MON: EZ Industrial Production (Apr); Hong Kong and China Holidays (Tuen Ng Day/Dragon Boat Festival).
TUE: Germany CPI Final (May); UK Jobs Report (Apr/May); US PPI (May) and Retail Sales (May); RBA Minutes (June).
WED: FOMC Policy Decision; Japanese Trade Balance (May); Chinese Retail Sales (May) and Industrial Production (May); UK Inflation (May); Canadian CPI (May); New Zealand GDP (Q1); BCB Policy Decision, US President Biden and Russian President Putin Meeting.
THU: SNB Policy Decision; Norges Bank Policy Decision; Australian Labour Market Report (May); EZ Final CPI (May); US Philly Fed Survey (Jun); CBRT Policy Decision and BoI Policy Decision.
FRI: BoJ Policy Decision; Japanese CPI (May); German PPI (May); UK Retail Sales (May); Quadruple Witching, Iranian Presidential Election.
NOTE: Previews are listed in day-order
UK JOBS REPORTS (TUE)
April’s unemployment rate is expected to moderate to 4.7% from the prior 4.8% a figure that is below the December 2020 post-COVID high of 5.1% but still notably elevated from pre-pandemic levels. While the rate is expected to dip, the BoE's May MPR forecasts a peak just shy of 5.5% in Q3 as “not all previously furloughed employees return to work and as the higher than usual flows into inactivity seen while social distancing measures were in place begin to unwind”.
In-fitting with prior reports the figure is caveated by the influence of the furlough scheme which is set to remain in place until the end of September. Continuing with furlough, BoE’s Vlieghe said that if the transition out of the scheme happens more smoothly than expected a somewhat earlier rate increase would then be appropriate.
US RETAIL SALES (TUE)
US retail sales are seen -0.4% M/M in May, after the unchanged reading in April. Both auto sales and gasoline prices slipped in the month, and are likely to drag; the ex-autos gauge is expected +0.1% M/M. The retail control group - which excludes auto, gas, building materials, and restaurants - is seen rising +0.3% M/M, but analysts at Credit Suisse (SIX:CSGN) are more pessimistic than the consensus and have pencilled in a decline of 0.8%.
"Restaurant spending should continue to recover as the economy reopens further, but growth likely slowed for the second month," CS says, "labour income continued to improve in May, but the boost from household stimulus checks is fading; extra unemployment insurance benefits and credit forbearance programmes are ending in the next few months."
"It will be years before disposable income returns to its Q1 2021 level," adding that "social distancing led consumers to substitute goods spending for some of their usual services activity, but that is reversing as public health restrictions ease."
RBA MINUTES PREVIEW (TUE)
Analysts will use the minutes to scout for any colour on YCC and QE ahead of the July 6th confab. To recap, the June statement omitted the line that the “Board is prepared to undertake further bond purchases to assist with progress towards the goals of full employment and inflation”, potentially a subtle hint that tapering QE may be favoured, according to some desks – but this is not Westpac’s base case.
“RBA’s underperformance on its inflation target for so many years and the wide gap between actual (annual trimmed mean 1.1%) and target (2.5% sustained) signals a relatively greater need to maintain current highly stimulatory settings than other central banks”, the analysts said after the policy decision. The RBA maintained its Cash Rate Target and 3yr Yield Target unchanged at 0.10%, while it also maintained parameters of the QE program as expected.
FOMC POLICY DECISION (WED)
The Fed Funds target range will be left unchanged at the zero-lower-bound (0-25bps), and the central bank's USD 120bln monthly purchases of Treasuries and MBS securities will also be held. The statement language and the updated economic projections ("dot plot") will be the focal point, as traders assess timelines for any policy shift.
Analysts expect that the statement will acknowledge the continued rise in inflation pressures, which the Fed has framed as transitory and is happy to ignore in the near term; the statement may also nod to the continuous improvement on the pandemic front. Regarding the economic projections, the March dot plot had no rate hikes pencilled in for 2021, judging by the median dot, although the number of officials forecasting a hike in 2023 rose to seven from five (of 18 policymakers), so at least two more 2023 'dots' would need to rise for the median dot plot to begin pricing in a hike for 2023 at the earliest; for comparison, OIS price the first hike priced for 2024, while eurodollar futures - which often embed more term premia - are pricing in the first hike as soon as late-2022/early-2023.
