The Macro Outlook for w/c 6 June 2022

by Kim | Jun 6, 2022

Key events for the week ahead – RBA and ECB policy decisions, US inflation, and ongoing geopolitical risk

The RBA will meet on monetary policy early this week. Another 25bps increase in the cash rate target is expected, with a chance for a 40bps increase. The last quarterly inflation reading of +5.1% was higher than the RBA Board had expected. With only quarterly inflation reports available, the Board noted that it was looking at a broader range of inflation inputs, especially from its business liaison program. The guidance provided at the last meeting was that further increases in interest rates will be necessary (but are not on a pre-set path). Aus GDP data released last week showed that growth remained strong in Q1 at +0.7% for the quarter. While the unemployment rate did fall below 4% in Apr, employment growth was tepid for the month. Growth in housing finance had already begun to moderate since the start of the year and remained weaker in Apr.

The ECB will meet this week. It is expected that the governing council will announce the end of the Net Asset Purchase Program (QE) – with purchases to end in June (while maturing securities on the ECB balance sheet will continue to be rolled over). Last week, inflation again surprised to the upside across the Eurozone, accelerating from +7.4% in Apr to +8.1% in May – adding further pressure on the ECB to begin the hiking cycle. The ECB has committed to the sequence to end the net APP before a lift-off in rates. Based on this, the ECB is expected to signal the timing for when it will commence rate increases (likely to be at the Jul meeting). The ECB will release updated growth and inflation forecasts at this meeting.

US CPI for May will be released at the end of the week. Headline CPI growth is expected to remain elevated at +8.3% in May (versus +8.3% in Apr). The monthly pace of growth is expected to accelerate from +0.3% in Apr to +0.7% in May. Core CPI growth is expected to remain elevated at +5.9% in May, but slightly slower than the +6.2% in Apr.

We are now in the blackout period ahead of the FOMC meeting next week – so there will be no Fed speeches this week. The US CPI report for May, together with the momentum in non-farm payrolls for May, will be important inputs for the FOMC meeting next week. As a part of moving expeditiously back to neutral, increases of 50bps at the next two meetings have already been well telegraphed.

Further data on the Chinese economy will be released this week – including trade data, CPI, and PPI inflation rates.

This week, the US Treasury will auction and settle approx. $182bn in ST Bills, with an approx. paydown of $34bn. The US Treasury will also auction the 3yr and 10yr Notes and the 30yr Bond this week – to settle next week.

Approx. $16.5bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over. Bills maturing this month on the Fed balance sheet will be rolled over/reinvested. The first round of Coupons to mature and roll off the Fed balance sheet will commence next week.

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