BoE, RBA and SNB meetings followed by inflation data from the UK, preliminary PMI data from the Eurozone and the UK as well as consumption data from the US, the UK and China will highlight the week ahead of us.
USD
Headline CPI number in May came in at 3.3% y/y vs 3.4% y/y as expected and in April. Core number dropped to 3.4% y/y from 3.6% y/y making it the lowest core inflation reading since April of 2021. Monthly increases for both headline and core were 0.2% compared to 0.3% that was expected. Digging into details of the report we can see that shelter continued to increase by 0.4% m/m but it ticked down to 5.4% y/y from 5.5% y/y the previous month. Services less energy rose 0.2% m/m, the lowest increase in the last seven months, which put yearly reading at 5.3% y/y. Auto insurance, the biggest contributor to inflation this year rising over 20% YTD, saw decline m/m. Super Core, all items less food, shelter and energy, was unchanged m/m.
Fed has decided to leave the Fed Funds Rate unchanged at 5.25-5.50% range as was widely expected. The statement acknowledges that there has been a “modest further progress” to their 2% inflation target.
Summary of Economic Projections (SEP) showed GDP unchanged at 2.1% in 2024 and 2% in 2025 and 2026. Inflation has been revised higher and now it prints 2.6% in 2024 vs 2.4% as seen in March and 2.8% in 2025 vs 2.6% as seen in Match. Core PCE is seen at 2.8% in 2024 vs 2.6% in March and 2.3% in 2025 vs 2.2% in March. The unemployment rate is seen unchanged at 4% in 2024 and then raised to 4.2% in 2025 ,4.1% in 2026 and 4.2% in the long run. It is interesting that there were no changes to the 2024 unemployment rate as last NFP report showed it to already be at 4%. Federal funds rate is seen at 5.1% by the end of 2024, meaning only one cut vs three cuts as projected in March. Four officials project no cut, seven see one cut while remaining eight see two cuts. Rate is seen at 4.1% in 2025, up from 3.9% in March. Longer-term rate, neutral rate, has once again been raised and is now seen at 2.8% (it was 2.6% in March and 2.5% in December).
Chairman Powell started the press conference that inflation has eased substantially but it remains high. He emphasized during the press conference that Fed remain data-dependent. When asked about impact of high interest rates for longer on housing he stated that for housing it will be best that inflation comes down so they can cut rates and assist housing indicating that inflation remains priority.
The yield on a 10y Treasury started the week at 4.44%, rose to 4.47% and finished the week at around 4.20%. The yield on 2y Treasury started the week at 4.90% and reached the high of 4.91%. Spread between 2y and 10y Treasuries started the week at -46bp then widened to -47bp as curve inverted further. The 2y10y is inverted for over twenty three months. FedWatchTool sees the probability of no change at July meeting at 90% while probability of a rate cut is around 10%. Probability of a September rate cut sits at around 69% while November is at around 80%.
This week we will have consumption data expected to show consumers bouncing back after weak April reading.
Important news for USD:
Tuesday:
Retail Sales
EUR
ECB policymaker Villeroy stated that there is more room to cut rates and still remain in the restrictive territory. He emphasized importance of inflation data, especially services adding that the ECB remains more outlook driven. ECB Chief Economist Lane stated that they are not pre-committing to any path in regards to rates and added that rates are to stay sufficiently restrictive for as long as needed. Final German CPI was unchanged at 2.4% y/y while French was revised higher to 2.3% y/y.
This week we will have preliminary June PMI data expected to show continuation of economic recovery.
Important news for EUR:
Friday:
S&P Global Manufacturing PMI (Eurozone, Germany, France)
S&P Global Services PMI (Eurozone, Germany, France)
S&P Global Composite PMI (Eurozone, Germany, France)
GBP
Payroll change in the month of May saw a loss of 3.1k jobs. The unemployment rate for the month of April ticked up to 4.4% with the employment change for the last 3 months showing a drop of 139k jobs. Average wages showed increase of 5.9% 3m/y while wages ex-bonus increased by 6% 3m/y. Both numbers were unchanged from March and are highly elevated causing concern for BoE regarding inflation pressures. The unemployment rate, highest since September of 2021, moving up from 3.8% at the start of the year and payroll numbers indicate loosening of the jobs market.
April GDP was flat. Services rose by 0.2% m/m, but industrial, manufacturing and construction output all declined. Q2 started on the weak note, but PMIs are pointing to pick up in the later months which should give us a positive GDP reading.
This week we will have inflation and preliminary June PMI data as well as BoE meeting. With inflation expected to continue declining markets are positioning for an August rate cut and next week’s meeting is seen as setting the stage for August.
Important news for GBP:
Wednesday
CPI
Thursday:
BoE Interest Rate Decision
Friday:
S&P Global Manufacturing PMI
S&P Global Services PMI
S&P Global Composite PMI
AUD
May employment report showed a lot of positives. Firstly, the employment change came in at 39.7k vs 30k as expected. Secondly, the unemployment rate ticked down to 4% while participation rate ticked up to 66.8%. Thirdly, the structure of jobs showed all of the jobs (41.7k) were full-time while part-time employment showed a decline of 2k. Jobs market remains tight, full-time jobs are better paid and with inflation running high there will be no need for RBA to cut at their next week’s meeting.
China May CPI data saw it unchanged at 0.3% y/y but monthly reading declined by 0.1%. PPI came in at -1.4% y/y, improving from -2.5% y/y the previous month. Inflation data leaves room for more stimulus.
This week we will have RBA meeting as well as production and consumption data from China. With high inflation and strong labor market analysts are almost unanimous in expecting no change from the RBA.
Important news for AUD:
Monday:
Industrial Production (China)
Retail Sales (China)
Tuesday:
RBA Interest Rate Decision
NZD
Electronic card retail sales data for the month of May showed drops of 1.1% m/m and 1.6% y/y. Monthly data has been dropping since February while yearly data showed a small improvement as April reading saw a decline of 3.8% y/y. Electronic card retail sales account for around 70% of total retail sales.
CAD
Building permits for the month of April, a very volatile data series, jumped 20.5% after falling 12.3% in March. BoC Governor Macklem stated that there is a limit to how far rates can diverge from the Fed rates but that they are not close to that limit.
JPY
Final Q1 GDP reading saw economy contract by 0.5% q/q and 1.8% annualized. Private consumption declined by 0.7% while business investment fell by 0.4%. Net exports were a negative input to GDP as exports fell by more than imports (-5.1% and -3.3% respectively). Ultimately, government consumption grew by 0.2%. PPI for the month of May came in stronger than expected and higher than in April. If PPI prices translate into CPI it will cause more sustainable price pressures which is what BoJ is looking for.
BoJ left interest rate unchanged at 0% as was widely expected but decided not to reduce JGB purchases. Markets were looking for a reduction due to recent subtle communication from BoJ members but ultimately they decided with a 8-1 vote that it is appropriate to keep it at current levels. Governor Ueda stated at the press conference that reduction in bond purchases will start immediately after the July meeting adding that the size of the cut will be substantial. JPY has fallen after the statement was released, then regained some ground after Ueda’s comments.
CHF
SNB total sight deposits for the week ending June 7 came in at CHF459.8bn vs CHF461.9bn the previous week. Downward trend that started from mid-April continues but deposits are still within well-established range.
This week we will have SNB meeting. They are expected to leave rates unchanged.
Important news for CHF:
Tuesday:
SNB Interest Rate Decision
