This week, financial markets will be glued to important economic indicators. In particular, they will watch for announcements from central banks that might set direction for trading before the long holiday weekend. At the time of this writing, the United States Treasury is preparing to auction 2-, 5-, and 7-year notes. At the same time, personal consumption, durable goods orders and consumer confidence data will be released. The Reserve Bank of New Zealand is expected to adjust its cash rate amidst ongoing inflation concerns in Japan.
This week, the best highlights are on deck with the personal consumption release coming up. It was up 0.7% M/M in March and even expected to be up another 0.2% in April! Like the CPI and the GDP, these figures will shed light on overall consumer behavior and economic health.
We know the international environment is changing, including a possible cooling US-China trade war. Market participants are preparing for central bank meetings and a heavy calendar of economic reports that may shape monetary policy and investment strategies going into 2023.
Upcoming Treasury Auctions
This was an important week of Treasury note auctions, with the U.S. Treasury selling 2-, 5-, and 7-year notes this week. These auctions are essential to the federal government’s financing function. They provide investors a unique opportunity to purchase government debt securities at competitive yields. How these auctions turn out can affect short-term interest rates and overall marketplace sentiment.
Analysts believe there will be potent demand for these notes, especially considering the current trajectory of inflation and interest rates. Investors will be keen to assess how the upcoming Treasury yields align with their expectations for economic growth and Federal Reserve policy.
Yet the outcome of these auctions could have wider bond market ramifications. If demand continues to be strong, that would be a positive indication of confidence returning to the U.S. economy, which may even boost equity markets with it.
Key Economic Data Releases
This week is the big one—literally, in terms of key economic indicators being released. We’ll get the week started on Tuesday, with the release of durable goods orders and consumer confidence. Durable goods orders provide a measure of business investment and manufacturing activity, while consumer confidence reflects households’ outlook on the economy.
After that, on Thursday we get the second estimate of Q1 GDP growth. This is an important figure to look at when you are assessing the overall health of the economy. It has the ability to shape future monetary policy deliberations. In addition to GDP data, pending home sales are set to report, providing hints at the strength of the housing market so far.
On Friday, market participants will receive a series of additional economic signals. In addition, they will get the Chicago Purchasing Managers’ Index (PMI) and the Canadian GDP report. These numbers are important indicators of regional manufacturing activity and overall economic health across Canada.
Central Bank Decisions and Inflation Concerns
Other than economic data, the actions of central banks are poised to take the spotlight this week. Reserve Bank of New Zealand has cut and intends to announce more cuts to its cash rate. On Wednesday, look for a cut of 25 basis points. This decision is intended to promote more robust economic growth against a backdrop of slowing activity and increasing inflationary pressures.
Inflation in Japan refuses to die down, with the core inflation just recently breaking above the Bank of Japan’s 2% target. Long-term high inflation will force an even greater debate on where to go with monetary policy. The Federal Reserve will be under pressure to rethink its approach to achieving price stability.
In Canada, the probability of an interest rate cut by the Bank of Canada at its June meeting stands at 30%. While all these other aspects present some risk, it is the uncertainty about future monetary policy that presents another complicating factor for investors traversing this volatile market.