RBA and BOC meetings, both expected to deliver no changes to rates or policy, will be the highlights of the week ahead of us.
USD
Over the weekend a deal in principle was reached on lifting the debt ceiling between US President Biden and House Speaker McCarthy. Debt ceiling should be raised by around $4tn in the next two years. Now the deal is passed to Congress for voting. ISM Manufacturing PMI for the month of May slipped to 46.9 from 47.1 in April. The details of the report show drops in new orders, inventories and backlog of orders. On the other hand, there are improvements in employment and production components with both of them printing above 50. The biggest decline was seen in prices paid index (44.2). It indicates waning price pressures, lower inflation in the coming months.
May NFP saw a headline number of 339k vs 190k as expected. This is fifteenth consecutive month that the reading smashed expectations. The unemployment rate rose to 3.7% vs 3.5% as expected and up from 3.4% the previous month while participation rate remained at 62.6%. Wages rose 0.3% m/m and 4.3% y/y as expected. Professional and business services added 64k jobs followed by government employment at 56k and healthcare at 52k while manufacturing and IT saw job losses. It is a mixed report as headline number beat again but the unemployment report jumped more than expected.
The yield on a 10y Treasury started the week and year at around 3.77%, fell to 3.6% and finished the week post NFP at around the 3.65% level. The yield on 2y Treasury reached around 4.6%. Spread between 2y and 10y Treasuries started the week at -76bp then widened to -78bp. Markets completely reversed probabilities of Fed moves after Fed Jefferson and Parker hinted at a pause in June while NFP numbers added more to the chances of a raise in June. FedWatchTool sees the probability of a 25bp hike at 33.3% while probability of no change in June is at 66.7%.
This week we will have ISM Non-Manufacturing PMI data for the month of May.
Important news for USD:
Monday:
ISM Non-Manufacturing PMI
EUR
French inflation reading for May fell by more than expected to 5.1% y/y from 5.9% y/y in April with a negative monthly reading of -0.1%. Expectations were for a drop to 5.5% y/y. German reading came in at 6.1% y/y vs 7.2% y/y previous month with monthly reading also falling 0.1% m/m. Expectations were for a drop to 6.5% y/y. Preliminary Eurozone CPI came in at 6.1% y/y vs 6.3% y/y and down from 7% y/y the previous month with prices staying the same month over month. Services inflation came down to 5% y/y from 5.2% y/y in April. Core inflation fell to 5.3% y/y from 5.6% y/y while expectations were for a 5.5% y/y reading. ECB will be very pleased with inflation data, however be mindful that ECB President Lagarde stated that they are still not satisfied with inflation outlook and will need to continue raising rates as inflation is too high and will stay high for too long.
GBP
Final May manufacturing PMI was revised up to 47.1 from 46.9 as preliminary reported. The reading is still lower than April (47.8). New order and employment indexes declined at a faster pace. On the positive side, input costs have continued to decline thus easing the inflation pressures and companies report improvements in supply chains.
AUD
Building permits in April plunged -8.1% m/m vs expected increase of 2% m/m. Housing is a big part of Australian economy. Higher interest rates cause mortgage payments to increase making houses less affordable thus bringing demand for them. Monthly CPI data for the month of April fell to 6.8% y/y from 7% in March, but larger fall was expected (6.4% y/y). RBA Governor Lowe stated that in September there will be a great number of fixed-rate mortgages rolling off into much higher current rates. Q1 CAPEX data came in at 2.4% q/q vs 1% q/q as expected, down from upwardly revised Q4 reading of 3% q/q.
Official PMI from China for the month of May saw readings decline across the board. Manufacturing fell to 48.8 from 49.2 in April while a rebound to 51.4 was expected. Non-Manufacturing holds strong with 54.5, but is still down from 56.4 the previous month. Composite was dragged down to 52.9 from 54.4 in April. Weaker than expected readings pulled AUD down. Every time that PMI data show declines in economic activity talks regarding stimulus from China become louder. Caixin manufacturing PMI returned to expansion with 50.9, up from 49.5 in April due to strong jump in output and new orders. On the other hand, employment index has made a big drop as companies are reluctant to hire new workers.
This week we will have RBA meeting as well as trade balance and inflation data from China. Markets are pricing in no change from the RBA, although higher inflation reading may bring some murmurs during the meeting.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
Wednesday:
Trade Balance (China)
Friday:
CPI (China)
NZD
ANZ survey showed business confidence improving in May to -31.1 from -43.8 in April. The biggest improvement were seen in residential construction, profit expectations and ease of credit. Inflation expectations have dropped to 5.47% from 5.7%.
CAD
Q1 GDP came in at 3.1% vs 2.5% annualised as expected and 0.8% q/q. The beat was achieved thanks to positive contributions from household spending and net exports while business investment and inventories were drag. Advance reading for April, first month of Q2, shows GDP increasing by 0.2% m/m.
This week we will have BOC meeting and employment data. BOC is expected to continue with their current monetary policy of leaving rates on hold.
Important news for CAD:
Wednesday:
BOC Interest Rate Decision
Friday:
Employment Change
Unemployment Rate
JPY
Emergency meeting that consisted of members of BOJ, FSA and MOF produced nothing more than a verbal warning. Top currency diplomat Kanda stated that top currency officials are closely monitoring movements in FOREX markets. Industrial production and retail sales both missed in April coming in at -0.4% m/m and -1.2% m/m vs 1.5% m/m and 0.5% m/m as expected respectively. Q1 CAPEX data saw a tremendous increase in investment of 11% q/q, double than expected 5.5 q/q and up from 7.7% q/q in Q4.
CHF
SNB total sight deposits for the week ending May 26 came in at CHF516.7bn vs CHF515.7bn the previous week. Q1 GDP surprised to the upside as it came at 0.3% q/q vs 0.1% q/q as expected and up from being flat in Q4 of 2022. The increase was supported by domestic demand as consumer spending rose 0.6% q/q.
This week we will have inflation data.
Important news for CHF:
Monday:
CPI