The GDP growth profile is likely to be revised up from the current 6.5%, with some officials like Vice Chair Clarida seeing growth of 7.0% this year, before cooling as the economy 'digs out of the deep hole'. The labour market forecasts are subject to a little more uncertainty, particularly on the back of two 'underwhelming' (relative to consensus) employment situation reports.
The inflation view will likely be revised higher after two hit CPI prints, but beyond 2021, the profile is likely to reflect the Fed's view of transitory price pressures, tailing off into next year as supply-chain bottlenecks and low base effects fade. The elephant in the room is tapering discussions, and this will be the focal point for this meeting after some officials have alluded to discussions getting underway on the timing of scaling back asset purchases.
Indeed, Governors including Clarida, Williams, Quarles, and even Brainard have all shown at least a slight shift in their commentary, some more than others, becoming more open to the idea of beginning tapering discussions at upcoming meetings, contingent on further progress to the Fed's inflation and employment goals be met. However, given the disappointing May NFP print, some Fed members are likely to have grown more cautious, despite the strong progress on inflation. It is in the subsequent Chair Powell presser/Q&A that we can expect to hear the latest on where the Committee stands on the issue.
CHINESE RETAIL SALES, INDUSTRIAL PRODUCTION (WED)
Industrial Production is expected to grow Y/Y by 8.9% vs the prev. 9.8% increase in April. The April reading was in line with expectations although had slowed from the 14.1% growth the month before amid supply bottlenecks, increasing costs of raw materials and diminishing base effects, which are likely to persist.
Nonetheless, China’s economy continues to benefit from high external demand, including for pandemic-related goods which was evident in the latest trade data whereby Exports in May increased by 27.9% vs exp. 32.1% in USD terms and 18.1% vs exp. 19.5% in CNY terms, which remained at a strong expansion rate despite missing expectations.
The recent PPI data also supports the view for firm industrial activity as last month’s factory gate prices rose by the most since 2008 due to increasing international commodity prices and recovering global demand, although a record gap over soft CPI which grew by just 1.3% Y/Y, spurs concerns of an impact to business profit margins and an uneven recovery with soft domestic demand.
The release will also coincide with Chinese Retail Sales data which are expected to increase by 14.0% Y/Y compared with the previous rise of 17.7% in April, while the prior reading was a disappointment as it fell short of the expected 24.9%, and was a substantial slowdown from the 34.2% reading in March.
UK INFLATION (WED)
The headline YY CPI is expected to rise to 1.8% in May from the prior 1.5% in a continuation of the increase that we have seen for the year thus-far. For context, if the reading is as expected it would bring it back in proximity to pre-COVID readings and the likes of ING look for inflation to continue its upward trajectory and hit ~2% this Summer before falling back below the target figure by Spring 2022.
On such an overshoot, outgoing Chief Economist Haldane (departs the BoE after the June gathering) has recently cautioned that there is a risk of overshooting the target for longer than intended, though Ramsden, when speaking on housing, said they could deal with such pressures and will not be complacent.
Overall, the data is unlikely to provide much of an indication into the path of prices for 2022 given the dependency on wage pressures which are expected to be benign.
CANADIAN CPI (WED)
RBC projects Canadian CPI will rise +0.3% M/M in May, which the bank says would leave the annual rate at 3.4% Y/Y. "Last month’s firm report was especially so after excluding food/energy, registering a seasonally adjusted gain of 0.8% M/M, and forecasts reflect that this gain is held onto this month (and going forward)," it writes.
RBC notes that the CPI-Trim and the CPI-Median have been elevated, while the CPI-Common has begun to pick up of late, though remained sub-2.0% in April, although the BoC - like many other global central banks - has been looking through them as they over-estimate underlying inflation pressures. "Beyond this month, we see inflation remaining elevated for an extended period, with RBC Economics recently raising its forecast profile (from 2.3% to 2.6% Y/Y in Q4).
NEW ZEALAND GDP (WED)
There is currently no broad consensus for the release. Desks suggest that the impact from the lack of international tourists should be offset by strong domestic household spending (backed by the unexpected increase in Q1 Retail Trade Survey), and robust construction activity.
ASB looks past the quarterly volatility and notes that GDP appears to have trended sideways following the Q2 drop and subsequent winter recovery. The analysts forecast a Q1 growth rate of 0.8% QQ – “which would nudge the level of GDP to around 1.1% above year-ago levels and roughly equal to where it was in December 2019, before the pandemic kicked off in earnest.”
