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Week Ahead Preview: Highlights Include PMIs, BoE, US Durable Goods

By Newsquawk Voice Ltd (Ryan Anderson)Market OverviewJun 18, 2021 14:24
Week Ahead Preview: Highlights Include PMIs, BoE, US Durable Goods
By Newsquawk Voice Ltd (Ryan Anderson)   |  Jun 18, 2021 14:24
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MON: PBoC LPR Announcement
TUE: US Richmond Fed Survey (Jun); NBH Policy Decision
WED: EZ, UK and US Markit Flash PMIs (Jun); Canadian Retail Sales (Apr); CNB & Thai Policy Decisions, SNB Quarterly Bulletin (Q2)
THU: BoE Policy Decision; German Ifo Survey (Jun); US Durable Goods (May), GDP and PCE Prices Finals (Q1); New Zealand Trade Balance (May); Banxico Policy Decisions, CBRT Minutes (June), Canadian Provincial Holiday (St John Baptist), European Council Meeting (1/2)
FRI: US Core PCE (May); University of Michigan Final (Jun); BoE Q2 Bulletin, European Council Meeting (2/2)

NOTE: Previews are listed in day-order

PBOC LPR PREVIEW (MON): The PBoC is anticipated to maintain its benchmark lending rates for a 14th consecutive month with the 1-Year Loan Prime Rate expected to be held at 3.85% and 5-Year Loan Prime Rate at 4.65%. Expectations for the central bank to keep rates unchanged have been supported by the latest data from China which despite missing expectations, showed firm Y/Y growth with Industrial Output for last month at 8.8% vs. Exp. 9.0%, Retail Sales at 12.4% vs. Exp. 13.6% and Exports at 27.9% vs. Exp. 32.1%, driven by strong external demand and lingering base effects to suggest an adjustment in rates is currently unwarranted. The PBoC’s actions also point to the central bank being comfortable with the current status quo as it has kept daily reverse repo operations at a meagre CNY 10bln since March which is being viewed as the central bank adopting a prudent stance, while it also maintained the 1-Year Medium-term Lending Facility rate earlier this week which further suggests the unlikelihood of any changes to its benchmark rate given that the central bank had previously lowered the MLF rate first prior to the last three occasions when it reduced the Loan Prime Rate.

EZ FLASH MARKIT PMI (WED) Expectations are for the Eurozone-wide manufacturing print to fall from 63.1 to 62.5 with the services metric seen rising to 57.5 from 55.2, leaving the composite reading at 58.9 vs. previous 57.1. The May report was characterised by a notable jump in the services PMI as nations in the region unwound lockdown measures. This time around, further lockdown easings are expected to support the services print, albeit to a lesser extent than seen last month. On the manufacturing front, activity is likely to remain elevated despite some of the bottlenecks facing global supply chains. The upcoming report will be judged on how it reflects the momentum in the Eurozone economy as it continues to reopen. However, from a policy perspective it is unlikely to have too much of a bearing on events in Frankfurt with policymakers more concerned about inflation pressures in the region. Currently, headline Y/Y CPI of 2.0% is "at target" for the ECB, however, this has largely been attributed to transitory factors. With this in mind, greater attention next week will be on the fallout from the ECB’s hillside retreat which will see policymakers debate the findings of its strategic review, a key aspect of which, will be any changes to the Bank’s current inflation mandate.

UK FLASH MARKIT PMI (WED): Expectations look for the services metric to rise to 63.0 from 62.9, manufacturing to slip to 64.0 from 65.6, leaving the composite at 63.0 vs. previous 62.9. Ahead of the release, analysts at Oxford Economics note “high-frequency indicators of footfall and credit and debit card spending improved in late May and early June, boding well for the flash services PMI”. However, the consultancy cautions that given the importance of sentiment when it comes to the report, it is possible that some of the optimism for the services reading may have been tempered by the four-week delay to the UK’s June 21st reopening plans. That said, readings will likely remain elevated given that the bulk of the government’s reopening agenda has already been enacted. Note, the release may take more of a backseat than it otherwise would given the BoE policy announcement is on the following day.

