The majors were weaker across the board last week as the dollar mounted a broad-based rally. JPY, CHF, and NOK outperformed while SEK, NZD, and EUR underperformed. We believe the dollar rally will continue this week as recent data support our view that market expectations for Fed easing will need to be repriced, most likely quite violently.

AMERICAS

Fed easing expectations continue to run high. At the start of last week, the swaps market was pricing in a Fed Funds range between 4.0-4.25% in 12 months. Now, it's seen around 3.75% in 12 months with three cuts still priced in by year-end. Fed officials are likely to continue pushing back against this dovish take. We have a full slate of Fed speakers. Actually, we can’t recall a week that had so many scheduled. Bostic, Kashkari, and Cook speak Monday. Mester, Barr, Williams, Logan, and Bostic speak Tuesday. Jefferson, Barr, and Logan speak Thursday. Williams, Bowman, and Powell speak Friday. Powell will be joined by former chair Bernanke.

The data highlight will be April retail sales Tuesday. Headline is expected at 0.8% m/m vs. a revised -0.6% (was -1.0%) in March, while ex-autos is expected at 0.4% m/m vs. a revised -0.4% (was -0.8%) in March. The so-called control group used for GDP calculations is expected at 0.3% m/m vs. -0.3% in March. In late April, the Census Bureau reported its annual revisions to the retail sales data. The Atlanta Fed’s GDPNow model is currently tracking 2.7% SAAR growth for Q2, steady from the previous reading and up from the initial 1.7% reading and 1.1% in Q1. Next model update comes Tuesday after the sales data. Bloomberg consensus currently sees Q2 at 0.1% SAAR and Q3 at -0.6% SAAR.

Regional Fed surveys for May will start rolling out. Empire manufacturing survey kicks things off Monday and is expected at -4.0 vs. 10.8 in April. New York Fed services index will be reported Tuesday. April IP will also be reported Tuesday and is expected flat m/m vs. 0.4% in March. Philly Fed business outlook will be reported Thursday and is expected at -20.0 vs. -31.3 in April. The manufacturing is slowing but that is a global phenomenon, as services sector strength is proving to underpin growth all around the world.

Weekly claims data will be important. That’s because initial claims data will be for the BLS survey week containing the 12th of the month. They are expected at252k vs. 264k last week, which was the highest since late October 2021 and perhaps another sign that the labor market is softening. Perhaps. Late last week, reports emerged that fraudulent initial claims in Massachusetts were behind the recent uptick. That state reported a 6,375 rise that accounted for almost half of the 13,969 rise in total unadjusted claims nationwide last week. Continuing claims are reported with a one-week lag and are expected at 1.818 mln vs. 1.813 mln last week. Of note, there is no consensus yet for May NFP but we would expect some slowing from 253k in April.

Housing market data will be closely watched. NAHB housing index will be reported Tuesday. April building permits and housing starts will be reported Wednesday and are expected flat m/m and -1.4% m/m, respectively. Existing home sales will be reported Thursday and expected at -3.2% m/m vs. -2.4% in March. Other minor data will be reported. March TIC data will be reported Monday. March business inventories will be reported Tuesday and are expected flat m/m vs. 0.2% in February. April leading index will be reported Thursday and is expected at -0.6% m/m vs. -1.2% in March.

Canada reports some key data. April CPI will be reported Monday. Headline is expected to fall a tick to 4.2% y/y, while both core trim and median are expected to fall three ticks to 4.1% and 4.3%, respectively. March retail sales data will be reported Friday. Headline is expected at -1.4% m/m vs. -0.2% in February, while ex-autos is expected at -0.8% m/m vs. -0.7% in February. Other minor data will be reported, with April housing starts, existing homes sales, and March wholesale trade sales all coming on Monday.

Bank of Canada expectations remain dovish. While it seems that the tightening cycle is over, we disagree with market expectations for two cuts by year-end.

