Introduction

Central bank officials have been warning us for months that annual readings on inflation, skewed by the easy year-ago comparisons of the great lockdown, will begin to climb. But this, as they have repeatedly assured us, will be nothing more than a head fake, that levels will then fall back harmlessly as the 2020 comparisons get more difficult. Jerome Powell at Wednesday's FOMC press conference warned us at length that annual price readings in Friday's personal consumption and outlays report would be going through the roof. But that wasn't all that was going through the roof.

The Global Economy

Inflation

The PCE price index, the Fed's central price gauge, accelerated by 7 tenths in March to an annual rate of 2.3 percent and above the 2 percent target for the first time since August 2018. Yet no worries as the PCE core, a less volatile and equally important gauge, held below target, rising a less heated 4 tenths to 1.8 percent. But what if we toss out the annual rates? What about month-over-month acceleration? Comparisons on this score don't involve 2020 at all, only the latest February. And here the results are definitely on the overheated side of the street, up 0.5 percent overall and 0.4 percent for the core, both higher than expected and the latter the sharpest gain since all the way back in October 2009. Yet in a reprieve of sorts, the University of Michigan's gauge on inflation expectations at the consumer level, released later Friday morning, fell 3 tenths from mid-month to 3.4 percent. The month-end to mid-month comparison points to a reading closer to 3 percent flat over the last two weeks. Were US consumers actually listening to Powell's press conference?

But the Fed chair wasn't all sanguine as economists say, he did concede that bottlenecks in the supply chain are an inflationary wild card and are "harder to call", but here too he says the heat will not be permanent. But the heat at the producer level is certainly on, whether in the US or anywhere else. Producer prices in France (ex-construction) continued to climb sharply in March, up 1.0 percent on the month to lift annual PPI inflation from 1.9 percent to 4.5 percent, a multi-year high. The main boost came again from coke and refined petroleum, yet there were also sizeable gains for food, drink and tobacco, electrical and electronic equipment, as well as computers and machines. Consumer prices in data for April were also released in the week and pressure here was much less dramatic. A 0.2 percent monthly rise was lower than expected but still large enough to boost the annual inflation rate from March's 1.1 percent to 1.3 percent, its strongest reading since February last year. April's CPI acceleration was attributable largely to energy, but services also picked up steam.

Employment

German consumer prices were also released in the week and they showed more pressure than France, up 3 tenths for the annual rate which is now on target at 2.0 percent. German employment has been on target through the pandemic, showing great resilience but perhaps a little less so in April. Unemployment rose 9,000 in the month to 2.760 million to offset a 6,000 drop in March in a reversal that was not enough to raise the unemployment rate which held steady at 6.0 percent. Yet April's increase in joblessness was only the second since June last year and warns that the economy may be losing a little momentum due to Covid restrictions. But let's not jump to conclusions; vacancies climbed an additional 14,000 to 631,000 following a 15,000 advance in March. The trend here has picked up sharply in recent months.

Unlike the steadiness of Europe, the labor market in the US has been all over the place during the pandemic and appears now to be building a strong head of steam. Initial jobless claims continue to move lower, down 13,000 in the April 24 week to 553,000 to nearly hit Econoday's consensus for 558,000. Lagging data for continuing claims (April 17 week) showed a very slight 9,000 rise to 3.660 million with the unemployment rate for insured workers unchanged at 2.6 percent. These results are consistent with significant gains for the April employment report which are expected and which will be the coming week's key set of data.

GDP

First-quarter GDP reports were out in force in the latest week, and perhaps the most surprising was the strength of France. Despite the imposition of increasingly tight Covid restrictions, French GDP expanded by 0.4 percent on the quarter and 1.5 percent on the year as the nation successfully avoided what had been an anticipated double-dip recession. But though the annual rate was in positive ground for the first time since the fourth quarter of 2019, total output was still 4.4 percent short of its pre-pandemic level. Household consumption rose in the quarter as did fixed capital formation and especially construction. The first quarter was clearly stronger than expected, confirming earlier signs that consumers and businesses have become more adept at coping with the virus fallout.

