The Global Week Ahead: Only 1,287 More to Go!

Next Week's Risk Dashboard

• Markets during Trump’s first 100 days compared to other Presidents
• Trading the Canadian election? Volatility rules over feigned directional calls
• Gauging the odds of a Canadian election surprise…
• …and how a minority would be more untenable than usual
• The Canadian election only starts the clock on market effects…
• …as the focus shifts to highly uncertain trade and fiscal policies
• Canadian GDP: So long resilience, we barely knew ye!
• US nonfarm and PCE will begin to test the Fed’s dual mandate
• US GDP: Unusually wide-ranging expectations
• The BoJ’s patient hike bias may be misplaced
• BCRP likely to remain on hold
• BanRep: Did the prior vote tee up a cut?
• BoT:  Shaken, but stirred?
• China’s PMIs may signal the beginning of downsides
• US vehicle sales likely to soar as ISM-mfrg weakens
• Eurozone CPI may remain supportive of the ECB’s easing bias…
• …as Eurozone inflation risk is starkly different to US inflation risk
• Eurozone GDP to post soft growth before harsher reality sets in
• Aussie inflation may test RBA pricing after hot jobs

Chart of the Week

The Trump administration’s first 100 days come to an end on Wednesday, April 30^th. To many of us it has probably felt like years. There are only about 1287 more to go and so we can’t rule out eventual redemption, but there will be one heckuva hill to climb! As Jay Parmar’s chart of the week on the front cover vividly illustrates, Trump 2.0 is giving Trump 1.0 a run for its money in setting the lowest initial and first-100 day approval ratings for US Presidents in the modern era. Those approval ratings continue to slide since inauguration day as shown separately in chart 1. It is no wonder why when we consider the market impacts below.

I was among the very few street economists who warned of the consequences in multiple notes especially this pre-election weekly. And here we are staring at the likely prospect of a marked deterioration in the US economy.

And markets. Charts 2–5 compare the first 100 days in office of past Presidents across multiple market variables. Only Ford’s first 100 days were worse for the performance of the S&P500. There is a new ‘great sucking sound’ associated with a US President: it’s your 401k floating out to sea. Trump has been the worst of the Presidents on the dollar. He has been among the best for gold which typically isn’t a good thing given its haven and hedge status. Ditto for bonds. 

In all cases, global investors have shied away from the US during the Trump administration’s early days. And no wonder why. Ill-advised trade wars are damaging the US and global economies with Americans facing negative impacts on GDP, employment and inflation. The administration is nowhere close to a budget reconciliation bill or two that could deliver on fiscal policy promises while showcasing deep divisions with the narrow majorities held by the GOP in both chambers of Congress. The war in Ukraine has not ended. There is no agreement with Iran. Instead of respect, the US administration has created deep-seated mistrust toward the US across the world’s political capitals. And toying with the Federal Reserve has been unhelpful to say the least.

So as Trump fêtes himself on Tuesday, the rest of the coming week will highlight wide ranging influences such as the indirect partial effects on Canada’s election, the impact on the US economy, labour market and inflation, the impact on the Canadian economy, the effects on central banks in Asia and Latin America, and the influences upon other global macro readings.

CANADA’S ELECTION—MARKET VOLATILITY ONLY JUST BEGINS THE DAY AFTER

Canada’s election is on Monday. Results will begin streaming in shortly after polls individually close at varying times across the country (here). The Atlantic provinces will begin reporting first with Newfoundland at 7pmET, followed by the rest of Atlantic Canada after 7:30pmET, then vote-rich Ontario, Quebec, and the prairies after 9:30pmET followed by BC after 10pmET.

If expectations are remotely close to reality, then it’s not the election results themselves that will matter one iota despite the amount of ink—virtual or otherwise—that will be splashed by the massive cottage industry of pundits. What will matter is the uncertainty around next steps and particularly in two main areas that I’ll come back to after reviewing the likeliest outcome and short-term market effects.

Calling Markets After Elections is a Crap Shoot

In case anyone is looking to make a clear buck let’s get the market expectations out of the way right off the bat. Enter charts 6–8 that trace how markets were behaving ten days up to past elections marked at time t=0 and ten days after for each of USDCAD, the 2-year GoC yield, the 10-year GoC yield, and the TSX. What happens within each chart after past elections looks like the aftermath of an infant playing with spaghetti as it’s flung in all directions! One takeaway, however, is that volatility can be significant which might suggest room for vol trades in the ensuing days as opposed to directional ones. Beyond that, calling markets depends upon a whole sequence of steps.

