RBA meeting with almost 50/50 chance of a rate hike, followed by ISM PMI data from the US, latest FOMC meeting minutes, NFP and employment data from Canada will highlight the first week ahead of second half of 2023. Note that markets in the US will be closed on July 4 on Independence day which will lead to lower liquidity and potentially high volatility so we would advise caution in trading.
USD
New home sales in May printed a very strong 763k, up from 680k in April. This is the highest number since February of 2022 and it confirms that recession will not come from the housing sector. Consumer confidence in June printed 109.7, making it the highest reading since January of 2022 as consumers have upbeat view of labor market and falling inflation expectations. Final reading of Q1 GDP came in at 2% annualized vs 1.4% as expected on the back of huge jump in net exports. The report indicates that economy is still running hot, that recession is nowhere to be seen and that Fed will be pushed to hike at least two more times.
Fed Chairman Powell reiterated its hawkish stance at the ECB symposium in Sintra. He stated that there is a long way to go to reach inflation target of 2% and that he expects moderate pace of rate hikes to continue. Additionally he added that “Although the policy is restrictive, it may not be restrictive enough and it has not been restrictive for long enough.” This makes a July rate hike (25bp) a very viable option.
Headline PCE in May declined to 3.8% y/y from 4.3% y/y in April. Monthly increase was 0.1%. Core PCE slipped to 4.6% y/y from 4.7% y/y the previous month. Energy prices printed biggest declines while both foods prices and services prices increased. The rise of latter two can be seen in the core reading which is stubbornly high and proving to be very sticky. Personal spending rose 0.1% m/m and it spook markets and brought USD weakness.
The yield on a 10y Treasury started the week and year at around 3.74%, fell to to 3.7%, rose to 3.88% and finished the week at around the 3.8% level. The yield on 2y Treasury spiked to around 4.93%. Spread between 2y and 10y Treasuries started the week at -101bp then widened to -105bp. FedWatchTool sees the probability of a 25bp hike at 86% while probability of no change in July is at 14%.
This week we will have ISM PMI data, minutes from the June FOMC meeting and NFP data on Friday. Headline number is expected to print around 250k with the unemployment rate remaining at 3.7%.
Important news for USD:
Monday:
ISM Manufacturing PMI
Wednesday:
FOMC Minutes
Thursday:
ISM Non-Manufacturing PMI
Friday:
EUR
German Ifo survey for the month of June saw very pessimistic results. Business climate fell by more than expected and printed 88.4, the lowest level in 2023. Current situation and business outlook also came down more than expected reflecting worsening conditions in the economy. Ifo economist, Klaus Wohlrabe noticed weak demand for industrial products as higher interest rates around the world suppress demand.
ECB president Lagarde offered hawkish signals at the ECB conference in Sintra as she wanted to reaffirm that the bank has price stability as their main goal as inflation is still too high. She emphasized the need to communicate clearly that rates will stay at elevated levels for as long as necessary and that they have not peaked yet. ECB Vice President Luis de Guindos stated that rate hike in July is certain.
Preliminary inflation figures for June saw headline number fall to 5.5% y/y from 6.1% y/y in May while core reading ticked up to 5.4% y/y from 5.3% y/y the previous month. We saw drops in headline number in French and Spanish reading while German ticked higher due to base effects. Core inflation is refusing to budge, it remains sticky and ECB will remain on the hiking path in July and most likely in September as previously signaled by members.
GBP
BOE MPC member Dhingra, a well known dove who voted for no change at the last BOE meeting, stated that sharp drop in PPI is promising but that it takes between one and two quarters for it to translate to drop in CPI. He also added that wages are having lagged response to the inflation. BOE Tenreyro, note that she will end her tenure as MPC on July 4, stated that forward-looking indicators point to declines in wage growth as well as core-goods inflation over the rest of the year. She added that so far they have seen very little pass through to economy from policy tightening. Final GDP reading was unchanged at 0.1% q/q. Services and production grew 0.1% while construction output increased by 0.4%.
