- MON: UK GDP Estimate (Apr).
- TUE: UK Jobs Data (Apr/May);
Swedish CPI (May); German ZEW Survey (Jun); US PPI (May); OPEC MOMR. - WED: FOMC Announcement; BCB
Announcement; Chinese Industrial Production and Retail Sales (May), French
CPI (May), US Retail Sales (May), New Zealand GDP (Q1); IEA OMR. - THU: BoE Announcement; SNB
Announcement; Australian Labour Market Report (May). - FRI: Quad Witching; BoJ
Announcement; EZ CPI Final (May).
NOTE: Previews are listed in
day-order
UK GDP Estimate (Mon):
Expectations are for April’s GDP
data to show an expansion of 0.2% M/M vs the 0.1% contraction observed in
March. Ahead of the release, Pantheon Macroeconomics (which looks for growth of
just 0.1%) said that the recovery in April’s retail sales appears to have come
at the expense of spending on consumer services. Furthermore, “the contribution
of Covid-related government expenditure to the level of GDP dropped by 0.4pp to
0.7pp in April” and “unlike in some prior months, this drag on healthcare
output does not appear to have been offset by a pick-up in non-Covid
activities”. The consultancy notes that “broadly unchanged GDP would put it on
course in Q2 to undershoot the MPC forecast for growth of 0.1% q/q, given that
output will fall sharply in June, due to the extra bank holiday”.
UK Jobs Report (Tue):
Expectations are for the
unemployment rate in the three months to April to hold steady at 3.7%. There is
no formal consensus at the time of writing for the earnings components,
however, Investec expects headline 3M/YY earnings to show growth of 7.5% vs
previous 7.0%, with the ex-bonus metric seen remaining at 4.2%. Ahead of the
release, Investec expects the upcoming report to follow suit with those seen in
recent months, and indicate an extremely tight labour market. Analysts also
note that “although reported employment growth, measured on the headline ILO
basis, may have accelerated, the fall in unemployment could have slowed as
participation crept up.” Looking further ahead, Investec sees “the margin
squeeze on firms, not least as a result of rate rises, to cool the demand for
labour at the same time as participation recovers. Unemployment should
therefore rise.” From a policy perspective, such an outturn would be manageable,
however, the risk of too aggressive a response to inflation and a subsequent
sharp increase in unemployment cannot be ruled out.
FOMC Announcement (Wed):
Fed officials have heavily guided
towards a +50bps rate rise at its June 15th FOMC, a move which is fully priced
by money markets; the Committee is also expected to lift rates by the same
magnitude at its July 27th confab. If the Fed next week raises rates in line
with consensus expectations, focus will fall onto its updated economic
projections. Since the Fed has pledged that it will ‘expeditiously’ be lifting
rates towards neutral, traders will take note of the updated Staff Economic
Projections for guidance on where the Fed sees the eventual terminal rate of
the cycle and the longer-run neutral interest rate. The now-stale March
forecasts envisaged rates rising to 1.75-2.00% by the end of this year (money
markets are pricing rates at 2.75-3.00% by year-end), before peaking at
2.75-3.00% in 2023 (money markets see 3.25-3.50% by mid-2023); money market
pricing, remarks from officials and analysts suggests these so-called ‘dots’
will be lifted. Meanwhile, the Fed’s assessment of the longer-run neutral rate,
which was cut in March to 2.4% from 2.5%, may see another revision lower in the
June forecasts; when taking out the extremes, the general run of Fed commentary
going into the June meeting has put the rate of neutral at around 2.25% among
the Governors, though the regional Presidents seem to have a higher assessment
than that. “If the two new Fed governors join their colleagues in their
estimate of the neutral rate, the central tendency estimate will decline again
in June,” Moody’s has explained, “at 2.25%, the Fed’s estimate would still be
higher than the most referenced model for estimating neutral fed funds, which
puts it closer to 2%.” Finally, updated economic projections, in addition to
revising up the foreseen trajectory of rates, it is likely that the profile of
inflation will be raised in the near-term, and growth expectations will be lowered,
as has been seen in the OECD’s recently updated economic projections. At Chair
Powell’s post meeting press conference, traders will be looking towards any
commentary that gives clues on what the Fed will do after it has raised rates
by 50bps increments in June and July; while some had envisaged that the central
bank would pause and assess the situation, remarks from some officials, like
the influential Governor Brainard, suggest that falling back to smaller
increments of rate rises are the base case, dependent on the progress of
inflation. Chair Powell will also likely emphasise that tackling soaring prices
remains the priority of the Committee. Additionally, many market participants
are now of the view that the Fed will need to hike rates more aggressively to
manage price pressures, and after the hot May CPI data–where the annual rate of
inflation rose to 40yr highs, while core measures of inflation continued to
rise in the month–Powell will be asked about how prepared the Fed is to raise
rates above the neutral level, which would place activity into restrictive
territory, potentially triggering a US recession. Fed officials in the passed
have suggested that they stand ready to do exactly that if the data requires.