Low Odds of a Surprise

Chart 9 shows one site’s estimated outcome for the projected number of seats won by each party. The projected Liberal majority is a massive turnaround compared to what had been looking like a gigantic majority for the Conservatives until relatively recently (chart 10). 

I think it would have to be a truly shocking outcome to matter to markets in the near term. A conservative majority, for instance, would probably be treated more favourably by resource stocks that have a large weighted on the TSX.

How likely is a big surprise? Chart 11 shows that two sites that seek to predict election outcomes based on the number of seats are not infallible. For instance, CBC’s poll tracker did quite well in 2021. Another popular site, 338Canada.com, also did well in 2019 and 2015, but under predicted the number of Liberal seats and over predicted the number of Conservative seats especially in the massive Liberal victory in 2015. The site creators will say their models are better now, and maybe they are, but all models are vulnerable to shifts in their reliability over time.

So what’s the baseline forecast today? Key is not the share of the popular vote since what matters in a first-past-the-post parliamentary system like Canada is how many seats are won by each party. Polling composites indicate that both main parties will poll around 40% of the popular vote with a margin of error of around 4–5% on either side. Proving that we can indeed do basic math reveals that if the polls are anywhere close to the outcome, then the resulting government will not have the support of a majority of Canadians and that the outcome in Parliament will overstate the degree of political harmony within the country after years of dissatisfaction with the former administration.

Seat projections from 338Canada.com indicate the Liberals will win a solid fourteen-seat majority of 186 MPs with the Conservatives in opposition at 124 seats, the regional Quebec-based Bloc Quebecois party at 24 seats, and the NDP likely to attain only 8 seats with the Greens holding onto their single seat.

The CBC poll tracker site (here) reveals similar expectations with the Liberals faring slightly better (190 seats), the Conservatives at 125, but the NDP faring a little worse (5) and the Greens holding their lone wolf seat again.

A Minority Would be a Highly Awkward Surprise

There is a wide variation in the range of seats being predicted on both sites. The most likely outcome is a Liberal majority but the second most likely is a minority government. Neither party would welcome the prospect of seeking a coalition with the BQ and its Quebec nationalist base. The NDP is unlikely to have enough seats to be a king maker. Minority governments can be successful but are typically short-lived and vulnerable to being brought down by confidence votes. That could magnify uncertainty around key decisions that may have to be made rather quickly.

Trade and Fiscal Policy Will Move Quickly

The chain of events leading up to former PM Trudeau’s resignation handicapped the ability of the Canadian government to effectively manage the risks brought on by the Trump administration’s isolationist policies. Enter what really matters which is mainly how Canada-US trade negotiations are handled and how fiscal policy evolves. Seat mapping may point to a strong Liberal majority, but how these two main policy fronts evolve is highly uncertain.

PM Carney has said that he would quickly turn to Canada-US trade negotiations and meet with US President Trump if he remains Prime Minister. Conservative Leader Pierre Poilievre also says the same thing.

Carney would also probably embark upon a much more expansionist path for fiscal policy if he enacts much of the Liberal election platform in a first budget whereas a Conservative administration would be less fiscally expansionist. A June timeline for a budget may be reasonable to expect after Parliament reconvenes, a new Cabinet is established, and budget priorities are set and passed by Parliament. That would also presumably depend upon how quickly and how successfully trade negotiations go with the US.

But if the platform is executed, then I still think the implications for cumulative deficits could be disruptive to markets under either party scenario but probably more so under the Liberals (chart 12). Both the Liberals’ and Conservatives’ deficit projections are suspect. The Conservatives’ use of dynamic revenue scoring probably understates deficits. The Liberals’ heavy emphasis upon infrastructure spending also probably understates deficits based upon ample evidence that global infrastructure project costs are usually severely understated at the outset. Both parties are basing their projections on stale macroeconomic forecasts produced by the Parliamentary Budget Officer before tariff wars really erupted.

Nevertheless, given the unpredictability of the erratic Trump administration, I would rather see Canada embrace fiscal policy optionality rather than pre-committing to years of massive stimulus that could invited an unwelcome response by the Bank of Canada, the currency, and bond markets should there be a need to sterilize the consequences for inflation risk.

Therefore it’s not so much the election itself that may matter, versus a fast moving sequence of developments on trade and fiscal policy that could trigger elevated market volatility. Until it has some degree of clarity, the Bank of Canada is likely to be inclined to sit things out and with the benefit of the optionality that accompanies a neutral rate setting.

CANADA’S ECONOMY—SO LONG, RESILIENCE?

Canada watchers will have a better idea of how the economy performed up to when the US triggered trade wars and the government changed over. GDP for the months of February and March will be refreshed on Wednesday, but the figures may be of little consequence given forward-looking concerns.

