FX MAJORS WEEKLY OUTLOOK (8-12 MAY)

UPCOMING EVENTS:

Wednesday: US CPI.

Thursday: BoE Policy Decision, US PPI, US Jobless Claims Jobless Claims Jobless claims are a weekly statistic reported in the United States that represents a key barometer for domestic employment. As one of the most closely watched US indicators, jobless claims carry a lot of weight in financial markets, namely forex and the stock market.Jobless claims are reported on a weekly basis by the Department of Labor. While painting a picture of the overall health of the economy, jobless claims can be broken down into two types.This includes initial jobless claims or person Jobless claims are a weekly statistic reported in the United States that represents a key barometer for domestic employment. As one of the most closely watched US indicators, jobless claims carry a lot of weight in financial markets, namely forex and the stock market.Jobless claims are reported on a weekly basis by the Department of Labor. While painting a picture of the overall health of the economy, jobless claims can be broken down into two types.This includes initial jobless claims or person Read this Term.

Friday: University of Michigan Consumer Sentiment.

Wednesday: The US Headline CPI Y/Y is expected to remain unchanged at 5.0% and the M/M reading is seen at 0.4% vs. 0.1% prior. The Core Y/Y figure is expected at 5.5% vs. 5.6% prior and the M/M reading unchanged at 0.4%. These are still very high figures given the 2% target, but the Fed sees the tightening in lending due to the regional banking stress and the 5.00-5.25% FFR as probably enough to slow the inflation rate to their target. The data have not showed meaningful impact on the economy yet though with jobless claims again improving, the ISM PMIs rising and the labour market remaining very tight with consumer inflation expectations and wages rising. After this report the Fed has still another NFP and CPI report before its interest rate decision in June, but I can see the market repricing interest rates expectation higher in case the data comes out as expected, or worse, higher than expected.

Thursday: The BoE is expected to hike by 25 bps bringing the Bank Rate to 4.5%. Inflation in the UK remains very high and above the BoE forecasts, so they should keep on tightening with the usual dissents from Tenreyro and Dhingra. After this hike the market expects the BoE to hike again by 25 bps bringing the terminal rate to 4.75%.

The US Headline PPI is expected at 2.5% vs. 2.7% prior and the M/M reading at 0.3% vs. -0.5% prior. The Core Y/Y is seen at 3.3% vs. 3.4% prior and the M/M figure at 0.2% vs. -0.1% prior.

The labour market data, in my opinion, should be more important now as a looser labour market is what is needed to return to the 2% target. If inflation remains high for too long (it’s been more than 2 years now), inflation expectations may change, and the wage price spiral can really become a big risk eventually requiring a much more aggressive policy tightening and a worse recession afterwards.

In fact, we have probably seen the first signs of this from the University of Michigan inflation expectations rising again and the wage data like the ECI, the Unit Labour Costs and the Average Hourly Earnings ticking up. The US Jobless Claims is a leading indicator and after weeks of misses following the SVB collapse, the data started to improve again. Initial Claims are seen at 245K vs. 242K prior and Continuing Claims at 1825K vs. 1805K prior.

Friday: The University of Michigan Consumer Sentiment survey was a market mover right before and in the beginning of the tightening cycle. This is because the market was more focused on that. It has lost that weight as inflation started to roll over, but after the big jump in the 1-year inflation expectations last time and coupled with the recent better than expected data, the market may react on it focusing particularly on the 5-year inflation expectations.

This article was written by Giuseppe Dellamotta.