BCB Announcement (Wed):
Brazil’s May IPCA-15 data showed
inflation rising by +0.6% M/M (exp. 0.5%), while the annual rate rose to +12.2%
Y/Y (exp. 12.0%, prev. 12.0%). Pantheon Macroeconomics noted that Brazil’s
inflation dynamics continues to deteriorate. “Upside risks persist due mostly
to worsening supply chains, high commodity prices, particularly fuel, and a
relatively resilient domestic recovery, following the Omicron wave,” but adds
“that said, upside pressures in some key components are no longer increasing.”
PM expects inflation will ease in the months ahead, to around 8.5% Y/Y by the
end of 2022 on the back of favourable base effects. “We think that the headline
rate will hover around its current level over the next few months, but that a
gradual headline inflation downtrend will emerge over Q3,” it says, “the COPOM
probably will hike by 50bps to bring expectations down, but will recognise that
further rate increases will put the economy under severe strain.”
China Activity Data (Wed): May data in China will be
impacted by the tight COVID restrictions seen in Beijing and Shanghai.
Industrial Production Y/Y is expected at 6.0% (vs prev. 6.8%) whilst Retail
Sales is expected to have contracted 7.3% in the month (vs prev. -11.1%).
Although desks are likely to overlook this data amid the ever-developing nature
of the situation, analysts at S&P global suggest “a slower deterioration of
conditions had been seen for mainland China in May’s PMI surveys which, if
supported by the official data, could see investor focus shift more positively
towards China, and also anticipate some easing of global supply constraints.”
US Retail Sales (Wed): US retail sales are seen rising
by +0.2% M/M in May (prev. +0.9%), while the measure which excludes autos is
expected to rise +0.8% M/M (prev. +0.6%). Credit Suisse, which is much more
pessimistic than the consensus, is looking for the four-month run of growth in
nominal goods spending will be snapped in May, forecasting a -1.1% print. “We
estimate the retail sales deflator at 0.7%, implying real retail sales fell
even further, by 1.8%,” CS writes, “May unit auto sales fell sharply,
suggesting autos weakness likely dragged headline retail sales down this
month,” while “gas prices rose quickly this month, raising nominal gas
spending.” For the ex-autos measure, CS says that high-frequency card tracking
data indicates a sharp decline in goods spending; “the end of a
stronger-than-normal tax season is likely contributing to this reversal in
goods spending,” the bank writes, explaining that greater spending on services
was acting as a headwind to purchases of goods, while high inflation is
weighing on consumers’ real purchasing power. “Nominal retail sales have been
relatively strong this year, but real goods spending has weakened, and we
continue to expect a continued decline through the year,” adding that “overall,
risks to the path of real goods spending are skewed to the downside for 2022.”
New Zealand GDP (Wed): The Q1 GDP data will be viewed
as very much in the rear-view mirror as the final month of Q2 gets underway and
with growth expected to slow ahead. Nonetheless, Q/Q is expected at 0.6% vs a
Q4 post-COVID rebound of 3%, whilst Y/Y is expected at 3.3% vs prev. 3.1%.
Analysts at ASB downplay the relevance of the data and say “the future is
ultimately what matters.” From a monetary policy perspective, the RBNZ remains
poised to hike despite the threat to growth as it attempts to get inflation
under control. ASB says they “still see the OCR hitting 3.50% and mortgage
rates moving a bit higher over the remainder of the year. 2023 is when the
calculus will start to get a bit tougher, particularly if the housing market
slowdown deepens more than we expect.”
BoE Announcement (Thu): Policymakers are expected to
continue with the rate hiking cycle by delivering another 25bps rate rise,
taking the Bank Rate to 1.25%. The decision to move on rates is expected to be
unanimous, however, the split of views regarding the magnitude of the move
remains to be seen, given that there were three dissenters at the May meeting.
The need to continue raising rates was underscored by the jump in April’s CPI
metrics, which printed 9.0% from 7.0%. With further increases in inflation
likely in the months ahead, and the MPC expects consumer prices to average a
little over 10% at its peak in Q4 2022. From a growth perspective, the recent
survey data from S&P Global highlighted the difficult economic backdrop in
the UK, and the likelihood of a stagflationary environment going forwards, with
the services metric slipping to 53.4 in May from 58.9. Accompanying commentary
from S&P Global noted “the monthly loss of momentum for business activity
expansion was a survey record outside of lockdown periods.” That said, policymakers
will have found some comfort in the latest government support measures aimed at
addressing the cost-of-living crisis, which could boost nominal GDP by around
0.7% in H2 2022. In terms of guidance from the MPC itself, Governor Bailey has
flagged concerns that pay growth will feed into inflation and is prepared to
raise rates again if needed. Furthermore, Chief Economist Pill has stated that
when it comes to lifting interest rates, “further work needs to be done.” Note,
current market pricing has continued to pick up since the prior meeting and now
looks for around another seven 25bps hikes by year-end. This continues to
remain at odds with guidance from the MPC itself which at the May meeting noted
that the implied market path would see inflation firmly below target in three
years-time at around 1.3%. Therefore, as the year progresses, desks are still
widely of the view that some of this exuberant pricing will need to be taken
out of the market.
