UPCOMING EVENTS:
- Tuesday: UK Labour Market report, US NFIB Small Business Optimism Index.
- Wednesday: Japan PPI, China CPI, UK GDP, US CPI, FOMC Policy Decision.
- Thursday: Australia Labour Market report, Swiss PPI, Eurozone Industrial Production, US PPI, US Jobless Claims.
- Friday: New Zealand Manufacturing PMI, BoJ Policy Decision, US University of Michigan Consumer Sentiment.
Tuesday
The UK unemployment rate is expected to hold steady at 4.3%. The wage growth figures are also seen unchanged with the average earnings including bonus at 5.7% and the average earnings excluding bonus at 6.0%.
Last month, the data showed another uptick in the unemployment rate and job losses, but wages surprised to the upside. The BoE is more focused on the inflation data at the moment, so barring big surprises, the data is unlikely to change much for the central bank. The market sees 30 bps of easing by year end.
Wednesday
The US CPI Y/Y is expected at 3.4% vs. 3.4% prior, while the M/M measure is seen at 0.2% vs. 0.3% prior. The Core CPI Y/Y is expected at 3.5% vs. 3.6% prior, while the M/M figures is seen at 0.3% vs. 0.3% prior.
This is going to be a big market moving release since it comes on the same day of the FOMC decision, and it will influence their views (they will get to see the report a day earlier). It looks like this one is going to have a pretty binary outcome with higher-than-expected figures triggering a hawkish reaction and lower-than-expected readings leading to a more dovish repricing.
As a reminder, the market got a bit uneasy last Friday as we got a hot NFP report where the wage growth surprised to the upside and the unemployment rate ticked higher to 4% (3.96% unrounded) setting a new cycle high. The market’s pricing got back to expect just one rate cut by the end of the year as we continue to jump between one and two.
The Fed is expected to keep interest rates unchanged at 5.25-5.50% with minimal (if any) change to the statement. The focus will be on the Summary of Economic Projections (SEP) and the Dot Plot. I see the Fed projecting two rate cuts for this year to bring it in line with market’s expectations.
This way it wouldn’t be seen neither dovish nor hawkish. Of course, if we see a deviation from this baseline, the market’s reaction will be dovish in case they project three cuts and hawkish in case they pencil just one cut.
The focus will then move on to Powell’s Press Conference where he will likely keep a neutral tone as the Fed continues to see inflation moving back to target but at a slower pace than expected.
These views are based on the current state of things and since we have the US CPI report on the same day of the FOMC decision, they might change. In fact, if we get hot CPI figures, the market’s pricing will likely change to show just one cut for this year (or even none).
Therefore, the Dot Plot will have a different impact on the market with two cuts being seen as more dovish and no cuts as hawkish. A hot CPI report will likely have a greater impact compared to a cold one.
Conversely, if we get cold or in line figures, the original views should still hold although the market might react before the Fed’s decision as the risk-on sentiment will likely return.
Thursday
The Australian Labour Market report is expected to show 39K jobs added in May vs. 38.5K in April and the unemployment rate to tick lower to 4.0% vs. 4.1% prior. The data is unlikely to change anything for the RBA which is seen on hold well into 2025. We will need a huge surprise to trigger a repricing in interest rate expectations, otherwise the focus will remain on the inflation figures.
The US PPI Y/Y is expected at 2.2% vs. 2.2% prior, while the M/M measure is seen at 0.2% vs. 0.5% prior. The Core PPI Y/Y is expected at 2.3% vs. 2.4% prior, while the M/M figures is seen at 0.2% vs. 0.5% prior. I don’t expect this data to influence the market much given that the sentiment will be set by the CPI and FOMC the day before.
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. Initial Claims keep on hovering around cycle lows, while Continuing Claims remain firm around the 1800K level.
This has led to a weaker and weaker market reaction as participants become used to these numbers. This week Initial Claims are expected at 227K vs. 229K prior, while there’s no consensus at the time of writing for Continuing Claims although the prior release showed an increase to 1792K vs. 1790K previously.
Friday
The BoJ is expected to keep interest rates unchanged at 0.00-0.10% and trim its government bond buying. Speculations began last week as we got reports from “people familiar with the matter” which were then confirmed by Governor Ueda’s comments.
This might have been the primary cause of Yen strength although it’s mostly noise amid a pickup in global growth and hawkish repricing in other DM interest rates expectations. In fact, if this trend were to continue, we can expect the Yen to restart its depreciation against the other major currencies.