As much as France surprised on the upside, Germany surprised on the downside. GDP contracted a quarterly 1.7 percent though annual contraction, reflecting an easy comparison with the year-ago lockdown, actually improved 3 tenths to minus 3.0 percent. This left Germany's economy 4.9 percent smaller than just before the pandemic hit. GDP expenditure components aren't provided in the flash data but the signs are that total output was undermined by household consumption which offset strength in exports. The quarterly decline flies in the face of PMI surveys where an average composite output value of 52.6 should have equated with moderate growth.

Coming in right at expectations was the US where GDP, here measured on an annualized basis, accelerated to 6.4 percent in the first quarter versus a 4.3 percent annual rate of growth in the fourth quarter. Boosted by vaccinations, a relaxation of containment measures and another round of stimulus checks, consumer spending rose at an annual rate of 10.7 percent, slightly more than Econoday's 10.5 percent consensus and far above the 2.3 percent increase in the fourth quarter. Consumer spending contributed 7.0 percentage points to GDP with government spending, business investment, and residential investment also positive while inventories and net exports were negatives. The graph, which tracks contributions by components, illustrates just how much the consumer dominates US GDP (columns at the left).

Purchasing manager indexes

Mixed news during the week came from China where two separate purchasing manager surveys offered different indications on April's activity. The Caixan manufacturing PMI rose noticeably from a flat 50.6 in March to a 51.9 level in April that indicates tangible monthly growth. This is the first acceleration for this index in five months. In contrast, the official CFLP manufacturing PMI survey declined from 51.9 in March to 51.1 in April. Taken together these surveys suggest that activity is moderately positive. Among details, respondents in the Caixan survey are confident that vaccine rollouts will provide a boost to global economic conditions in coming months. And price pressures strengthened further in the Caixan data, with input costs and selling prices both rising at the fastest pace in recent years.

Leading indicators

Purchasing manager surveys offer anecdotal indications on how definitive data are likely to unfold in the months ahead. Leading indicator reports, in distinction, aggregate definitive data that have already been reported but have forward-looking properties, such as new orders, building permits, and unemployment claims for example. And for Switzerland, the indications have never been better. Following an impressive 15 point surge in March, the KOF's leading indicator jumped another 16 points in April to a totally unexpected 134.0. This level is 34 points above its long-run average and at a record high for a series that dates back to the 70s. Manufacturing orders were especially strong in April with indications on domestic demand as well as foreign demand both positive.

Markets: Good news or bad, stocks mostly down

Covid crisis or not, India's Sensex, though volatile day-to-day and falling steeply on Friday, was one of the week's best performers, rising 1.9 percent to nearly offset the prior week's decline. Stocks in Japan, another country suffering heightened Covid effects, continued to sink, with the Nikkei down 0.7 percent on the week and finishing Friday with a loss. And Italy, where restrictions are being lifted, failed to gain on the week, losing 1.0 percent instead on the FTSE MIB. Germany, where economic data have been missing expectations, also declined with the DAX down 0.9 percent. For the US, strength in quarterly earnings, whether from Tesla or Facebook or Apple, failed to give much of a lift to US indexes which were flat on the week. President Biden's efforts to raise capital gains taxes are perhaps offsetting his plans to spend big on US infrastructure.

The bottom line

Once again, global economic data on net were beating expectations led in the latest week by the Eurozone where Econoday's consensus divergence index added another 9 points for a very strong 39 score that indicates economists are coming up well short in their forecasts. Within the Eurozone, France's index, boosted by the GDP surprise, rose nearly 20 points in the week to 25; Italy held steady at 11 while Germany, at minus 13, continues to post disappointing numbers. The UK is solidly in the plus column at 25 with Switzerland, benefiting especially from the LEI, at 24. Canada is also at the top at 25 with the US remaining in the plus column at 8. China's score, reflecting slowing indications previously reported at mid-month, lags in the distance at minus 31.

