The British pound and Canadian dollar face the highest event risk this coming week, as both region’s will see the release of CPI data, along with the minutes from the Bank of England’s most recent meeting and Canadian retail sales. Adding to the mix, Japanese GDP results may show that growth contracted by a record, which could impact broader risk trends.
- UK Consumer Price Index (CPI) (APR) – May 19
The UK’s consumer price index (CPI) reading for the month of April is expected to rise 0.4 percent, the third straight increase. However, the annual rate of growth, which is more closely watched by the Bank of England, is forecasted to fall to a more than one-year low of 2.4 percent from 2.9 percent, keeping inflation within the central bank’s acceptable range of 1 percent - 3 percent, but above their 2 percent target. If CPI falls more than projected, the British pound could pull back sharply as the markets will anticipate that the BOE will expand their quantitative easing efforts even further. On the other hand, if CPI holds strong, the currency could rally in response. - Japanese Gross Domestic Product (GDP) (1Q P) – May 19
On May 19 at 19:50 ET, Japan's Cabinet Office will release preliminary growth readings, and after three consecutive quarters of contraction, the outlook doesn't look good. There are signs that businesses are suffering considerably at the hands of waning domestic and foreign demand. Consumers have very little to work with these days, as the jobless rate has slowly climbed to a nearly five-year high, and perhaps even worse, cash earnings growth contracted by 3.7 percent in March from a year earlier, the sharpest drop since 2002. Meanwhile, Japanese exporters have had to grapple with not only slowing global growth, but also the appreciation of the Japanese yen, all of which has led foreign-bound shipments to tumble a whopping 46.5 percent in March from a year ago, according to figures published by the Ministry of Finance. As a result, a Bloomberg News poll of economists shows expectations for GDP to fall 4.3 percent in Q1, with the annualized rate forecasted to plummet by a record 15.9 percent. Ultimately, this could hurt risk appetite during the Asian trading session, lead the Nikkei lower, and thus push the Japanese yen higher amidst deleveraging. - Bank of England Meeting Minutes (MAY 7) – May 20
The minutes from the Bank of England's May 7 meeting may not be as market-moving as they've been in the past, as there has already been significant detail revealed about the mindset of the Monetary Policy Committee (MPC). Indeed, we already know that the BOE has decided to expand their quantitative easing program by 50 billion pounds to 125 billion pounds, that the drop in Q1 GDP of -1.9 percent was worse than expected, and that CPI will likely will be below the BOE’s 2 percent inflation target in the medium term. However, the growth and inflation outlook published in the BOE’s Quarterly Inflation Report suggests that the central bank may be open to expanding their quantitative easing program later on. If the minutes from the BOE’s most recent meeting reiterate this, the British pound could pull back very sharply. - Canadian Consumer Price Index (CPI) (APR) – May 20
According to the Bank of Canada’s last Monetary Policy Report in April, the Bank is open to quantitative easing (QE) and credit easing if nominal interest rates start to fall below zero. Indeed, the Bank stated that while they could cut rates to zero in theory, it would ultimately "eliminate the incentive for lenders and borrowers to transact in markets, especially in the repo market." As a result, inflation reports will be key to gauging whether the Bank of Canada will go the route of QE, but looking ahead to upcoming reports, this shouldn’t be the case and thus, the news shouldn’t be too market-moving. Headline CPI is projected to have risen 0.2 percent in April, leading the annual rate to slump to 0.6 percent, the lowest since November 2001. Meanwhile, core CPI is forecasted to have risen 0.1 percent during the month, leaving the annual rate down at 1.8 percent from 2.0 percent. All told, the Canadian dollar may only respond if CPI rises more than expected (CAD bullish), or if CPI contracts on a monthly bases and drags the annual rates of price growth much low (CAD bearish). - Canadian Retail Sales (MAR) – May 22
The release of Canadian retail sales could offer a boost to the Canadian dollar, as spending is anticipated to have risen for the third straight month in March at a rate of 0.5 percent. Indeed, Canadian data has generally been better-than-expected latest, as the Canadian economy surprisingly added on employees during April and Ivey PMI rose above 50 – signaling an expansion in business activity - for the first time since October 2008. If the indicator rises in line with or more than expectations, the Canadian dollar could rally, but if retail sales actually fall, the currency could tumble.
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