The focus this week will be on central bank meetings, including the US FOMC and a raft of CPI and PPI reports for May.
Last week, annual growth in the US CPI accelerated at a faster pace of 4.93% for May (from 4.15% in Apr). There was a smaller base effect this month – and if the May 2020 base were unchanged (compared to Apr 2020), headline CPI would have still accelerated to 4.82%. The main contributors to the higher CPI growth were energy prices (gasoline), used cars & trucks, owner’s equivalent rent, and transport services (motor vehicle insurance & airline fares). The increase in gasoline prices accounted for approx. 40% of the annual increase in the headline CPI this month. Excluding the larger contributors to headline CPI growth (food, energy, shelter, and used cars) the annual CPI growth still accelerated from 2.57% in Apr to 3.28% in May. There was a small base effect too – and without any base effect for this ‘core group’, annual growth in prices would have still accelerated to 2.98% in May. For this core measure of CPI, the quarterly pace of growth in May accelerated to the fastest level since 1991 to 1.51%.
This week, the Fed is likely to “look through” the higher CPI and PCE price growth for May – expecting higher price growth to be transitory. The Fed will likely want to see more substantial improvement in labour market metrics after the last two months of smaller than expected gains in payrolls (which is still 7.6m below pre-pandemic levels). No change to policy settings is expected – although we will look for language that starts to hint at talking about tapering.
Other highlights this week will be:
Central banks: the BoJ and SNB will meet this week on rates and policy. Speeches this week from BoE Governor Bailey, RBA Governor Lowe, and BoC Governor Macklem.
US data this week (mainly Tue & Wed): US retail sales growth for May expecting a -0.8% decline (from 0% growth in Apr). Industrial production in May expecting a +0.6% increase (up from +0.5% in Apr). Annual PPI growth in May is expected to increase to 6.3% (up from 6.2% in Apr). Building permits for May expected to increase to 1.74m (SAAR) up from 1.733m in Apr. Building starts for May expecting a 1.630m increase in May, up from 1.569m in Apr. There will also be the first of the regional manufacturing surveys for Jun (NY and Philadelphia).
The May CPI and PPI reports for the Eurozone, Germany, Canada, China, UK, and Japan will be released this week.
Australian employment and labour market report for May – expecting growth in employment of +30k after a 30k decline in Apr.
This week, the US Treasury will settle $420bn in Bills, Notes, and Bonds raising approx. $77bn in new money for the week. The US Treasury will also auction the 5yr TIPS and 20yr Bond this week – to settle on 30 Jun. This week, approx. $31bn in Bills and Notes will mature on the Fed balance sheet and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