AUD
CPI for the month of May plunged more than expected to 5.6% y/y from 6.8% y/y in April. Expectations were for a drop to 6.1% y/y. This is the lowest reading since April of 2022. The biggest declines were seen in motor fuel, recreation and clothing prices. Price increases have been evident in food prices and rents. Core reading has held higher at 6.4% y/y. The odds of a rate hike next week have been dialed down after the report. Retail sales in May heavily beat expectations by rising 0.7% m/m vs 0.1% m/m as expected.
Official Chinese PMI data for the month of June saw manufacturing improve slightly to 49 from 48.8 in May while non-manufacturing continued to decline and printed 53.2, down from 54.5 the previous month. This has dragged composite to 52.3 from 52.9 in May. New orders, new export orders and employment sub-components declined in both sectors.
This week we will have RBA meeting. Markets are leaning toward no change for RBA with a 25bp given around 40% probability, but big Australian banks and Reuters poll of economists are leaning toward a rate hike.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
NZD
Both business confidence and activity outlook. as measured by ANZ, improved in the month of June. Business confidence printed -18, up from -31.1 in May. This is the best result since November of 2021. Activity outlook returned into positive territory for the first time after fourteen months and printed 2.7 vs -4.5 the previous month. The report shows fall in cost and wages expectations and improvement in construction, profit expectations and ease of credit. ANZ consumer confidence improved to 85.5 from 79.2. It is still at very low levels, but it is the highest since January of 2022.
CAD
CPI in May fell to 3.4% y/y as expected. It was 4.4% y/y the previous month. This is the lowest level of inflation since June of 2021. Gasoline prices were the biggest reason for decline as base effects kicked in and they dropped by -18.3% y/y. Core measures all declined with median printing 3.9% y/y vs 4.3% y/y in April, trim at 3.8% y/y vs 4.2% the previous month and common at 5.2% y/y vs 5.7% y/y in April. Economists from CIBC see inflation falling below 3% in June. April GDP came in flat vs 0.2% m/m as expected indicating that economy started Q2 on a slow foot. BOC has raised last meeting and these reports would nudge them to go back to pause. If next week’s employment data comes out weak we can be almost certain that BOC will not hike rates and that CAD will suffer.
This week we will have employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
Summary of opinions from the BOJ June meeting offered us something new. They have stated that current monetary easing stance is appropriate and that wage growth is needed in order to keep inflation sustainably at 2% but then added that there is a strong chance that inflation will not slow down below 2% by the middle of current fiscal year (which is September/October in Japan). BOJ has previously been adamant that inflation is transitory and that it will fall below 2% by September/October and now they are having doubts about it. This opens the room for some Yield Curve Control adjustments at their July meeting as a move toward normalization of monetary policy. However, BOJ Governor Ueda reiterated at Sintra forum the need for ultra-loose monetary policy and made it clear that it will stay that way for the foreseeable future. He also added that underlying inflation, according to BOJ’s estimates, is lower than 2%.
Inflation data for the Tokyo area in the month of June saw headline number slip down to 3.1% y/y from 3.2% y/y in May while increase of 3.8% y/y was expected. Ex fresh food also missed expectations and remained unchanged at 3.2% y/y. Ex fresh food, energy category, “core-core”, slipped to 3.8% y/y from 3.9% y/y the previous month while expectations were for a jump to 4.4% y/y. This is the first time “core-core” has declined after sixteen consecutive months of increases. This reading will give more credence to BOJ’s stance that inflation is transitory and that it will come down from September/October. Retail sales in May were very encouraging as they rose 1.3% m/m vs 0.5% m/m as expected and 5.7% y/y vs 5.4% y/y as expected.
CHF
SNB total sight deposits for the week ending June 23 came in at CHF508bn vs CHF510.6bn the previous week. Total sight deposits drop again signalling that SNB is still on the path of selling USD and EUR in order to strengthen Swissy and thus fight off inflation.
This week we will have inflation data.
Important news for CHF:
Monday:
CPI