**Contributing to this article were Jeremy Hawkins in London, Brian Jackson in Sydney, and Mace News in New York

Week of May 3 to May 7 (all days local)

The Reserve Bank of Australia on Tuesday and the Bank of England on Thursday will anchor the coming week and though neither are expected to change policy settings, any hints on the timing of stimulus withdrawal could easily move the markets. The US employment report on Friday could also easily move the markets amid what are strongly optimistic expectations for an April jump in nonfarm payrolls that would match March's gain. Canada, which has posted outsized jumps in both February and March, will post its labour force survey also on Friday, while Switzerland, where employment has remained strong throughout the pandemic, will post its unemployment rate in what will be another Friday report.

Purchasing manager indexes will open the week in force on Monday: first manufacturing from both Korea and India, overall activity from Switzerland, then US manufacturing from the closely watched ISM. Germany will post manufacturing orders on Thursday and industrial production on Friday, neither of which have lived up to the country's record PMI showings. Consumer data will include German retail sales on Monday followed by Eurozone retail sales on Thursday. Inflation data will be limited to Wednesday with the Swiss CPI and Eurozone PPI. Also worth watching will be Canadian merchandise trade on Tuesday as well as French industrial production and the UK's construction PMI both on Friday.

Korean Manufacturing PMI Flash for April (Mon 00:30 GMT; Mon 09:30 KST; Sun 20:30 EDT)

Consensus Forecast, Manufacturing: 55.0

Korea's manufacturing PMI is seen holding steady at 55.0 following two straight showings at 55.3.

India: Manufacturing PMI for April (Mon 05:00 GMT; Mon 10:30 IST; Mon 01:00 EDT)

Consensus Forecast: 51.6

India's manufacturing PMI for April, a month of substantial Covid effects, is expected to slow to 51.6 following a run of seven straight readings in the mid-to-high 50s.

German Retail Sales for March (Mon 06:00 GMT; Mon 08:00 CEST; Mon 02:00 EDT)

Consensus Forecast, Month over Month: 3.0%

Partial lockdowns held back retail sales in February which rose a lower-than-expected 1.2 percent. Lockdowns will also be a factor for March though expectations are for acceleration to a monthly gain of 3.0 percent.

Switzerland: SVME PMI for April (Mon 07:30 GMT; Mon 09:30 CEST: Mon 3:30 EDT)

Consensus Forecast: 66.2

The SVME PMI, at a consensus 66.2 for April versus March's 66.3, has easily exceeded expectations the last four reports.

US: ISM Manufacturing Index for April (Mon 14:00 GMT; Mon 10:00 EDT)

Consensus Forecast: 65.0

After March's 64.7, forecasters do not see the ISM manufacturing index in April slowing at all, instead accelerating yet a little bit more to a consensus 65.0. This index, driven by new orders, has exceeded the high end of Econoday's consensus range the past two reports.

Reserve Bank of Australia Announcement (Tue 04:30 GMT; Tue 14:30 AEST; Tue 00:30 EDT)

Consensus Forecast, Change: 0 basis points

Consensus Forecast, Level: 0.10%

The Reserve Bank of Australia is expected to keep its policy rate unchanged at 0.10 percent. At its April meeting, the bank said it would still take time to reduce spare capacity and high levels of unemployment to generate the wage increases consistent with achieving its inflation target.

Canada Merchandise Trade Balance for March (Tue 12:30 GMT; Tue 08:30 EDT)

Consensus Forecast: C$0.4 billion

Canada is expected to post a March surplus of C$0.4 billion versus a February surplus of C$1.04 billion that masked monthly contraction for both imports and exports.

Swiss CPI for April (Wed 06:30 GMT; Wed 08:30 CEST; Wed 02:30 EDT)

Consensus Forecast, Month over Month: 0.2%

Consensus Forecast, Year over Year: 0.3%

Consumer prices are expected to emerge from annual contraction in April, at a consensus 0.3 percent versus minus 0.2 percent in March. Month-over-month, the CPI is seen up 0.2 percent versus March's plus 0.3 percent.

