UPCOMING EVENTS:
- Monday: UK/US Holidays, German IFO.
- Tuesday: Australia Retail Sales, Canada PPI, US Consumer Confidence.
- Wednesday: Australia Monthly CPI, Fed Beige Book.
- Thursday: Switzerland GDP, Eurozone Unemployment Rate, US GDP 2nd Estimate, US Jobless Claims.
- Friday: Tokyo CPI, Japan Retail Sales and Industrial Production, China PMIs, Switzerland Retail Sales, Switzerland Manufacturing PMI, Eurozone Flash CPI, Canada GDP, US PCE.
Tuesday
The US Consumer Confidence is expected to tick lower in May to 95.9 vs. 97.0 in April. The last report missed expectations by a big margin reaching the lowest level since July 2022. The Chief Economists at The Conference Board highlighted that “Confidence retreated further in April as consumers became less positive about the current labour market situation, and more concerned about future business conditions, job availability, and income”.
She further added that “despite April’s dip in the overall index, since mid-2022, optimism about the present situation continues to more than offset concerns about the future." The Present Situation Index will be something to watch as that’s generally a leading indicator for the unemployment rate.
Wednesday
The Australian Monthly CPI Y/Y is expected at 3.4% vs. 3.5% prior. The RBA focuses more on the quarterly CPI readings, but the monthly indicator is timelier and can be a guide for the trend, especially at turning points. The Core measures will be more important but this report is unlikely to change much for the central bank at the moment, although another hot report is likely to trigger a hawkish reaction in the market.
Thursday
The Eurozone Unemployment Rate is expected to remain unchanged at 6.5% vs. 6.5% prior. The rate has been hovering at the record low for a year denoting a tight labour market. Moreover, the recent Eurozone Negotiated Wage Growth for Q1 2024 came in higher than the prior quarter, which was kind of a setback for the ECB even though they “dismissed” it as a one-off because of the delayed action to raise wages against inflation in Germany. Nonetheless, it will give them less confidence regarding the rate cuts path following the one in June.
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 218K vs. 215K prior, while there is no consensus at the time of writing for Continuing Claims although the prior release showed an increase to 1794K vs. 1794K expected and 1786K prior.
Friday
The Tokyo Core CPI Y/Y is expected at 1.9% vs. 1.6% prior. The last report showed a big drop in the inflation rate across all measures although it was attributed to a one-off factor as high school tuition in Tokyo was effectively eliminated and took effect in April. Nonetheless, inflation in Japan continues to ease and it doesn’t justify a rate hike from the BoJ anytime soon.
The Chinese Manufacturing PMI is expected at 50.5 vs. 50.4 prior, while the Services PMI is seen at 51.5 vs. 51.2 prior. We’ve got some disappointing data recently with industrial output and retail sales missing expectations. This suggests that the economy is still struggling to recover robustly amid weak domestic demand, lingering deflation risk, and prolonged weakness in the property sector. If we continue to see weakness, the PBoC will likely react by easing its policy further.
The Eurozone Headline CPI Y/Y is expected at 2.5% vs. 2.4% prior, while the Core CPI Y/Y is seen at 2.7% vs. 2.7% prior. This report is likely to influence the market’s expectations for the rate cuts path beyond the June meeting. In fact, hot inflation data after strong PMIs, wage growth and labour market reports will likely trigger a hawkish repricing in interest rates expectations from the current 55 bps of easing seen by year-end.
The US Headline PCE Y/Y is expected at 2.6% vs. 2.7% prior, while the M/M measure is seen at 0.26% vs. 0.32% prior. The Core PCE Y/Y is expected at 2.75% vs. 2.8% prior, while the M/M reading is seen at 0.24% vs. 0.32% prior. Forecasters can reliably estimate the PCE once the CPI and PPI are out, so the market already knows what to expect.
This report is unlikely to change anything for the Fed as the central bank remains in a “wait and see” mode until September at very least. In fact, despite calls of cuts in July or November, I’d say the Fed will want to deliver the first cut on a meeting containing the SEP (barring a quick deterioration in the labour market).