CANADIAN RETAIL SALES (WED): Currently, there is no consensus for the April read next Wednesday although the StatsCan flash estimate looks for -5.1% M/M, which would see a complete paring of the March rise of 3.6%; ex-autos rose 4.3% in March. Analysts at Canadian bank RBC are also expecting a decline of a similar magnitude and expects the StatsCan estimate for May to show another decline between -3% and -4% M/M amid indications of lower sales due to the extension of lockdown restrictions into May. However, looking ahead to the June print, the desk suggests there should be a sharp economic rebound for Canada amid the reopening thanks to a strong vaccination process which has seen over 70% of the population aged 12 and over receiving at least one dose.

BOE POLICY ANNOUNCEMENT (THU): After making a technical adjustment to the parameters of its QE programme which saw weekly bond purchases slow to a pace of GBP 3.441bln from GBP 4.44bln, policy settings are expected to be left unchanged at the upcoming meeting. As such, the Base Rate is set to be held at 0.1% and the APF at GBP 895bln. The decision on the latter might be subject to hawkish dissent once again from Chief Economist Haldane, however, since he is departing the Bank at the end of the month, this will be of little note to markets unless he is joined by other members of the MPC; something which is unlikely. Since the prior meeting, headline Y/Y CPI has risen above target to 2.1%; an outcome that was telegraphed by the Bank at the prior meeting and attributed to transitory factors. April M/M GDP of 2.3% marked the fastest monthly pace of growth since July 2020 as the UK economy reopened. Timelier survey data for May saw the composite reading at 62.0 which was the fastest rate of expansion since records began in 1998. In the labour market, the unemployment rate resides at 4.7% with employment growth of 197k in May, according to flash estimates. As such, the UK economy is on a firm footing as lockdown measures have been scaled back. On that front, policymakers will likely acknowledge the four-week delay to the June 21st “Freedom Day”, however, the impact to the economy is likely to be insignificant. Rhetoric from the MPC has been most forthcoming from those leaving the Bank with Haldane suggesting that the BoE should be prepared to reduce stimulus and Vlieghe noting that should the transition out of furlough happen more smoothly, a somewhat earlier rate rise would be appropriate. At a recent testimony, Governor Bailey noted that he is content with current policy settings and as such, the upcoming meeting will likely pass with little fanfare. Looking further ahead, Rabobank expects a further slowdown in the pace of Gilt purchases at the August meeting as the MPC “follows its glide path and tries to create a soft landing at the end of the year”.

US DURABLE GOODS (THU): The headline reading is expected to rise 2.1% for May, more than offsetting the 1.3% decline seen in April (the first in 11 months), with the current forecasts ranging between 0.5% and 3.0%, according to Refinitiv. Ex-transport is expected to slow to 0.5% from 1.0% in April, with analyst forecasts ranging between 0.1% and 0.7%. Analysts at Credit Suisse (SIX:CSGN) highlight Boeing (NYSE:BA) saw a decent pick up in orders for May, rising to 72 from 25 while auto production saw a hefty 6.6% gain after recent declines, and the desk writes these two factors should contribute to both strong orders and shipments. Credit Suisse also point out that New Orders from manufacturing surveys remain near cycle highs and manufacturers are upbeat about demand. The desk writes “Despite continued supply bottlenecks and an expected slowdown in goods demand, a reopening services economy and business investment demand should help support capital goods spending”.

BANXICO POLICY ANNOUNCEMENT (THU): There is currently no newswire consensus as to what the Mexican Central Bank could opt to do, although some desks have been tilting towards an unchanged policy rate. At the prior meeting, the Bank maintained the overnight rate at 4.00%, as expected. In its most recent Quarterly Inflation Outlook Report, the central bank expressed concern over price pressures, and added that “in a highly uncertain backdrop, the risks to inflation, economic activity, and financial conditions present challenges to monetary policy.” However, analysts at Credit Suisse expect the policy rate to be maintained over the coming quarters as Banxico’s forward guidance indicates a data-dependent approach.

Week Ahead Preview: Highlights Include PMIs, BoE, US Durable Goods

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Week Ahead Preview: Highlights Include PMIs, BoE, US Durable Goods

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