Key events for the week ahead – CPI reports (UK, Japan, and Canada), Chair Powell testimony, and prelim PMIs for June
Recap from last week
Higher than expected CPI and inflation expectations readings from the University of Michigan survey prompted the FOMC to implement a larger shift in policy last week. The aim of the FOMC was to signal its willingness to move decisively and not wait for another meeting to quell rising inflation and inflation expectations.
The target for the FFR was increased by +75bps – higher than the +50bps guidance for the meeting. The FOMC noted that this was an “unusually large increase” and that moves of this size are not expected to be common. But ongoing increases in the target FFR will be appropriate. There was a notable shift in guidance for monetary policy in favour of implementing a moderately restrictive policy by the end of the year.
In his press conference, Chair Powell noted “our objective really is to bring inflation down to 2 percent while the labor market remains strong”.
The FOMC is looking for “compelling evidence” that inflation is coming down, such as a series of declining monthly inflation reads before it starts to slow the pace of tightening.
US Fed Chair Powell will give two days of testimony this week to the Senate and House of Reps standing committees. This will provide a broader view of the political pressure placed on the Fed to rein in inflation. We might also see guidance on the preference of the next hike in Jul – either 50 or 75bps.
US data was softer last week. Consumer retail spending was weaker than expected, declining slightly. Manufacturing output (from the Industrial Production report) also declined slightly, and early Jun regional manufacturing reports highlight weaker momentum. Housing activity continued to slow as mortgage rates increased rapidly.
The BoE raised its bank rate by a further 25bps (6-3 decision where three members voted for a 50bps increase). UK inflation and retail sales will be released this week. CPI is expected to remain elevated and increase to +9.1% in May (from +9% in Apr).
The SNB surprised markets with a +50bps increase in its key policy rate (now at -0.25%).
The BoJ kept policy settings unchanged and remained in easing mode. Within the context of rising rates and hawkish central banks, bond purchases by the BoJ to defend yield targets reached a new high last week. This week, Japan CPI will be released – with headline inflation expected to reach +2.9% in May. Minutes of last week’s meeting will also be released.
Outlook for the week ahead
The RBA minutes will be released this week and should provide important insight into the surprise 50bps increase at the last meeting. Last week Governor Lowe announced an upgraded inflation forecast during a prime-time interview – catching many off guard. There will be several speeches given by Governor Lowe this week.
With central banks becoming increasingly hawkish, attention now shifts to signs of changes in growth momentum. This week, the Jun prelim PMIs will provide an early reading on growth momentum at the mid-year point.
The final reading for the US University of Michigan consumer sentiment survey for Jun will also be released on Friday.
This week, the US Treasury will auction and settle approx. $204bn in ST Bills and FR Notes with an estimated paydown of $9bn. The US Treasury will also auction the 20yr Bond and 5yr TIPS this week – both to settle next week.
Approx. $9.5bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
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
