BoC Decides On Rates, Chinese Exports Plunge In May
The Bank of Canada (BoC) interest rate decision due later today, the Japanese and Eurozone’s GDP growth reports for the first quarter of 2023 will be among the most important financial data reports for the rest of the week.
Chinese exports dropped by 7.5% in May for the first time in the last 3 months, surpassing expectations for a small 0.4% fall as a Reuters poll had forecast. Imports fell by 4.5% although market analysts had expected an 8.0% fall.
Data coming from the Australian Bureau of Statistics (ABS) showed that the country’s GDP grew by 2.3% on an annualised basis in the first quarter of 2023, slightly below analysts’ expectations. Analysts at ABS noted that “this is the sixth straight rise in quarterly GDP, but the slowest growth since the Covid-19 Delta lockdowns in September quarter 2021.”
Bank of Canada Interest Rate Decision
Later in the evening, the BoC will announce its interest rate decision. Economists suggest that while the BoC’s board has vowed to pause its monetary policy tightening, surging inflation could affect its upcoming decision.
According to a Reuters report, market analysts suggest that there is a nearly 40% chance for a 25-basis-point hike today, a more than 80% chance for one by July, and they fully price one in by September. A Reuters poll showed that around 65% of economists polled expect the BoC to keep rates on hold for the rest of 2023.
Scotiabank’s analysts said that “the Bank of Canada has been fairly clear that its conditional hold since January relied upon developments conforming to its expectations. That clearly has not been the case. Decisive action should have already been delivered, but further delay until July only to disappear for August holidays would lose precious time to send a concrete message.”
Japan's GDP growth in Q1 2023
The Japanese government will release data regarding the GDP’s growth in the first quarter of the year on Thursday. Market analysts suggest that the Japanese GDP expanded by 0.5% on a quarterly basis and by 1.6% on an annualised basis.
UOB analysts who scrutinised GDP preliminary data said in their report: “Japan’s growth momentum in 1Q was stronger than forecast as we underestimated the impact of re-opening on private consumption and the surprise jump in business spending, while the fall in commodity prices helped further trim the country’s ballooning import bill. But weaker external demand (as overseas markets continued to slow down) continued to delay the export recovery, exerting a drag on overall growth.”
Eurozone GDP in Q1 2023 report
Eurostat is expected to announce the euro bloc’s GDP data on Thursday. Market analysts suggest that the GDP remained unchanged in the first quarter of the year on a quarterly basis and that it grew by 1.2% on a year-to-year basis.
ING’s analysts didn’t appear optimistic regarding the eurozone’s economy in a report published on June 1st. “Eurozone growth disappointed in the first quarter. While falling energy prices and rising wages should support consumption, the soft Chinese reopening, tighter monetary conditions and looming US recession will weigh on growth and bring the economy close to a standstill by year-end. It is mainly services that are currently thriving. The manufacturing sector is struggling with excess inventories while construction is hampered by higher interest rates.” they note in their report.
China CPI Inflation in May 2023
The Chinese CPI inflation data for May will be the last release for the week. Analysts forecast that CPI inflation remained unchanged at 0.1% on a year-to-year basis while dropping to –0.1% on a monthly basis. Some economists believe that Chinese economic growth has stalled in the last few months after the reopening of the economy.
The latest data showed that youth unemployment hit 20% in April. Commenting on weak economic figures, market analysts told CNBC reporters that “the absence of a self-sustained recovery in China today is mainly a cyclical, not structural, phenomenon. History suggests that the concern on ‘Japanification’ will subside once the recovery becomes more entrenched.”
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