UPCOMING EVENTS:

  • Monday: New Zealand Services PMI.
  • Tuesday: Japan PPI, UK Labour Market Report, Eurozone ZEW, US NFIB Small Business Optimism Index, US PPI, Fed Chair Powell speech.
  • Wednesday: Australia Wage Price Index, Eurozone Industrial Production, US CPI, US Retail Sales, US NAHB Housing Market Index, PBoC MLF.
  • Thursday: Japan GDP, Australia Labour Market Report, US Housing Starts and Building Permits, US Jobless Claims, US Industrial Production.
  • Friday: New Zealand PPI, China Industrial Production and Retail Sales, Fed’s Waller speech.

Tuesday

The UK Unemployment Rate is expected to tick higher to 4.3% vs. 4.2% prior with Average Hourly Earnings (including bonus) seen at 5.3% vs. 5.6% prior. Barring big surprises, this report is unlikely to change much for the BoE as the central bank is more focused on the two inflation reports ahead of the June meeting where it could deliver the first rate cut. The market sees a 50/50 chance of a rate cut in June at the moment.

UK Unemployment Rate
UK Unemployment Rate

The US PPI M/M is expected at 0.2% vs. 0.2% prior, while the Core PPI M/M is seen at 0.2% vs. 0.2% prior. There’s a risk of an upside surprise considering that both the prices paid components in the ISM PMIs jumped to cycle highs. The market will likely focus more on the US CPI report coming out the following day, although a hot PPI might trigger some defensive positioning into the CPI data.

US Core PPI YoY
US Core PPI YoY

Wednesday

The Australian Wage Price Index Q/Q is expected at 1.0% vs. 0.9% prior. The Australian labour market remains pretty tight with high wage growth and persistently high inflation. Nonetheless, the RBA at the latest policy decision refrained from turning overly hawkish as the central bank continues to wait for more information. The market now sees the first rate cut sometime in Q2 2025 with even some chances of a rate hike this year. High wage growth without a looser labour market will likely make it hard for the RBA to reach their target “within a reasonable timeframe”.

Australia Wage Price Index YoY
Australia Wage Price Index YoY

The US CPI Y/Y is expected at 3.4% vs. 3.5% prior, while the M/M measure is seen at 0.3% vs. 0.4% prior. The Core CPI M/M is expected at 0.3% vs. 0.4% prior. Given the market’s pricing and general fear of persistently high inflation, a downside surprise will likely trigger a much bigger reaction than an upside surprise. Fed Chair Powell pushed back against rate hikes expectations as he stated that they would need “persuasive” evidence that their policy isn’t restrictive enough.

So, if inflation remains high but doesn’t re-accelerate notably, they will just keep rates higher for longer. The market expects almost two rate cuts (45 bps) by the end of the year which can easily go back to one or even zero in case we get another hot inflation report. A soft report might add one extra cut to the pricing but not much more as the Fed will want to cut rates at a meeting containing the SEP (barring a quick deterioration in the labour market), which falls in September at the earliest.

US Core CPI YoY
US Core CPI YoY

The US Retail Sales M/M is expected at 0.4% vs. 0.7% prior, while the ex-Autos M/M figure is seen at 0.2% vs. 1.1% prior. We got some soft consumer sentiment reports recently which might filter through lower consumer spending. The retail sales data is notoriously volatile and given that it will be released at the same time of the CPI report, the market will likely ignore the release.

US Retail Sales YoY
US Retail Sales YoY

The PBoC is expected to keep the MLF rate unchanged at 2.50%. The data out of China has been mostly positive with the latest inflation rates slowly crawling out of deflation. Therefore, the central bank is likely to keep the policy rates steady for the time being given the lack of urgency.

PBoC
PBoC

Thursday

The Australian Labour Market report is expected to show 25.3K jobs added in April vs. -6.6k in March with the Unemployment Rate ticking higher to 3.9% vs. 3.8% prior. The RBA is more focused on inflation but if the tightness in the labour market continues, especially with high wage growth, it will make it harder for the central bank to reach its target “within a reasonable timeframe”.

Australia Unemployment Rate
Australia Unemployment Rate

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 saw the first notable miss last week coming in at 231K vs. 215K prior, which was the highest since August 2023. Of course, one miss doesn’t make a trend, but it’s worth to keep an eye on this given the recent miss in the NFP report and softer consumer sentiment data. This week Initial Claims are expected at 220K vs. 231K prior, while there is no consensus at the time of writing for Continuing Claims although the prior release showed an increase to 1785K vs. 1785K expected and 1768K prior.

US Jobless Claims
US Jobless Claims