EUROPE/MIDDLE EAST/AFRICA

ECB expectations have steadied. WIRP suggests a 25 bp hike is priced in for June 15 and about 60% for July 27. One last 25 bp hike is priced in for September 14 and so the market so far does not believe the hawks that are pushing for three straight hikes. The split between the hawk and the doves clearly remains in place but it feels like the doves have taken control of the narrative, at least for now. Nagel speaks Monday. Makhlouf and Lagarde speak Tuesday. De Cos, Elderson, Centeno, Guindos, and Rehn speak Wednesday. Guindos speaks again Thursday. Schnabel, Lagarde, and de Cos speak Friday.

Germany ZEW survey for May will be reported Tuesday. Expectations are expected at -5.5 vs. 4.1 in April, while current situation is expected at -37.5 vs. -32.5 in April. The drop in the survey readings is not that surprising given recent weakness in the hard data. We cannot get excited about the eurozone outlook when its largest economy continues to struggle. Of course, China reopening has done little for the global economy.

Eurozone reports March IP Monday. it is expected at -2.7% m/m vs. 1.5% in February, while the y/y rate is expected at 0.1% vs. 2.0% in February.

The U.K. has a quite week. Labor market data will be reported Tuesday. Unemployment is expected to remain steady at 3.8% for the three months ended in March, while average weekly earnings are expected to fall a tick to 5.8% y/y. May GfK consumer confidence will be reported Thursday and is expected at -27 vs. -30 in April.

Bank of England expectations have picked up. A 25 bp hike is nearly 70% priced in for June 22 and another 25 bp hike is about 75% priced in for November 2. Inflation remains stubbornly high and so the market now sees the terminal rate peaking near 5.0% vs. 4.75% before last week’s meeting. Pill speaks Monday and Thursday. Bailey testifies on QT Thursday. Haskel speaks Friday.

Sweden reports April CPI data Monday. Headline is expected to rise a tick to 10.7% y/y, CPIF is expected to remain steady at 8.0% y/y, and CPIF ex-energy is expected to fall two ticks to 8.7% y/y. At the last policy meeting April 26, the Riksbank hiked rates 50 bp to 3.5% but there were two dissents in favor of a smaller 25 bp move. The bank noted that “It is important for confidence in the inflation target that inflation falls clearly this year. To ensure that this happens, the policy rate needs to be raised further.” Forward guidance shifted more hawkish as the policy rate is seen peaking at 3.65% in Q2 2024 vs. 3.33% in Q4 2024 in the February forecasts and staying there through Q2 2025 before falling by Q2 2026. Looking ahead, WIRP suggests odds of a 25 bp hike June 29 at nearly 80%.

ASIA

Japan data highlight will be Q1 GDP Wednesday. Growth is expected at an annualized 0.8% vs. 0.1% in Q4, while the q/q rate is expected at 0.2% vs. 0.0% in Q4. Recent data have come in soft and so Q1 is ending with slower momentum, which suggests downside risks to Q2. No wonder the Bank of Japan is staying cautious. Liftoff this year is not fully priced in.

April trade data will be reported Thursday. Exports are expected at 3.0% y/y vs. 4.3% in March while imports are expected at -0.6% y/y vs. 7.3% in March. April PPI and machine tool orders will be reported Monday. Again, China reopening has simply had little impact on regional trade and activity.

Australia data highlight will be April jobs data Thursday. Consensus sees 20.0k jobs created vs. 53.0k in March, with the unemployment rate seen steady at 3.5%. Ahead of that, Q1 wage index will be reported Wednesday and is expected at 3.6% y/y vs. 3.3% in Q4.

Reserve Bank of Australia releases the minutes of its May 2 meeting Tuesday. At that meeting , it delivered a hawkish surprise and hiked rates 25 bp to 3.85% vs. an expected hold. Similar to its statement from the April 4 meeting, when it held rates, the bank said “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe. The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.” Governor Lowe said unit labor costs were rising “briskly” even as productivity remains low, adding that the RBA “remains alert” to a wage-price spiral. Lowe will speak tonight to give a fuller explanation of the decision, which quite frankly will simply add to complaints about the bank’s communication style. The bank releases it Statement on Monetary Policy Friday that will contain updated macro forecasts. Some forecasts were released and were little changed from the February forecasts, which begs the question of why the RBA decided to hike again after a one month pause. WIRP suggests odds of another 25 bp hike top out around 30% for August 1, with odds of an easing cycle seen for late 2023. We believe early 2024 is more likely.