BCB POLICY DECISION (WED)
Analysts look for Brazil's central bank to lift its Selic rate by 75bps to 4.25%. The IPCA inflation data showed the Y/Y rate of inflation jumping to 8.1% from 6.8% in April, as rising commodity prices, weather issues, and an improving demand dynamic stoked price pressures, and inflation is now at the highest levels since late 2016, and importantly, above the BCB's 3.75% +/- 1.5ppts target.
Scotiabank says it is looking for the COPOM to continue advising that it is pursuing an aggressive set of moves to tighten monetary policy; "Our forecast that this hiking cycle will likely conclude at a 7% terminal rate in 2022 is consistent with the COPOM's statement following its 5th May meeting, where it indicated that it is pursuing only a 'partial' normalisation process, but a 7% Selic and partial normalisation are only mutually consistent if the COPON’s moves remain clearly front-loaded."
BIDEN-PUTIN SUMMIT (WED)
The leaders will be meeting in Geneva, Switzerland on June 16th. Expectations are slim in terms of any breakthroughs – which were heavily tempered down by Russia’s Kremlin well-ahead of the confab.
The relationship between the two nuclear nations hit new lows this year – exacerbated by a combination of military shows of force, punchy rhetoric, and a string of sanctions (from the US side) – in turn prompting Russia to step up its de-dollarisation activities.
The White House suggested that a "full range of pressing issues" will be discussed with the Russian President, including arms control, climate change, Russian military involvement in Ukraine, Russia's cyber-hacking activities, and the jailing of Russian opposition leader Alexei Navalny.
The key at this meeting will be to gauge the atmosphere between the leaders, and whether this sets the precedent for a more productive meeting in the future. As usual, a joint statement is seen as constructive.
SNB POLICY DECISION (THU)
Expected to keep rates unchanged at -0.75% and is once again unlikely to alter the tiering multiplier at this stage; focus will, as always, be on the CHF language which at the prior gathering retained the classification of ‘highly valued’.
Interestingly, in a speech on May 25th Chairman Jordan said the “Swiss Franc remains very strong”, a description that differs from the current classification and is not a phrase the SNB has used for the Franc in its official communication. As this is a new phrase it is unclear as to whether this should be regarded as an ‘upgrade’ or ‘downgrade’ in the currency classification, though it is entirely possible this analysis is misplaced and the remark was merely an off-hand comment and not a formal policy alteration.
However, bear in mind the SNB is extremely precise with its language, particularly when concerning the CHF and there is precedent for Chairman Jordan pre-empting a classification change – when the Chairman downgraded the classification to ‘highly valued’ from ‘even more highly valued’ in May 2020 prior to the formal alteration at the following decision. Elsewhere, during the last meeting the Bank dropped the ‘more strongly’ phrasing from FX interventions.
Following this tweak, sight deposit data has been essentially unchanged and EUR/CHF has, roughly speaking, been in a 1.11-1.09 range for the period. As such, it is plausible the SNB could further dial-down their currency language but this is unlikely at this stage and therefore the statement, which includes a press conference, will likely reiterate the usual willingness to intervene as necessary.
NORGES BANKS POLICY DECISION (THU)
Is expected to keep rates on hold at 0.00% though, predominantly in light of the Q2 Regional Network Report, it is increasingly likely that the Bank could bring forward the timing of their first hike.
Currently, March’s repo path implies that rates will be raised by 10bp in December and then a full 25bp hike will occur by March 2022; with the lift-off contingent on ‘clear signs that economic conditions are normalising’ – a condition that now appears to be satisfied.
The Regional Network report seemingly confirmed the underlying assumptions behind the repo path, namely that the weakness in the Q1 report would prove to be transitory, although the release does caution that retail trade and construction sectors have experienced some weakness. Additionally, one of the areas of consideration in maintained expansionary policy was to ensure a return to more normal employment levels and the most recent registered unemployment release (May) was at 3.3%, below the Bank’s 3.4% forecast for 2021 as a whole; however, this is still some way from pre-COVID levels of just above 2.0%.
Overall, while the inherent uncertainty and risks to the outlook justify an unchanged rate decision, developments in recent weeks merit a hawkish tweak to the March MPR’s normalisation path, perhaps bringing the first hike to September – a view outlined by both Nordea and SEB for instance.
