UPCOMING EVENTS:
- Monday: PBoC LPR, Fed’s Waller.
- Tuesday: RBA Meeting Minutes, Canada CPI.
- Wednesday: RBNZ Policy Decision, UK CPI, FOMC Minutes.
- Thursday: New Zealand Q1 Retail Sales, Australia/Japan/Eurozone/UK/US Flash PMIs, Eurozone Negotiated Q1 Wage Growth, US Jobless Claims.
- Friday: Japan CPI, UK Retail Sales, Canada Retail Sales, US Durable Goods Orders.
Monday
The PBoC is expected to leave the 1-year and 5-year LPR rates unchanged at 3.45% and 3.95% respectively. Last week, the central bank maintained the MLF rate unchanged at 2.50%, which is generally a reliable precursor for a change in the LPR rates. We got some mixed economic data recently but overall it looks like the PBoC doesn’t have an urgent reason to ease policy further.
Tuesday
The Canadian CPI Y/Y is expected at 2.8% vs. 2.9% prior, while the M/M figure is seen at 0.5% vs. 0.6% prior. The focus will be on the underlying inflation measures though as that’s what the BoC cares most about. The Trimmed-Mean CPI Y/Y is expected at 2.9% vs. 3.1% prior, while the Median CPI Y/Y is seen at 2.7% vs. 2.8% prior. Such readings or even lower should give the BoC enough confidence to deliver the first rate cut in June as they would be within their 1-3% target band.
Wednesday
The RBNZ is expected to keep the Official Cash Rate (OCR) unchanged at 5.50%. The central bank has limited tolerance for an increase in the time to achieve its 1-3% inflation target. The latest Q1 CPI report showed inflation easing further, while the labour market report saw another uptick in the unemployment rate and job losses in the first quarter. The market expects the RBNZ to ease policy in August while the central bank continues to repeat that it doesn’t expect to normalise policy before 2025.
The UK CPI Y/Y is expected at 2.1% vs. 3.2% prior, while the Core CPI Y/Y is seen at 3.7% vs. 4.2% prior. The BoE is mostly focused on services inflation, so that’s what will have the major impact on market’s expectations. As a reminder, we will have another CPI report before the next BoE meeting, but if this week’s inflation data comes out good, the market will likely price in higher chances for a June rate cut already.
The FOMC Minutes isn’t generally such a great market-moving release because the market already knows what to expect and it becomes stale by the time it’s out as more data gets released in the meantime. I would have expected it to be market-moving this time around because the Fed could have refrained from mentioning the QT tapering at the last meeting but include it in the Minutes. Since they already communicated the tapering at the last decision, I can’t see the Minutes being a such a big deal.
Thursday
The Eurozone Negotiated Q1 Wage Growth is what the ECB has been waiting for months to give it more confidence on the inflation outlook. The data is unlikely to change their plan to deliver the first rate cut in June since they telegraphed it so hard in the meantime that it would be a real bad look to backtrack at this point. Nonetheless, it might shape the market’s expectations for the number of rate cuts for the rest of the year.
Thursday will also be the Flash PMIs Day for many advanced economies with the greatest focus as usual on the Eurozone, UK and especially the US PMIs:
- Eurozone Manufacturing PMI 46.6 expected vs. 45.7 prior.
- Eurozone Services PMI 53.5 expected vs. 53.3 prior.
- UK Manufacturing PMI 49.2 expected vs. 49.1 prior.
- UK Services PMI 54.8 expected vs. 55.0 prior.
- US Manufacturing PMI no consensus vs. 50.0 prior.
- US Services PMI 51.5 expected vs. 51.3 prior.
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 220K vs. 222K prior, while there is no consensus at the time of writing for Continuing Claims although the prior release showed an increase to 1794K vs. 1785K expected and 1781K prior.
Friday
The Japanese Core CPI Y/Y is expected at 2.2% vs. 2.6% prior, while there’s no consensus for the Headline and the Core-Core figures at the time of writing. This report generally isn’t market-moving because we get to see the Tokyo CPI weeks in advance, which is a leading indicator for the National CPI figures. Anyway, surprises could have an impact on the market, but it looks increasingly likely that the BoJ won’t be able to hike rates further in this cycle.