Eurozone PPI for March (Wed 09:00 GMT; Wed 11:00 CEST; Wed 05:00 EDT))

Consensus Forecast, Month over Month: 0.6%

Consensus Forecast, Year over Year: 4.0%

Pipeline inflation pressures have been building in the Eurozone. After February's 0.5 percent gain, forecasters see monthly producer prices in March rising 0.6 percent and lifting the annual rate to 4.0 percent from 1.5 percent.

German Manufacturers' Orders for February (Thu 06:00 GMT; Thu 08:00 CEST; Thu 02:00 EDT)

Consensus Forecast, Month over Month: 1.8%

Another solid gain is expected for manufacturers' orders, at a consensus 1.8 percent for March following a 1.2 percent rise in February.

Eurozone Retail Sales for March (Thu 09:00 GMT; Thu 11:00 CEST; Thu 05:00 EDT)

Consensus Forecast, Month over Month: 1.4%

Retail sales are expected to rise 1.4 percent in March following February's stronger-than-expected 3.0 percent jump.

Bank of England Announcement (Thu 11:00 GMT; Thu 12:00 BST; Thu 07:00 EDT)

Consensus Forecast, Change: 0 basis points

Consensus Forecast, Level: 0.10%

Consensus Forecast: Asset Purchase Level: £895 billion

The Bank of England kept policy steady at its March meeting and is expected to do the same for May's meeting: holding QE at £895 billion (gilts accounting for £875 billion) and Bank Rate at 0.10 percent.

US Initial Jobless Claims for the May 1 week (Thu 12:30 GMT; Thu 08:30 EDT)

Consensus Forecast: 533,000

Jobless claims for the May 1 week are expected to come in at 533,000, down 20,000 from 553,000 in the April 24 week. Initial filings have been moving lower and point to another month of significant strength for the April employment report.

Swiss Unemployment Rate for April (Fri 05:45 GMT; Fri 07:45 CEST; Fri 01:45 EDT)

Consensus Forecast, Adjusted: 3.5%

Following an unexpected 3 tenths decline to 3.3 percent in March, the Swiss unemployment rate is seen rising 2 tenths to 3.5 percent in April.

German Industrial Production for March (Fri 06:00 GMT; Fri 08:00 CEST; Fri 02:00 EDT)

Consensus Forecast, Month over Month: 1.7%

Industrial production, which has fallen sharply and unexpectedly the last two reports, is expected to rebound a monthly 1.7 percent in March.

French Industrial Production for March (Fri 06:45 GMT; Fri 08:45 CEST; Fri 02:45 EDT)

Consensus Forecast, Month over Month: 2.0%

Industrial production in March is expected to rise a monthly 2.0 percent after falling unexpectedly in February by a very sharp 4.7 percent.

UK: PMI Construction for April (Fri 08:30 GMT; Fri 09:30 BST; Fri 04:30 EDT)

Consensus Forecast: 62.3

March's report was exceptionally strong, jumping nearly 9 points to 61.7. And forecasters are looking for further acceleration with April's consensus at 62.3.

US Employment Situation for April (Fri 12:30 GMT; Fri 08:30 EDT)

Consensus Forecast: Change in Nonfarm Payrolls: 938,000

Consensus Forecast: Unemployment Rate: 5.8%

A greater surge of 938,000 is Econoday's consensus for April nonfarm payrolls following March's higher-than-expected surge of 916,000. Payrolls have exceeded expectations significantly the last two reports.

Canadian Labour Force Survey for March (Fri 12:30 GMT; Fri 08:30 EDT)

Consensus Forecast: Employment Change: 135,000

Consensus Forecast: Unemployment Rate: 7.9%

Following far stronger job growth than was expected in both February and March, at 303,100 and 259,200 respectively,  forecasters see April's growth at 135,000. The unemployment rate is expected to rise 4 tenths to 7.9 percent.