UPCOMING EVENTS:
Tuesday: S&P Global US PMIs.
Wednesday: RBNZ Policy Decision, UK CPI, FOMC Minutes.
Thursday: US Jobless Claims .
Friday: US PCE.
Tuesday: The US Manufacturing PMI is expected at 50.0 vs. 50.2 prior, while the Services PMI is seen at 52.6 vs. 53.6 prior. The S&P Global PMIs have been leading the ISM PMIs lately and they are the timeliest indicators for the month. We’ve been seeing some pickup in economic data recently and that of course translated into a more hawkish interest rates pricing. The Fed will probably hike in June only if the next NFP and CPI reports beat expectations, but if the data keeps improving or remains resilient, the market will anyway price a higher or higher for longer rates path.
Wednesday: The RBNZ is expected to hike by 25 bps bringing the OCR to 5.50%. At the last meeting the central bank surprised with a 50 bps increase as further evidence that they are committed to bring the inflation rate back to their 1%-3% target range. Given that the latest inflation prints came in softer than expected, it’s likely that the RBNZ will be less aggressive going forward.
The UK Headline CPI Y/Y is expected to decline to 8.3% vs. 10.1% prior, with the M/M reading to remain unchanged at 0.8%. The Core Y/Y figure is expected unchanged at 6.2%, with the M/M data seen down a tick to 0.8% vs. 0.9% prior. These are still really ugly inflation numbers and with the high wage growth rate, the BoE should keep on hiking their bank rate.
The FOMC Meeting Minutes shouldn’t be a market mover given that it’s a three-week old report. The Fed hinted to a pause at the last policy decision by removing from the statement the anticipation of more policy firming, which in the past indicated a pause. Fed Chair Powell in his press conference left a door open to another increase in June if the data suggests so. This was before the hot NFP report and the following better than expected economic reports. In fact, recent Fedspeak leant on the hawkish side, but we have to wait for another NFP and CPI report before concluding that the Fed will hike again in June.
Thursday: The US Initial Claims are expected at 250K vs. 242K prior, and Continuing Claims are seen at 1800K vs. 1799K prior. Jobless Claims have been a market mover lately because the market’s been trying to gauge if the mid-March banking woes impacted the economy for the worse. After multiple misses in late March and most of April, the data started to improve again and judging by the lower continuing claims it looks like people are finding jobs pretty quickly. This is also why Treasury yields have almost erased the huge decline since the Silicon Valley Bank collapse.
Friday: The US Core PCE Y/Y is the Fed’s preferred measure of inflation and not only it’s been above the target for 2 years already, but it’s been really slow in coming down to the Fed’s 2% target. The measure is expected to remain unchanged at 4.6% and the longer it remains above target, the higher the risk that inflation expectations really de-anchor.
This article was written by Giuseppe Dellamotta.
