Key events for the week ahead – ECB & BoJ policy decisions, RBA Minutes, inflation reports, and prelim PMIs for July
Recap from last week
US CPI accelerated more than expected to +9.1% for Jun. Fed speeches and market reactions indicate that at least another 75bps hike is expected by the FOMC next week. There is a sense that the Jun CPI report marks a near-term peak in the pace of headline inflation given the easing in energy and commodity prices. But measures of core inflation (trimmed and median) and sticky CPI suggest that inflation pressure is still broadening and may take longer for it to peak. Even if headline inflation growth slows, it may take longer for core inflation to return to target levels.
US retail spending for Jun came in better than expected at +1% (still slightly negative in real terms), and consumer sentiment was little changed from Jun. The weakness in Jun US manufacturing from the regional and PMI reports was reflected in the -0.5% decline in manufacturing output in Jun. Both durable and non-durable goods output declined.
Continued high inflation had central banks announcing larger rate hikes last week. The BoC surprised with a 100bps increase in the target overnight rate to 2.5%, citing higher and more persistent inflation than expected. The BoC expects inflation to stay around 8% for the next few months. This week, the Jun CPI for Canada is expected to increase to +8.3% (from +7.7% in May).
The RBNZ also lifted the official cash rate by a further 75bps last week to 2.5%. The bank noted near-term upside inflation risks, supported by a tight labour market (3.2% unemployment rate). This week, NZ Q2 CPI came in higher than expected at +7.3% for Jun.
Outlook for the week ahead
There will be more central bank activity this week.
The BoJ will meet on monetary policy, but no policy change is expected. The BoJ is expected to update its inflation outlook. The Japanese National CPI for Jun will be released this week. Core inflation (ex-fresh food) is expected to stay elevated at +2.2% (from +2.1% in May).
The ECB is expected to increase its key rates by 25bps. The net asset purchases ended on 1 July. So far, inflation has continued to increase at an elevated pace. Sentiment is weakening and there are signs of slowing growth momentum, especially in periphery countries. Generally, markets are expecting a short hiking cycle.
The RBA minutes will be released this week. The RBA raised the cash rate target by another 50bps to 1.35% at the Jul meeting. Last week’s Jun labour market report reflected a further tightening in conditions – high employment growth, a new high in participation, and a near-term record low unemployment rate of 3.5%. This will give the RBA confidence to continue hiking rates. This week, Governor Lowe will speak, and Asst Governor Bullock will also speak about how Aus households are placed for interest rate increases. Next week, the Q2 CPI report will be released – in time for the Aug meeting the following week.
UK CPI for Jun is expected to increase further by +9.3% (versus +9.1% in May).
The prelim S&P PMIs for Jul will be released this week. There was a notable slowdown in Jun, especially in US manufacturing and across the Eurozone. The Jul reports are expected to show little change in momentum from Jun.
There will be no Fed-speak this week in the blackout period ahead of the FOMC meeting next week.
This week, the US Treasury will auction and settle approx. $211bn in ST Bills raising approx. $3bn in new money.
The US Treasury will also auction the 10yr TIPS and the 20yr Bond this week.
Approx. $19bn 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