SNB Announcement (Thu): Overall, likely to keep the
Policy Rate at -0.75% at the June gathering as, on balance, financial
conditions do not merit an unguided deviation from current policy at this point
in time. However, widening interest differentials, particularly with relation
to the EZ as the ECB are set to hike in July and September are of note and
imply further currency-driven inflationary pressures ahead. Pressure that
Switzerland is already cognisant of with CPI surpassing market expectations for
the last three readings to a YTD peak, thus far, of 2.9% YY; a measure that
already exceeds the SNB’s expected peak of 2.2% for 2022, via March forecasts.
As such, the June forecasts will receive upward revisions and attention will be
on what they expect the peak to be and when it is forecast to occur – note,
while elevated, Swiss inflation is far from the levels exhibited by global
peers. From the SNB itself, we have seen somewhat mixed commentary from
officials on the inflation situation; with Chairman Jordan acknowledging the
increase in global inflation, Board Member Maechler taking a more ‘hawkish’
line, making clear that they will not hesitate to increase rates if inflation
remains outside the target. Most recently, and perhaps pertinently, outgoing
Vice-Chairman Zurbrugg spoke on May 31st, when he would have been privy to the
embargoed May CPI print (2.9% YY), commenting that inflation is low vs other
nations and believes the drivers are temporary; remarks which perhaps serve to
dilute some of the notion around the SNB taking near-term action. Note, while
the September and December meetings may well be considered ‘live’ from a rates
perspective, and particularly September if the ECB does deliver more than 25bp
at that point; the likes of Credit Suisse expect the SNB to drop its “highly
valued” classification amid a lessening of sight deposit activity, as any
notable currency depreciation would fan inflation further. Finally, although
the SNB is unlikely to pre-empt the ECB and hike in June, its most recent rate
alterations came via unscheduled announcements, thus, a post-ECB move in July
cannot be ruled out but, as mentioned, September/December are the focal points.
Australia Jobs Report (Thu): Employment Change is expected to
show 25k additions in May vs 4k additions in April. The Unemployment Rate is seen
dipping to 3.8% from 3.9%, whilst the Participation Rate is expected to remain
steady at 66.3%. Analysts at Westpac expect only 5k job additions in the
headline metric – “We had thought that the April recovery in hours worked was a
prelude to a stronger recovery in employment in May. However, Weekly Payrolls
jobs to 14th of May were very weak. Comparing the May to April reference weeks
Payrolls are down 0.3%; it is usually a seasonally strong month with a positive
change in the ABS seasonal factors”, the desk explains. From a policy
perspective, the RBA is concentrating on controlling inflation, whilst China’s
COVID situation also poses a fluid challenge to the Aussie economy – thus the
jobs release is unlikely to have any broader/sustained ramifications.
BoJ Announcement (Fri): BoJ is expected to stick to its
ultra easy policy with rates to be kept at -0.1% and QQE with yield curve
control maintained to flexibly target 10yr JGB yields at around 0%. As a
reminder, the BoJ doubled down on its efforts to contain yields at the last
meeting by announcing it will conduct special operations on every working day
aside from when it is not expected, which went against the outside calls for
the BoJ to adjust its tolerance band and the global trend of central banks
pivoting towards normalisation, while it also reiterated it will ease policy
without hesitation as needed and maintained forward guidance on interest rates.
Since that meeting, the BoJ has continuously reinforced its dovish tone with
Governor Kuroda stating that Japan is absolutely not in a situation that
warrants tightening monetary policy and the biggest priority is to support
Japan’s economy by continuing powerful monetary easing. Kuroda also noted that
the BoJ will be unwavering in its stance of maintaining monetary easing to
ensure the recent rise in inflation expectations lead to a sustained price
increase, while other officials have echoed the dovish tone including Deputy
Governor Wakatabe who said they must maintain powerful monetary easing and sustain
an environment where wages can rise, as well as noted that the BoJ shouldn’t
rule out additional easing steps if risks to the economy materialise and that
widening the range around the BoJ’s 10yr JGB yield target would be tantamount
to a rate increase. Furthermore, the central bank has made it clear that policy
is unlikely to be influenced by the recent depreciation in the JPY or the rise
in inflation whereby Core CPI rose by its fastest pace since March 2015 at 2.1%
vs. Exp. 2.1% (Prev. 0.8%) as Governor Kuroda noted that the FX market is
regaining stability and doesn’t think rapid Yen weakening was caused by BoJ
easing, while he said rising inflation expectations are being driven mostly by
energy costs and are lacking sustainability.
This article originally appeared
on Newsquawk.