Key events this week; Central Bank Meetings – FOMC, BoJ, SNB, BoE, and US Retail Sales
Recap from last week: Benign US Inflation for May
Last week offered a mixed view of the global economic outlook. Initial optimism stemmed from benign US inflation reports, which showed little impact from tariffs, coupled with favorable progress in US-China trade negotiations. However, this positive sentiment was overshadowed by the week’s end as rising instability in the Middle East began to emerge, casting a deepening shadow over the geopolitical landscape.
The US CPI & PPI reports were much anticipated this month to answer whether tariff effects were beginning to ripple through the data. Both the US CPI and PPI reports came in lower than expected, reducing expectations for the Fed-preferred PCE deflator in May. While some of the details in the CPI report may have reflected small pockets of tariff-led inflation, the bigger picture annual headline and core inflation rates remain little changed as we cycled over a low inflation month from a year ago. US headline CPI inflation increased by +0.1% over the month, against an expectation of +0.2%, while the annual rate edged higher to +2.4%. Core CPI was also lower than expected over the month at +0.1% (versus an expectation of +0.3%); however, it remained unchanged over the year at +2.8%. The trimmed mean measure of underlying inflation is showing more of a sideways trajectory. Importantly, the broad disinflation trends across services and shelter remain intact, while core goods inflation continued to edge higher from a low level. The PPI report also came in lower than expected. Core PPI came in at +0.1% over the month (versus an expected increase of +0.3%) while the annual rate stayed unchanged at +3%. Together, the CPI & PPI indicate that core PCE will continue to be more benign in May at around +0.14% for the month (source: Cleveland Fed PCE Nowcast).
It’s still highly uncertain the degree to which tariffs will be passed through to US consumer prices in the coming months. While progress was made on US-China talks last week, President Trump continued to threaten a unilateral approach to the ‘reciprocal’ tariffs. However, given the darkening backdrop in the Middle East, the reciprocal tariff deadline (9 Jul) could get pushed out further.
Finally, we continue to watch the trend of the US initial claims data. There was a more noteworthy jump in the NSA claims this week while the SA claims remained elevated. For the third week in a row, continuing claims have been above 1.9 million claimants.
Outlook for the week ahead; Central Bank Decisions – FOMC, BoJ, SNB, BoE, and US Retail Sales
The focus this week will be on a range of key Central Bank meetings, including the FOMC, US consumption and activity data, and the geopolitical backdrop.
The US Juneteenth Holiday is on the 19 Jun this week.
Key factors & events to watch this week;
Central bank decisions;
- The FOMC is expected to keep policy settings unchanged this week. At the last meeting, the FOMC remained in wait-and-see mode due to the high degree of uncertainty over the “final” version of tariffs, and how that will play out in terms of inflation, the labor market, and growth. There are still distortions in the data making that assessment difficult. The latest Fed Summary of Economic Projections will be released, and it will be important to see how Fed projections of inflation, growth, unemployment, and the path of the FFR have changed. We’ll also be looking for any changes in the characterization of the current benign inflation and the signs of cooling labor market conditions.
- The BoJ is expected to keep policy settings unchanged. At its last meeting, the BoJ remained on hold, citing risks and uncertainty regarding the near-term impact of trade tariffs on activity and prices. The BoJ retained its normalization bias IF broader conditions in activity and prices improved as per forecasts. The Japanese National CPI for May is due later in the week and is expected to remain firm.
- The BoE is expected to keep policy settings unchanged after reducing the Bank Rate by 25bps at the prior meeting. The decision to cut at the last meeting was based on disinflation progress. While the Apr UK CPI was firmer (some one-offs) the May CPI due this week is expected to ease again. The latest labour market data continues to reflect some easing in conditions.
- The SNB is expected to cut rates by 25bps – back to zero.
US consumption and activity data will also be in focus this week – providing another solid update to the latest Atlanta Fed GDPNowcast for Q2.
- US nominal retail sales are expected to fall by -0.6% in May – led by a fall in auto purchases as consumers ‘pulled forward’ purchases due to tariffs. Excluding autos, nominal retail sales are expected to increase by +0.1% in May, from +0.1% in Apr.
- US building permits and housing starts are expected to be little changed in May. Building permits are expected to increase to 1.43m (annualized rate) from 1.422m in Apr. Housing starts are expected to be unchanged at 1.36m (annualized rate) in May.
- US industrial production is expected to remain unchanged at 0% in May (versus 0% in Apr).
- The first regional manufacturing surveys for Jun will also be released this week.
Global inflation reports will be important this week in the context of central bank decisions.
- Japanese National Core CPI – ex fresh food (BoJ preferred measure) is expected to accelerate slightly again, from +3.5% in Apr to +3.6% in May.
- The UK CPI for May is expected to ease after a more notable increase in Apr. Headline CPI in May is expected to increase by +0.2% over the month down from +1.2% over the month in Apr. Over the year, core CPI is expected to ease from +3.8% in Apr to +3.5% in May.
- The Euro area CPI for May is expected to confirm annual headline inflation at +1.9% and core inflation at +2.3%
Finally, the Aus labour market report for May is expected to show some easing in net employment growth from 89k in Apr to 20k in May. The unemployment rate is expected to be unchanged at 4.1%.
This week, the US Treasury will auction and/or settle approx. $379bn in ST Bills with a paydown of approx. $61bn. The US Treasury will also auction the 5-year TIPS and 20-year Bond this 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