February GDP will be a revision to the initial guidance provided by StatCan back on March 28^th that it was “essentially unchanged.” I went with an estimate of -0.1% m/m SA and wouldn’t be surprised to see a weaker number. A simple regression model against several activity readings for the month of March suggests a decline of -0.3% but it’s probably best to be relatively conservative in light of data gaps and Statcan guidance about February: “Increases in the manufacturing and finance and insurance sectors were offset by decreases in the real estate and rental and leasing sector, the oil and gas extraction subsector and the retail trade sector.”

As for March, little change is expected with a slight nod toward a small gain based on a rise in hours worked and limited other readings.

If those expectations are on the mark, then StatCan guidance on Q1 using the monthly GDP production-side accounts could be in the vicinity of 1½% growth at a seasonally adjusted and annualized rate. Converting that to the more commonly followed expenditure-based accounts could be more difficult this time given that is more influenced by trade and inventory swings that are likely to intensify around the end of Q1 and into Q2 given trade wars.

The shame of it all, however, is that the economy was looking to be on the mend before trade wars and our narrative of a rebound led by consumption was doing very well (chart 13). GDP grew by 1.8% in the first quarter of last year, then 2.8%, then 2.2%, and then 2.6% in Q4 plus modest growth in Q1. Consumption had been doing very, very well with a gain of 3.6% q/q SAAR in Q1 last year, then only 1%, then 4.2% in Q3 and 5.6% in Q4 all on a quarter-over-quarter annualized basis. Goods retailers—particularly of lower-end merchandise—fared less well than the service-oriented companies that benefited from the rotation of spending toward everything that is not included in retail sales, like tickets to concerts, movies, and sporting events, or spending at restaurants, bars, hotels, and on airlines and financial services.

Going forward, we expect Canadian GDP growth to slow to within the zero to 1% q/q SAAR range in each of Q2 through Q4 of this year as the effects of elevated uncertainty and both the direct and indirect effects of tariffs take root.

US NONFARM & PCE—TESTING THE FOMC’S DUAL MANDATE

This is a big week for lagging US macro reports, so much so that by the end of it all, Fed watchers will be locked and loaded with another batch of key data to inform how the US is coping with the early days of Trump 2.0 and how that might come to influence the policy bias.

As I explained in the latest Foreign Exchange Outlook produced jointly between our FX strategists and Economics (here) and elsewhere, trade wars are likely to put the Federal Reserve’s full employment and price stability mandates in conflict with one another. That creates a conundrum for the central bank in terms of crafting monetary policy. Should labour markets deteriorate faster than inflation rises, then the FOMC could adopt an easing bias. If the opposite happens, then a neutral-restrictive stance is likely. What path is chosen will be determined by data and developments while the FOMC remains patient which has been Chair Powell’s message to date.

Enter fresh figures for jobs and inflation that are barely the tip of the iceberg in terms of the reams of evidence the Committee is likely to require going forward. This batch of data on its own probably won’t settle much of anything for the Committee but will incrementally inform market thinking for what that’s worth.

Nonfarm Payrolls—Still Resilient?

US jobs data for April closes out the week on Friday after a wave of other labour market readings have arrived. Unfortunately, we don’t have any of those other readings yet and will use them to possibly consider any adjustment.

For now, I’ve estimated a gain of 165k and a stable unemployment rate of 4.2%. April is normally a significant month for seasonally unadjusted job growth (chart 14). That’s combined with the fact that April’s seasonal adjustment factor has tended to be among the highest on record in recent years compared to like months of April over time (chart 15). 

Further, weather effects will probably subside after having a large influence the prior month according to the San Francisco Fed’s weather-adjusted payrolls spread to the BLS’s reported payroll gain (chart 16).

Strike effects will be small with just 5k workers still on strike through the April reference period.

Layoffs have been soaring (chart 17) with April data pending on Thursday, but what’s unclear is the timing of when the layoffs that are heavily driven by DOGE cuts to the federal civil service will begin to show up and whether they will continue to be offset by ongoing hiring by state and local governments (chart 18).

Wage growth is expected to hold at just under 4% y/y in nominal terms with real wage compression likely ahead as tariffs raise prices.

Other labour market readings this week will include Tuesday’s JOLTS job vacancies data for March (Tuesday), ADP payrolls for April (Wednesday), the Employment Cost Index for Q1 that is expected to grow by just under 1% q/q (Wednesday), Challenger job cuts for April (Thursday).

