UPCOMING EVENTS:
- Monday: PBoC MLF, New Zealand Services PMI, China Industrial Production and Retail Sales, Eurozone Wage Growth.
- Tuesday: RBA Policy Decision, Eurozone ZEW, US Retail Sales, US Industrial Production.
- Wednesday: UK CPI, US NAHB Housing Market Index, BoC Meeting Minutes.
- Thursday: New Zealand GDP, PBoC LPR, SNB Policy Decision, BoE Policy Decision, US Housing Starts and Building Permits, US Jobless Claims.
- Friday: Australia/Japan/Eurozone/UK/US Flash PMIs, Japan CPI, UK Retail Sales, Canada Retail Sales.
Monday
The PBoC is expected to keep the MLF rate unchanged at 2.50%. There doesn’t seem to be any urgency to ease policy further amid an improvement in the economic data. The central bank will also likely keep the LPR rates unchanged at 3.45% for the 1-year and 3.95% for the 5-year on Thursday.
Tuesday
The RBA is expected to keep the Cash Rate unchanged at 4.35%. As a reminder, the central bank got a bit more hawkish amid a lack of clear improvement in inflation and said that it couldn’t rule in or out future changes to the cash rate.
The RBA’s forecasts were revised to show that rates will likely stay at 4.35% until mid-2025. The recent data supports the case to keep the policy unchanged as the monthly inflation report surprised to the upside and the labour market data came in stronger than expected.
The US Retail Sales M/M is expected at 0.3% vs. 0.0% prior, while the ex-Autos measure is seen at 0.2% vs. 0.2% prior. Consumer spending has remained stable which is something you would expect given the solid wage growth and resilient labour market. We are getting some worrying signals from the UMich Consumer Sentiment which could suggest that consumer spending is likely to soften a bit.
Wednesday
The UK CPI Y/Y is expected at 2.0% vs. 2.3% prior, while Core CPI Y/Y is seen at 3.5% vs. 3.9% prior. The last report was a bit of a disappointment for the BoE as services inflation, which is what the central bank cares most about, came in much higher than expected at 5.9% Y/Y vs. BoE’s estimate of 5.5%.
This report won’t change anything for the upcoming BoE decision on Thursday, but a surprisingly soft release should see the market increase the rate cuts pricing and tilt the central bank’s decision on a more dovish side.
Thursday
The SNB is expected to cut interest rates to 1.25% although the market pricing stands around 60%, so it’s more of a coin-flip between 1.50% and 1.25%. The latest inflation rate came in line with SNB’s estimate at 1.4% Y/Y (Core 1.2% Y/Y).
The Swiss Franc saw a strong appreciation recently due to Chairman Jordan’s comments where he said that if any inflation risk were to materialise, it would most likely be associated with a weaker Franc which could be counteracted by selling foreign exchange (buying CHF).
He also touched on the neutral interest rate (r*) and said that they estimate it to be around 0%. So, even if they cut rates, in theory their policy would still be restrictive and if inflation were to rise somewhat in the coming months, they could just intervene by buying Swiss Franc.
The BoE is expected to keep the Bank Rate unchanged at 5.25%. As a reminder, the last meeting was a bit more dovish than expected with Ramsden joining Dhingra voting for a rate cut and Governor Bailey delivering some dovish comments like saying that they could cut more than the market expected.
It’s pretty evident that the central bank is eager to cut but nonetheless wants a bit more confidence before easing the policy rate. The tone will likely be shaped by the UK CPI 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. Nonetheless, we got a notable miss in both Initial and Continuing Claims last week although the culprit might have been just a seasonal effect or measurement adjustment.
This week Initial Claims are expected at 240K vs. 242K prior, while there’s no consensus at the time of writing for Continuing Claims although the prior release showed an increase to 1820K vs. 1790K previously.
Friday
The Japanese Core CPI Y/Y is expected at 2.6% vs. 2.2% prior. The Tokyo CPI saw all inflation measures increasing compared to the prior month, so we might see the same happening for the National readings. It shouldn’t change much for the BoJ at the moment as they will likely need a couple more reports before deciding on another rate hike.
As a reminder, the central bank disappointed the market last week as it kept everything unchanged despite expectations of a reduction in bond purchases. Nonetheless, Governor Ueda in the press conference pre-committed to a reduction immediately after the next meeting and mentioned that it will be “substantial”.
Friday will also be the Flash PMIs Day with the markets, as it usually the case, focusing more on the US readings:
- Eurozone Manufacturing PMI: 48.0 expected vs. 47.3 prior.
- Eurozone Services PMI: 53.5 expected vs. 53.2 prior.
- UK Manufacturing PMI: 51.0 expected vs. 51.2 prior.
- UK Services PMI: 53.2 expected vs. 52.9 prior.
- US Manufacturing PMI: 51.0 expected vs. 51.3 prior.
- US Services PMI: 53.5 expected vs. 54.8 prior.
