expected to fall a tick to 2.3% y/y. Keep an eye on PPI ex-trade, transportation, and warehousing. This feeds into PCE calculations and remains stuck above 4% y/y.

April CPI will be reported Wednesday. Headline is expected to fall a tick to 3.4% y/y, while core is expected to fall two ticks to 3.6% y/y. Keep an eye on super core, which accelerated to 4.8% y/y in March, the highest since April 2023. Of note, the Cleveland Fed’s Nowcast model sees headline at 3.5% y/y and core at 3.7% y/y. Looking ahead, the model sees May headline at 3.6% y/y and core at 3.6% y/y, which suggests inflation will remain sticky.

April retail sales will also be reported Wednesday. Headline is expected at 0.4% m/m vs. 0.7% in March, while ex-autos is expected at 0.2% m/m vs. 1.1% in March. The so-called control group used for GDP calculations is expected at 0.1% m/m vs. 1.1% in March. University of Michigan reported sharply lower consumer sentiment last week and the sales data should confirm whether or not this is translating into weaker consumption. Overall, we believe consumer spending remains resilient, supported by robust demand for labor and positive real wage growth.

Q2 growth remains robust. The Atlanta Fed’s GDPNow model is tracking Q2 growth at 4.2% SAAR and will be updated Wednesday after the data. Elsewhere, the New York Fed’s Nowcast model is tracking 2.2% SAAR and will be updated Friday. Its initial read for Q3 growth will be released in early June.

New York Fed April inflation expectations will be reported Monday. Short- and long-term expectations remain stuck well above the fed’s 2% target. Last week, University of Michigan reported 1-year expectations at 3.5% vs. 3.2% in April and 5- to 10-year expectations at 3.1% vs. 3.0% in April.

Regional Fed surveys for May will start rolling out. Empire manufacturing kicks things off Wednesday and is expected at -10.0 vs. -14.3 in April. New York Fed services and Philly Fed manufacturing will be reported Thursday, with the latter expected at 7.5 vs. 15.5 in April. April IP will also be reported Thursday and is expected at 0.1% m/m vs. 0.4% in March.

Housing data will be closely watched. May NAHB housing market index will be reported Wednesday and is expected to remain steady at 51. April building permits and housing starts will be reported Thursday and are expected at 0.9% m/m and 7.5% m/m, respectively.

EUROPE/MIDDLE EAST/AFRICA

ECB publishes its Financial Stability Review Thursday. ECB Vice President Luis de Guindos warned last month of ongoing fragility over the outlook for eurozone financial stability. According to Guindos “structurally low liquidity buffers combined with high leverage in segments of the non-bank financial sector could further amplify any market correction.” Guindos added that “mild signs of asset quality deterioration are becoming visible in commercial real estate (CRE) lending. That said, banks’ exposures are broadly contained.”

The European Central Bank remains on track to cut rates starting in June. After that, cuts are largely priced in for September and December. There are plenty of ECB speakers this week. Knot speaks Tuesday. Rehn, Muller, and Villeroy speak Wednesday. Panetta, de Cos, Nagel, and Villeroy speak Thursday. Vasle, Guindos, Vujcic, Holzmann, and Kazaks speak Friday.

This is a quiet data week for the eurozone. German ZEW survey will be the highlight Tuesday. Expectations component is expected at 46.0 vs. 42.9 in April, while current situation is expected at -76.3 vs. -79.2 in April. Confidence measures have been rising in recent months.

Eurozone reports March IP Wednesday. IP is expected at 0.5% m/m vs. 0.8% in February, while the y/y rate is expected at -1.3% vs. -6.4% in February. The modest recovery continues.

U.K. reports labor market data Tuesday. Employment for the three months ending in March at -210k vs. -156k previously, with the unemployment rate expected to rise a tick to 4.3%. Average weekly earnings ex-bonuses are expected to fall a tick to 5.9% y/y in March, close to the 6% that the BOE has penciled in for Q1. Meanwhile, the unemployment rate is expected to rise a tick to 4.3% for the three months ending in March, which is still below the BOE’s medium-term equilibrium level of just over 4.5%.