Inflation—Soft End to a Hot Quarter

Wednesday brings out a batch of the Federal Reserve’s favourite inflation readings. Q1 core PCE, headline PCE for March and core PCE for the same month are all due.

Momentum through the quarter is expected to drive overall Q1 core PCE inflation up to about 3% q/q from 2.6% in Q4. Much of that has been due to how the year has unfolded so far with core PCE up by 0.37% m/m in February and 0.3% in January.

The quarter is likely to end on a softer note given the -0.1% m/m SA drop in CPI after accounting for different weights in the PCE basket, plus the components in the producer price index that get captured in PCE and potential seasonality differences. In all, headline PCE is expected to dip by -0.1% m/m and core PCE is expected to edge up by 0.1%.

There is uncertainty around the estimates as always, and even among senior Fed officials being guided by Fed economists. Governor Waller said this in his speech on April 14^th:

"When CPI data is supplemented with the producer price data that we received last week, we estimate that the price index for personal consumption expenditures (PCE), the FOMC's preferred inflation gauge, was roughly unchanged in March bringing the 12-month change to 2.3 percent. Core PCE prices are estimated to have risen less than 0.1 percent for the month, leaving core PCE inflation at 2.7 percent over the previous 12 months. Both measures of total and core PCE inflation were above the FOMC's 2 percent goal."

Then about one week later, Governor Kugler said:

"Based on the consumer price index (CPI) and producer price index (PPI) data, the 12-month change in the personal consumption expenditures (PCE) price index was estimated to have been 2.3 percent last month and 2.6 percent for the core categories, which exclude food and energy."

US GDP GROWTH—EXACTLY HOW WEAK IS ANYONE’S GUESS

The first quarter estimate for growth in the US economy arrives on Wednesday morning. What is typically significant uncertainty is even greater this time around. Our best guess is that GDP shrank by around 1% q/q at a seasonally adjusted and annualized pace (SAAR) but I’ll explain why we need to be careful with recession talk.

The range of estimates within consensus and ‘nowcasts’ is quite wide. Bloomberg consensus ranges from a decline of 1½% to a rise of just over 1% with most estimates in the plus or minus 0.5% range. So, the first takeaway is that the debate is around exactly how weak the economy was to start the year.

The Atlanta Federal Reserve’s widely followed nowcast estimates GDP at -2.5% but with a large asterisk having to do with distorted trade figures. Gold imports into the US surged on fears they would be caught up in US tariffs but when they were ultimately exempt the activity subsided. Excluding this distorting effect results in an adjusted nowcast GDP estimate of -0.4% (explained here). The very different methodologies behind the New York Federal Reserve’s nowcast estimate (+2.6%) and the St. Louis Fed’s nowcast (2.8%) add to the intrigue.

A further complication is that there is a lot of missing data. There always is, but this time the gaps could be especially problematic. The timing of US tariff changes and the front running activity ahead of them make data for March very important. Too bad we don’t have much. Missing at the time of writing are inventories that will become complete on Tuesday; will they build as efforts to stock before tariffs intensify, or decumulate on sales gains and a desire to shed them before darker days? Import figures are also missing with goods data due out on Tuesday and they are important because a surge of rushed imports to get ahead of tariffs would act as a leakage from GDP and hence a growth dampener given the way national accounts capture this effect. Export figures are also missing and may have also been subject to some front-running ahead of retaliatory tariffs imposed by multiple other countries.

Also absent is March data for total consumption, but at least here we can devise reasonable estimates based on data up to February plus the retail sales control group for March which points to minimal consumption growth of about ¼% q/q SAAR in Q1. That would be an abrupt slowdown from the prior quarterly pace (chart 19) with some of it due to weather and LA fires.

Fiscal policy contributions to US growth are expected to remain a source of drag (chart 20).

We can also point to expectations for a gain in machinery and equipment investment as indicated by shipments of core capital goods (ex-defense and air).

In addition to greater than usual uncertainty on the goods side is the fact that we don’t get reliable estimates from the services side of the economy until the final Q1 GDP revisions two rounds from now.

In any event, be careful with the narrative around the figures. If weakness is heavily driven by import leakage effects due to front-running then that’s a distorting accounting effect that will likely reverse and create a false sense of a rebound in GDP growth. The bigger debate is how bad the US economy gets once the initial effects of trade wars subside, and on that note, we think growth in the US economy will basically grind to a halt over 2025H2.

CENTRAL BANKS—HAS THE BOJ ALREADY GONE TOO FAR?

Four central banks deliver policy decisions this week. None of them are likely to be influential to the global market tone. One major, and three regional central banks are on the docket.

