Key events for the week ahead – Central bank decisions; FOMC, BoE, BoJ, and SNB, US retail sales, and ongoing geopolitical risk
Recap from last week
Last week, the RBA surprised markets, and the broader community, with a 50bps rate hike and signaled “doing what is necessary” to ensure inflation returns to target. The size and timing of further hikes are to be guided by incoming data.
The ECB stayed on course with its policy normalization sequencing. Purchases under the APP will end on 1 Jul (reinvestments to continue). Guidance for Jul & Sep was clear – conditions for a rate hike have been met and expect +25bps at the Jul meeting. Another increase is planned for Sep and depending on the updated medium-term outlook for inflation, a ‘larger rate increment may be appropriate’. Beyond Sep, ‘gradual but sustained increases’ will be appropriate. Inflation forecasts were revised higher and growth forecasts revised lower.
The US CPI growth rattled markets, accelerating faster than expected to +8.6% in May, up from +8.2% in Apr. The inflation mix continues to shift as food, energy, and shelter prices contributed more to the acceleration while used and new car price growth decelerated. High inflation reads have corresponded with a sustained and notable deterioration in US consumer sentiment, now at a new series low.
Last week, the RBNZ announced that it would actively start to sell securities on its balance sheet starting in Jul. It plans to dispose of its holdings over the next five (5) years.
Outlook for the week ahead
The hotter CPI report poses a further challenge for the US Fed as it navigates market expectations for even higher rates and political pressure to reduce high inflation, while it hopes to orchestrate a ‘soft landing’ for the economy. The FOMC was already expected to increase rates by 50bps at the Jun meeting this week and in Jul. The FOMC signaling and how it responds to this further acceleration in inflation will be important. Will there be a shift beyond ‘raising expeditiously to neutral’ to starting to consider further larger hikes and/or restrictive policy settings? So far, Chair Powell and Governor Waller are due to speak at the end of the week.
Other central bank meetings this week include the BoE – which is expected to increase the bank rate by another 25bps. The SNB and the BoJ are both expected to keep policy rates unchanged.
US retail sales will provide an important gauge of consumer spending this week. Retail sales for May are expected to increase by +0.2% after increasing by +0.9% in Apr.
We are also watching US initial claims, which came in higher than expected last week at +229k. While claims are still low, it is an important high-frequency data point to watch.
Aus labour market data for May will be released. The RBA noted the strength of the labour market as underpinning its confidence to front-load larger rate hikes. Employment is expected to increase by +25k persons, and unemployment is expected to fall further to 3.8%.
This week, the US Treasury will auction and settle approx. $312bn in ST Bills, Notes, and Bonds raising approx. $39bn in new money. This is the first week of QT. Approx. $35.7bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week. Of this, $9bn of Coupons will roll off the Fed balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
