FX Week Ahead: Japan’s Q1 GDP, UK Inflation expected to rise

May 15, 8:51 am
Yen_Japan

The week ahead will see a continuation of economic data from across the various regions. In the UK, the inflation numbers for April is expected to show a continued increase in consumer prices, while also we will get to see whether wages have managed to keep up the pace.

In the Eurozone, the second GDP estimates and inflation figures will be coming out this week with data expected to show no changes from the preliminary flash readings. Japan’s first quarter GDP numbers are also coming up this week with data expected to show a modest increase in economic activity in the three months ending March 2017.

Eurozone GDP revision and inflation numbers

Economic data from the Eurozone will see revisions to the GDP and inflation figures, although by and far no major surprises are expected. This means that the first quarter GDP growth in the Eurozone is expected to remain steady at 0.5%, while inflation figures are set to confirm that headline consumer prices rose 1.9% and core inflation rose 1.2%, unrevised from the preliminary estimates released by Eurostat.

Eurozone CPI y/y: 1.9%, April 2017
Eurozone CPI y/y: 1.9%, April 2017

The confirmation on the numbers is likely to see more pressure coming onto the ECB amid growing calls for the central bank to ease off the QE pedal. The European Central Bank will be published the meeting minutes from its April meeting this Thursday. Not much information is expected however that will have any impact on the markets.

The German ZEW Economic sentiment will be published on Tuesday. The economic sentiment indices are already at a historically high level as far as Germany is concerned with firming expectations on robust growth that is expected to continue.

In April 2017, the ZEW indicator rose 6.7 points to reach a high of 19.5 which marked a nearly one and a half year’s high. Following the French elections, there is scope for the ZEW economic sentiment to rise even further.

Japan first quarter GDP expected to rise

Japan will be announcing the first quarter GDP numbers this week on Thursday. The preliminary estimates are expected to show that the Japanese economy expanded, led by increased demand and a stable global outlook.

Japan Annualized GDP Growth Rate: 1.2%, Q4 2016
Japan Annualized GDP Growth Rate: 1.2%, Q4 2016

The Gross Domestic Product (GDP) is expected to rise 0.4% on the quarter, driven by an increase in exports while on an annualized basis, GDP is expected to rise 1.8%. The increase in the GDP during the first quarter comes after the nation posted a 1.2% increase during the fourth quarter of 2016. It was, however, lower than the market estimates of 1.6%.

There is a chance that the first quarter GDP could also possibly miss the estimates of 1.8% annualized growth but instead come in around 1.2% – 1.4%. Still, policy makers at the BoJ will welcome any positive news on the economy especially with wages and inflation showing no signs of going anywhere.

Last week, the BoJ released its summary of opinions which showed that policy makers were slightly doubtful on the pace of inflation, despite striking a very optimistic tone during the April BoJ meeting.

UK data to focus on wages, inflation, and spending

Data from the UK this week will bring two crucial elements to the table, the monthly consumer price index and the labor market data. Inflation is expected to continue rising, with estimates pointing to a 2.6% increase in April on a year over year basis. This comes following March’s 2.3% increase.

After Tuesday’s inflation figures, the monthly jobs reports due on Wednesday. The focus will no doubt remain on the wage growth which is expected to trail consumer prices. Real wage growth stood at 0.3% on a year over year basis in February.

On Thursday, retail sales numbers will likely top off the suspicions that higher prices and weak pace of wage increase is curbing customer purchases. In the first quarter, retail sales numbers fell sharply posting the biggest decline in seven years.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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