UPCOMING EVENTS:
- Monday: China Caixin Manufacturing PMI, Swiss Manufacturing PMI, Canada Manufacturing PMI, US ISM Manufacturing PMI.
- Tuesday: Swiss CPI, US Job Openings.
- Wednesday: Japan Average Cash Earnings, Australia GDP, China Caixin Services PMI, Eurozone PPI, US ADP, Canada Services PMI, BoC Policy Decision, US ISM Services PMI.
- Thursday: Swiss Unemployment Rate, Eurozone Retail Sales, ECB Policy Decision, US Jobless Claims.
- Friday: US NFP, Canada Labour Market report.
Monday
The US ISM Manufacturing PMI is expected at 49.8 vs. 49.4. The S&P Global Manufacturing PMI increased to 52.4 vs. 51.1 and overall the report showed that business activity expanded to a two-year high. The details also showed that “both input costs and output prices rose at faster rates, with manufacturing having taken over as the main source of price growth over the past two months." However, “the overall rate of selling price inflation remained below the average seen over the past year”.
Tuesday
The Swiss CPI M/M is expected at 0.4% vs. 0.3% prior. The last report beat expectations with the Y/Y rate coming in at 1.4% vs. 1.1% expected but the rate was still within the SNB’s forecasts. A rate cut in June is basically a coinflip, but a downside surprise should see the market getting a bit more confident for another cut.
SNB’s Chairman Jordan also said that if upward risks to Swiss inflation were to materialise, these would most likely be associated with a weaker franc, which could be counteracted by selling foreign exchange reserves (buying CHF). Therefore, an upside surprise might give the Swiss Franc a bigger boost as the market should price out both the chances of a rate cut in June and expect the central bank to prop up the currency.
The US Job Openings are expected to fall to 8.350M vs. 8.488M prior. The last report showed once again a decrease as the labour market continues to come into better balance. The quits rate has also eased to a new cycle low and that should be good news for inflation as it generally leads wage growth.
Wednesday
The BoC is expected to cut rates from 5.00% to 4.75%. The market-based probability jumped to 80% chance following the soft Canadian GDP data. The expectations were already leaning toward a rate cut after the last Canadian CPI report where the BoC’s preferred underlying inflation measures surprised to the downside and finally fell inside the 1-3% target band. The central bank will likely refrain from pre-committing to another rate cut and state that it will be dependent on the data.
The US ISM Services PMI is expected at 50.5 vs. 49.4 prior. As previously mentioned, the S&P Global PMIs surprised to the upside with the Services measure in particular beating expectations by a big margin. The focus will likely be on the employment sub-index ahead of the NFP report but the data we got until now suggest that the US economy is going well, and the labour market remains resilient.
Thursday
The ECB is expected to cut interest rates from 4.00% to 3.75%. This rate cut has been telegraphed very strongly, so the focus will be on what the central bank intends to do next. The recent data showed that the economy picked up steam with the labour market remaining strong. This might give the policymakers a reason to err on the cautious side although the latest Eurozone PMIs showed that inflationary pressures continue to abate. The market expects two more rate cuts from the ECB this year but as it’s always the case, that will depend on the data.
The US Jobless Claims continue to be one of the most important releases to follow every week as it’s a timelier indicator on the state of the labour market. This is because disinflation to the Fed's target is more likely with a weakening labour market. A resilient labour market though could make the achievement of the target more difficult.
Initial Claims keep on hovering around cycle lows, while Continuing Claims remain firm around the 1800K level. This week Initial Claims are expected at 215K vs. 219K prior, while there is no consensus at the time of writing for Continuing Claims although the prior release showed an increase to 1791K vs. 1797K expected and 1787K prior.
Friday
The US NFP is expected to show 180K jobs added in May vs. 175K in April, and the Unemployment Rate remaining unchanged at 3.9%. The Average Hourly Earnings Y/Y is expected at 3.9% vs. 3.9% prior, while the M/M measure is seen at 0.3% vs. 0.2% prior.
The May labour market data we got until now has been generally positive with the S&P Global PMIs reporting a slowdown in the rate of job losses, the US Jobless Claims holding on strong, and the labour market details in the US Consumer Confidence report rebounding. Therefore, the bias should be skewed towards a good release.