AUSTRALIAN LABOUR MARKET REPORT (THU)
Headline employment is expected to show the addition of 30k jobs (vs prev. -30.6k), with the participation rate forecast to tick higher to 66.1% from 66.0% and the unemployment rate seen steady at 5.5%.
Desks note that the sub-forecast April release was largely due to stronger-than-expected seasonal factors, which was also consistent with the fall in participation from 66.3%.
Analysts at Westpac are looking for a post-holiday bounce - “Our forecast for participation to return to 66.3% will lift the unemployment rate back to 5.7%”, says the bank as it forecasts a headline jobs addition in-line with the Street. Note, RBA Governor Lowe will be delivering a speech on Thursday dubbed “From Recovery to Expansion”.
Although rather vague, analysts at RBC suggests this speech could offer some clues with regards to the recalibration of policy for the next phase.
CBRT POLICY DECISION (THU)
There is currently no median forecast regarding the CBRT’s next rate move. Analysts at GS have cautioned that the central bank risks cutting rates too soon given the President’s influence and by the calling of looser policy in July and August, however, the bank maintains its view that the key rate will not be lowered until Q4.
Meanwhile, ratings agency Fitch also expressed concern over the risks surrounding a premature cut and that asset quality risks for Turkish Banks remain “significant”. Fitch expects the CBRT to look for opportunities to cut, but in-line with GS’ view, suggests that this will be unlikely until the last few months of the year.
Finally, the CBRT survey forecasts the Repo Rate at 14.22% in 12-months vs the current 19.00%, whilst the CPI forecast was upped to 14.46% from 13.81% and the USD/TRY forecast was also upgraded to 8.9488 from the prior 8.7118.
BOJ POLICY DECISION (FRI)
Expected to keep policy unchanged; maintaining rates at -0.1% and the 10yr JGB yield target at 0.0% which has a tolerance band of +/-25bps, while source reports noted that the BoJ is to consider a six-month extension to the September deadline for the pandemic relief program as soon as this upcoming rate review.
The recent rhetoric hasn’t deviated much from the regular script whereby officials have continuously reiterated a willingness to ease further without hesitation if needed, and that Japan's economy is picking up as a trend, but with the pace of the rebound to remain moderate and there is large uncertainty surrounding the outlook amid the pandemic. Furthermore, Governor Kuroda has made it clear that cutting short- and long-term policy rates are among the options if they were to ease further, although this seems unlikely in the near-term and would nullify the steps the central bank took during the March review to ease the strain on financial institutions from negative rates.
Kuroda has also suggested the BoJ's massive stimulus has spurred growth and although it is taking time to reach the price target, it doesn't mean that monetary policy is ineffective. Other factors supporting a pause include the central bank’s decision to refrain from ETF purchases for the entirety of last month which was the first time since QQE commenced in 2013 and therefore spurred stealth-tapering concerns. Additionally, the ongoing pandemic and state of emergency declarations, which are expected to drag Japan’s economy into a technical recession in Q2, will also be an influence in maintaining policy.
UK RETAIL SALES (FRI)
Retail has been one of the firmer aspects of the UK economy; last month, the ONS noted that total retail sales levels for both the amount spent and quantity bought were up 9.9% and 10.6% respectively vs pre-pandemic levels in February 2020, and were underpinned by the re-opening of non-essential outlets in the middle of the month.
Oxford Economics says that "the fact these shops were open for the whole month should provide further support in May, but this will be balanced by the impact of cold and wet weather, which lowered footfall, and the reopening of indoor hospitality, which provided competing opportunities for consumers to spend," and OxEco warns that given sales in April were nearly 11% above pre-pandemic levels, some payback looks likely.
The UK's BRC gauge of retail sales rose 18.5% in May, paring from the April rate of 39.6%; the body said that sales were still buoyant owing to the reopening of hospitality, combined with the afterglow of non-essential retail’s return. "Pent-up demand for the in-store shopping experience, as well as the first signs of summer weather, helped retail to the strongest sales growth of the pandemic," the report said.
Barclaycard's data showed sales growing +7.6% in May'21 vs May'19 levels, with consumers spending on clothes and beauty products, although spending on restaurants and pubs is still 54% and 19% beneath levels seen in May 2019.