The data should complement the Bank of England’s dovish hold. Softer earnings growth will raise confidence that the risks from inflation persistence are receding and should boost odds of a June rate cut that are currently around 55%. Chief Economist Pill speaks Tuesday. Greene speaks Thursday. Mann speaks Friday. Of note, Greene and Mann (along with Haskel) were the last remaining hawks voting for rate cuts, with Greene moving to a hold at the February 1 meeting and both Mann and Haskel following suit at the March 21 meeting.

Norway reports Q1 GDP Thursday. Mainland real GDP growth is expected for a second consecutive quarter at 0.2% q/q. However, the details will likely show a drag from household consumption and residential construction activity. Regardless, Norges Bank made it clear earlier this month that it’s in no rush to loosen policy. The swaps market has almost priced out the odds of a Norges bank rate cut this year and sees 50 bp of easing over the next 12 months. Norges Bank Q2 expectations survey will also be released Thursday.

Sweden reports April CPI Wednesday. Headline is expected to fall a tick to 4.0% y/y, CPIF is expected to rise two ticks to 2.4% y/y, and CPIF ex-energy is expected to rise a tick to 3.0% y/y. If so, CPIF would move further above the 2% target. According to the Riksbank, forward-looking indicators suggest a continued fall in inflation. 3- and 6-month annualized changes in CPIF and core CPIF are now slightly below 2%. Also, the Economic Tendency Survey shows fewer and fewer companies are planning to raise prices.

Riksbank also publishes its minutes to the May 7 meeting Wednesday. At that meeting, the bank cut rates 25 bp to 3.75% and noted that inflation is approaching the target while economic activity is weak. The Riksbank added “the policy rate could be cut two more times during the second half of the year, in line with the March forecast.” Meanwhile, Governor Thedeen emphasized a June cut is unlikely under current circumstance. The Riksbank also specified that cuts to the policy should be gradual because “there are risks that may cause inflation in Sweden to rise again”, namely via a weaker krona exchange rate. The minutes may also shed more light on the extent of exchange rate pass-through to inflation. The market is pricing in nearly 30% odds of a cut June 27, rising to 85% August 20. A total of 75 bp of easing is seen over the next 12 months.

ASIA

Japan data highlight will be Q1 GDP Thursday. The economy is expected to have contracted -0.4% q/q vs. 0.1% growth in Q4. Private consumption is expected at -0.1% q/q vs. -0.3% in Q4, while business spending is expected at -0.5% q/q vs. 2.0% in Q4. Of note, much of the decline in economic activity in Q1 is expected to be the result of one-off factors reflecting the effects of a suspension of production and shipment at some automakers. The Bank of Japan forecasts real GDP growth of 0.8% in 2024.

April PPI and machine tool orders will be reported Tuesday.

Australia data highlight will be the April jobs report Thursday. Consensus sees 23.7k jobs created vs. -6.6k in March, while the unemployment rate is seen rising a tick to 3.9%. If so, this would be the highest since January but would remain below the lower end of the RBA’s estimated full employment range of 4.0-5.75%. Overall, the labor market is easing only gradually, curbing expectations that the RBA will cut rates this year.

Q1 wage index Wednesday will also be important. Nominal wage growth is expected at 0.9% q/q and 4.2% y/y for a second consecutive quarter. Overall, wage growth appears to have peaked. The RBA’s liaison program forecast wage growth to average just above 4% over Q1 and decline gradually to around 3.5% for the year ahead. Similarly, the RBA has penciled in wage growth of 4.2% and 3.8% over Q2 and Q4, respectively.

Australia Treasurer Chalmers hands down his second full-year budget Tuesday. Chalmers said it will be an inflation-fighting and future-making budget, emphasizing that “this is not the time for scorched-earth austerity.” Looser fiscal policy could raise the likelihood the RBA raises rates again, though that is not our base case.

RBNZ survey of inflation expectations for Q2 will be released Monday. 2-year inflation expectations have declined from a high of 3.6% in Q4 2022 to 2.5% in Q1, well within the 1-3% target range.