UPCOMING EVENTS:
- Monday: Japan Wage data, Swiss Unemployment Rate.
- Tuesday: US NFIB Small Business Optimism Index.
- Wednesday: Japan PPI, RBNZ Policy Decision, US CPI, BoC Policy Decision, FOMC Minutes.
- Thursday: China CPI, ECB Policy Decision, US PPI, US Jobless Claims.
- Friday: New Zealand Manufacturing PMI, New Zealand Retail Sales, UK GDP, UK Industrial Production, US University of Michigan Consumer Sentiment.
Monday
The Japanese Average Cash Earnings Y/Y are expected to rise to 3.0% vs. 2.0% prior. The JPY might get bid on a strong figure as the BoJ continues to see the achievement of their inflation target and mentioned that another rate hikeis dependent on the data. The timing for such a move remains uncertain though with July and October being on the table, although the latter is the most probable one. Overall, even if we see a beat, the market will likely want to wait for the US CPI on Wednesday as that is what will likely decide the USD trend for the following days and weeks.
Wednesday
The RBNZ is expected to keep the OCR unchanged at 5.50%. As a reminder, the central bank dropped the tightening bias in the last policy decision stating that interest rates will need to remain at restrictive level for a sustained period of time. There’s nothing to expect from this week’s decision as the RBNZ is looking to normalise policy in 2025 while the market sees the first cut coming in August.
The US CPI Y/Y is expected at 3.4% vs. 3.2% prior, while the M/M measure is seen at 0.3% vs. 0.4% prior. The Core CPI Y/Y is expected at 3.7% vs. 3.8% prior, while the M/M reading is seen at 0.3% vs. 0.4% prior. This is probably one of the most important inflation reports of 2024 as the recent data has already hit the Fed’s confidence and another hot release will likely trigger a change in the near-term policy outlook, especially following a good labour market report on Friday.
Fed’s Waller recently said that he wanted to see a couple of good reports to consider a rate cut in June, so we just need this week’s report to be hot to make the market to price out the June cut. This will most likely have big repercussions on the markets with Treasury yields and the US Dollar rallying and the stock market correcting lower. On the other hand, a cold report should trigger the opposite reaction with the stock market hitting new highs and the Treasury yields and the US Dollar coming under pressure as the risk-on sentiment ensues.
The BoC is expected to keep interest rates unchanged at 5.00%. Their policy decision comes right after a weak labour market report on Friday where we saw job losses and the unemployment rate jumping to 6.1% from the prior 5.8% figure. StatCan said that the spike in the unemployment rate is tied to an additional 60,000 people looking for work or on temporary layoff in March as the agency reported recently that population growth hit its fastest rate since 1957.
The central bank is also focused on wage growth and unfortunately for them, the rate increased again to 5.1% from the prior positively revised 5.0% rate. On the positive side, the latest inflation report missed expectations across the board with notable easing in the underlying inflation measures. This puts the central bank in a difficult position although they should have enough reasons to start leaning more dovish. The market expects the first rate cut in June.
Thursday
The ECB is expected to keep interest rates unchanged at 4.00%. The central bank will likely set the stage for the June rate cut as policymakers have been touting such a move for quite some time and we even got the uber-hawk Holzmann joining the team recently. The latest Eurozone inflation report missed expectations for both the Headline and Core measures although the M/M readings were both very high and Services inflation got stuck at 4% since November 2023. Nevertheless, the data before the June decision will have the final word as the ECB is also waiting for the Q1 2024 wage data to give it a bit more confidence.
The US PPI Y/Y is expected at 2.3% vs. 1.6% prior, while the M/M measure is seen at 0.3% vs. 0.6% prior. The Core PPI Y/Y is expected at 2.3% vs. 2.0% prior, while the M/M reading is seen at 0.2% vs. 0.3% prior. The data will come after the US CPI report, so it’s unlikely to see it changing whatever trend will be set by the CPI release.
The US Jobless Claims continue to be one of the most important releases 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. Initial Claims are expected at 215K vs. 221K prior, while there’s no consensus at the time of writing for Continuing Claims although last week we saw a decrease to 1791K vs. 1810K prior.
