Key events this week – US retail sales, central banks; BoE, RBA, and SNB, inflation; UK, Japan, and Euro Area, S&P prelim PMI’s Jun
Recap from last week
The FOMC kept monetary policy settings unchanged, emphasizing the importance of balancing its dual mandate. Fed chair Powell noted modest progress on inflation, with the latest May CPI report showing improvement. However, the FOMC needs more positive data before loosening policy.
And we do see today’s report as progress and as, you know, building confidence. But we don’t see ourselves as having the confidence that would warrant beginning to loosen policy at this time.
The Committee delayed rate cuts, projecting one to two cuts this year, down from the Mar estimate of one to three. Disinflation progress is expected to be slow, with higher projected PCE inflation rates reflecting more conservative forecasts:
We’re assuming, you know, good but not great numbers.
The latest May CPI & PPI results suggest a softer reading in the FOMC preferred measure of PCE price inflation for May (due in the following week).
I think, let me say that we welcome today’s reading and then hope for more like that.
U.S. growth is still expected to slow back to trend over the remainder of the year, while the unemployment rate is expected to remain unchanged at the current level of 4% for the rest of the year.
We kind of see what we wanted to see, which was gradual cooling and demand, gradual rebalancing in the labor market while we’re continuing to make progress on inflation. So, we’re getting good results here.
The updated projections raised questions about the timing of rate cuts. However, in the absence of more information, the FOMC is managing its dual mandate cautiously, prepared to maintain the current federal funds rate if inflation persists but ready to cut rates if the labor market unexpectedly weakens or inflation falls rapidly.
The BoJ kept policy settings on hold. It did signal that at the next monetary policy meeting the Policy Board will decide on “a detailed plan for the reduction of its purchase amount (of JGB’s) during the next one to two years or so”.
Outlook for the week ahead
It will be a short US week with the Juneteenth Holiday on 19 June.
The focus this week will be on US growth data, central bank decisions, and global inflation reports.
There will be a range of US spending, production, and housing data providing a further update on the progress of US GDP growth in Q2. The main focus in the US will be retail sales for May. After the softer retail growth in Apr of 0%, retail sales in May are expected to increase modestly by +0.3%. US industrial production is expected to increase by +0.2% in May after 0% growth in Apr. US housing starts for May are expected to increase by 1.37m (annualized), up from 1.36m in Apr. Building permits are expected to increase slightly to 1.45m annualized in May, from 1.44m in Apr. Existing home sales are expected to ease slightly to 4.08m annualized in May, down from 4.14m in Apr.
The US initial claims will be an important indicator to watch. Last week, the NSA initial claims series increased in line with seasonal patterns, however, there was also a notable increase of +242k in the seasonally adjusted (SA) initial claims. This is still relatively low, but the 4-week average has edged higher and this will be important to watch. Initial claims (SA) for the week ending 15 Jun are expected to increase by +235k.
There will be several Fed speeches throughout the week.
There will be a number of central bank meetings this week. The RBA will meet early in the week and policy settings are expected to be unchanged. At the last meeting, concerns over persistent inflation were noted. Guidance had indicated that it would be ‘some time yet’ before inflation was sustainably in the target range. The path of interest rates remains uncertain, with the Board “not ruling anything in or out”. The latest monthly CPI series for Apr indicated that progress on inflation had remained stalled. Last week, the labour market data for May was positive, as employment growth remained solid for the month, and the unemployment rate edged slightly lower as expected.
The BoE will meet this week and policy settings are expected to be unchanged. The latest update on inflation for May will be released the day before the meeting. The prior inflation reading had eased, but not by as much as expected. Headline inflation is expected to slow to +2% in May from +2.3% in Apr, while core CPI is expected to ease further from +3.9% in Apr to +3.5% in May. Guidance from the prior decision noted that “policy needs to stay restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates”.
The Swiss National Bank is expected to decide on its policy rate this week.
Other inflation reports this week include the final Euro Area CPI for May. Headline inflation is expected to be confirmed at +2.6% and core CPI is expected to be confirmed at +2.9%.
Japanese National headline CPI for May is expected to be little changed at +2.5%. The BoJ preferred measure of core inflation excluding fresh food is expected to increase to +2.6% in May from +2.2% in Apr.
Finally, the latest prelim PMIs for Jun will be released later in the week rounding out the view of Q2 private sector growth momentum.
This week, the US Treasury will auction and settle approx. $519bn in ST Bills, Notes, and Bonds, raising approx. $34bn in new money. This includes the 3-year and 10-year Notes, and 30-year Bonds auctioned last week, which settle this week. Also, $34bn in 5-year TIPS and 20-year Bonds will be auctioned this week – to settle at the end of the month.
QT this week: Approx $4.7bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx. $9bn in Notes & Bonds will be redeemed and rolled 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
