Key Events: -

Monday: UK Services PMI (May), China Caixin Services PMI (May)

Tuesday: RBA MonPol Decision

Wednesday: Australian GDP (Q1)

Thursday: ECB MonPol Decision, UK General Election, Japan GDP (Q1, F) Chinese Trade Balance (May)

Friday: Canadian Labour Market Report (May), China Inflation Data (May)

North America: -

Ex-FBI Director James Comey is set to testify before the US Senate Intelligence Committee on Thursday, with reports suggesting Comey will say that US President Donald Trump asked him to back-off the investigation of former national security advisor Michael Flynn.

Over the border in Canada, focus will fall on the labour market report, due Friday, with the current trend a notable positive for the Canadian economy. At its most recent monetary policy decision, the Bank of Canada noted that “consumer spending and the housing sector continue to be robust on the back of an improving labour market, and these are becoming more broadly based across regions.”

Other releases of note during the week: Monday US ISM Non-Manufacturing PMI (May), US Factory Orders (April), Durable Goods Orders (April, F) Tuesday: Canadian Ivey PMI (May)

Europe: -

The European Central Bank (ECB) will deliver its latest monetary policy decision and staff macroeconomic projections (prior forecasts available here) on Thursday. A recent sources report from Reuters suggested that the central bank is likely to discuss removing it’s easing bias at the upcoming meeting. However, it also noted that any decision on the matter is far from certain. The story came just day after ECB President Mario Draghi reiterated that “the economic outlook is improving with downside risks moderating” while he stated that he remains convinced that “extraordinary of monetary policy support, including forward guidance is still necessary.”

The onset of faster economic growth has led to a widening divergence of opinion on the ECB’s executive board. Chief Economist Peter Praet has warned that even incremental changes in communication could send strong signals, while Vice President Vitor Constancio argued that it is better for the ECB to be late rather than early in removing stimulus.

Benoit Coeure, meanwhile, noted that too much gradualism bears the risk of a larger market correction, and highlighted the risk of market expectations becoming detached from the bank's guidance. The bank’s German contingent, consisting of Jens Weidmann and Sabine Lautenschlaeger, has been predictably hawkish, with Weidmann saying that “it's legitimate to ask when the ECB should consider normalising policy”, though he did caution that “easy-money policies are fundamentally still appropriate.”

Lautenschlaeger noted that the “ECB should prepare to slowly reduce stimulus,” caveating that by suggesting that the “ECB should prepare to slowly reduce stimulus.” In the wake of the softer Eurozone CPI print for April, ECB economist Eisenschmidt was quick to note that “Euro-Area inflation isn't on the desired path, “this has been evident in the core metric.”

Rabobank’s analysts write that “the ECB's conditions for a sustainable recovery in inflation are still far from being met.” As a result, Rabo believe the ECB will only adjust its assessment of the risk balance to growth to "broadly balanced" at its June meeting, and expects the central bank will leave its forward guidance and inflation views unchanged.

Italian politics will hover in the background, with the bill for the new Italian electoral law up for debate on Tuesday, with approval expected from both houses by the close of play on Thursday. Passage of the bill will increase the probability of elections being brought forward from their originally scheduled date in 2018. None of the four major parties are expected to obtain enough seats to gain a majority and there are no very natural coalitions.

Other releases of note during the week: Tuesday Eurozone (April) Wednesday Eurozone GDP (Q1, F) Thursday German Industrial Production (Apr) Friday German Trade Balance (Apr)

UK: -

UK news flow with be dominated by the General Election, with the results due early on Friday. On 18^th April UK Prime Minister Theresa May called for snap elections, an attempt to cement her power as her conservative party held a comfortable lead in the polls at the time, she argued that it would strengthen her mandate both domestically and in Brussels heading into Brexit negotiations.

However, the lead over Labour has narrowed significantly over the last few weeks, with some projections even suggesting that the election could result in a hung parliament. Fathom Consulting notes that “the outlook for the UK economy is dire, and the election is unlikely to change that meaningfully. Impacts on the real economy will be small in most outcomes, and in asset markets any post-election rally is likely to be short-lived.”

There will also be some attention on May’s Services PMI, due on Monday. In April, the services PMI rose to the highest level in five months at 55.8, and for the May data, the median estimate looks for a slight moderation to 55. A key highlight from the April release was new work and employment sub-indices expanding at the fastest pace so far in 2017, as average prices charged saw the fastest increase since July 2008.

Other releases of note during the week: Friday Trade Balance (Apr) Output Data (Apr)

Asia-Pacific: -

Monday sees the release of the Chinese Caixin Services PMI for May. The previous survey moderated to 51.2 from 52.1, as output expanded at a softer pace, although there was a stronger increase in new orders. Fears about a Chinese economic hard landing have moderated recently, although Caixin noted that “investors should be cautious about downward risks in the economy,” a view that was vindicated by its most recent manufacturing PMI, which slipped into contractionary territory for the first time in nearly a year.

Chinese trade data for May will be released on Thursday, with analysts looking for the surplus to widen to USD 46bln, driven by external demand and slower import growth. Chinese inflation data for May is due on Friday with expectations for CPI to tick up to 1.4% Y/Y from 1.2% and PPI to moderate to 5.7% Y/Y from 6.4% in April.

The final Q1 Japanese GDP release is expected to come in slightly higher than the flash estimate at 0.6% QoQ and 2.4% annualised.

Australian Q1 GDP (due on Wednesday) will be the main focus in the Antipodeans during the week. The inputs released so far (capex and completed construction work) have fallen short of expectations, which has led to analysts trimming their expectations for Q/Q growth, leaving consensus at 0.3%, while analysts look for 1.6% Y/Y. Morgan Stanley are the most bearish, looking for a fall of 0.3% Q/Q, while ANZ expects 0.1% Q/Q growth, although they do concede that the print could be negative.

The Reserve Bank of Australia (RBA) will issue its latest monetary policy decision on Tuesday. The majority of analysts expect the central bank to stand pat at 1.5%, with just one predicting a 25bps hike, while one looking for a 25bps cut. Australian domestic data has been mixed since the last meeting; for instance, retail sales were strong, but wage growth was soft, while employment was firm.

ANZ believes that “The focus will be the RBA’s take on what has clearly been a weak Q1, along with the accumulating evidence of a sharp slowdown in house price inflation. Potentially offsetting this are the strong global economy, the high level of business sentiment and the improvement in the labour market.” Expect the central bank to also reiterate its belief that “an appreciating AUD would complicate the economy's transition.”

Over the Tasman in New Zealand focus will fall on the latest GDT auction, due on Tuesday. Futures currently look for a small fall in whole milk powder prices, which stood at USD 3,312 (+1.3%) last time out, while the headline index stood at USD 3,313 (+3.2%). Q1’s manufacturing activity (volume), due on Tuesday, will give us the final piece of the Q1 GDP puzzle.

Other releases of note during the week: Monday Australian Inventories (Q1) Australian Corporate Profits (Q1) Australian Melbourne Institute Inflation (May) Tuesday Australian Net Exports (Q1) Australian Current Account (Q1) Thursday Australian Trade Balance (Apr) Japan Trade Balance (Apr) During The Week China Loans & Money Supply Data