Bank of Japan—A Patient Hike Bias

The BoJ statement at around 10:30pmET on Wednesday night will be followed by Governor Ueda’s press conference at around 2:30amET Thursday. Consensus and markets are unanimously positioned for no policy change.

A hike bias would have recent inflation on its side. Tokyo CPI was hotter than expected at 3.5% y/y (3.3% consensus) and 3.1% excluding food and energy (2.8% consensus). The month-over-month gain in CPI ex-f&e was 4.9% SAAR again for the hottest back-to-back readings in two years (chart 21).

And yet Governor Ueda has set expectations rather low for this meeting. He recently said “We want to closely monitor data related to the impacts of tariff measures and their mechanism in particular. We will carefully watch how the likelihood of realizing our outlook changes without preconception and make appropriate policy decisions.”

The BoJ will refresh its forecasts including for inflation and growth at this meeting. High uncertainty is likely to be conveyed and with that the absence of anything other than general guidance that eventually another hike could be delivered if all goes well.

So, is all going well? From an inflation drivers’ standpoint, I’d have to say not so much. The yen’s 11% appreciation to the dollar since last July’s trough and the roughly $15/barrel drop in WTI oil prices over a similar period threaten less pass-through risk into Japanese core inflation and hence renewed disinflationary pressures. Shunto wage negotiations have yielded strong successive results for the less than one-fifth of affected Japanese workers, but real average wages remain weak. Trade wars led by the US combined with little Japanese reaction and the low likelihood of a trade deal anytime soon are likely to create further disinflationary pressures. All together, the BoJ should tread carefully on further rate hikes—backward-looking inflation notwithstanding.

BCRP—Still on Hold

Chile’s central bank is expected to hold its overnight rate unchanged at 5% on Tuesday. It stopped easing after the cut in December and pivoted toward emphasizing inflation risk while raising its forecast. Total CPI inflation has been trending mildly higher for some time now and presently sits just below 5%. Monitoring the influences of US-led trade wars is likely to continue to dominate uncertainty over next steps.

BanRep—How Revealing was the Prior Vote?

Most economists expect Colombia’s central bank to leave its overnight rate unchanged at 9.5% on Wednesday. Our LatAm economists are part of a minority that is expecting a 25bps rate cut. Part of the case for a cut is that the Board narrowly voted 4–3 in favour of a hold versus a 50bps cut at its last meeting, revealing a significant minority in favour of continued easing. There is also political pressure on the central bank to cut.

BoT—Shaken, but Stirred?

The Bank of Thailand is forecast to cut its benchmark rate by 25bps on Wednesday. Consensus is not unanimous as a significant minority expects a hold. What may stir the central bank to cut again are the US-led global trade war and a major earthquake.

GLOBAL MACRO—A PACKED WEEK

Several other global macro readings not covered elsewhere in this report are shown in chart 22 (next page). Key will be data out of China, Eurozone inflation, Eurozone GDP, surging US vehicle sales and fresher weakening evidence for the manufacturing sector, and Australian inflation.

China’s state purchasing managers’ indices for April (Tuesday) are set against a trend that has been hovering just above the 50 dividing line between expansion (above) and contraction (below). There may be more downside to the manufacturing PMI this time since it’s too late for production and orders to have left and avert US tariffs.

Other US readings will include a likely surge in vehicle sales toward 18½ million on Thursday (chart 23). ISM-manufacturing (Thursday) for April (Thursday) could intensify downside risks to the manufacturing sector as tariff front-running subsides.

Eurozone CPI will probably remain conducive to an ongoing easing bias at the ECB when April’s readings hit on Friday after figures from Spain (Tuesday), Italy and Germany (Wednesday) and France (Thursday). Core CPI is expected to remain near 2½% y/y. Also watch ECB 1- and 3-year CPI expectations in March (Tuesday). The Eurozone inflation picture is materially different from the US. The eurozone has slack, whereas the starting point for the US economy is a positive output gap. The Eurozone hasn’t done anything quite as silly to itself as imposing a roughly 30% weighted average effective tariff on its own imports! And product shortages coming from China, Canada and other key US import markets are unlikely to be anywhere nearly as acute in Europe.

It’s not just the US and Canada that will refresh GDP figures for Q1. The Eurozone is expected to post slight growth (Wednesday) including weak readings from Germany, France and Italy and stronger figures from Spain the day before.

Australia also reports fresh inflation figures for Q1 and the month of March. Markets are priced for another RBA rate cut on May 20^th but the 32k gain in employment during March combined with the outcome for inflation could be influential to markets that are overshooting a 25bps cut. Core trimmed mean and weighted median price measures are expected to accelerate.