UPCOMING
EVENTS:
Tuesday:
S&P Global US PMIs.
Wednesday:
RBNZ Policy Decision, UK CPI, FOMC Minutes.
Thursday: US
Jobless Claims.
Friday: US
PCE.
Tuesday: The US
Manufacturing PMI is expected at 50.0 vs. 50.2 prior, while the Services PMI is
seen at 52.6 vs. 53.6 prior. The S&P Global PMIs have been leading the ISM
PMIs lately and they are the timeliest indicators for the month. We’ve been
seeing some pickup in economic data recently and that of course translated into
a more hawkish interest rates pricing. The Fed will probably hike in June only
if the next NFP and CPI reports beat expectations, but if the data keeps
improving or remains resilient, the market will anyway price a higher or higher
for longer rates path.
Wednesday: The RBNZ
is expected to hike by 25 bps bringing the OCR to 5.50%. At the last meeting
the central bank surprised with a 50 bps increase as further evidence that they
are committed to bring the inflation rate back to their 1%-3% target range.
Given that the latest inflation prints came in softer than expected, it’s
likely that the RBNZ will be less aggressive going forward.
The UK
Headline CPI Y/Y is expected to decline to 8.3% vs. 10.1% prior, with the M/M
reading to remain unchanged at 0.8%. The Core Y/Y figure is expected unchanged
at 6.2%, with the M/M data seen down a tick to 0.8% vs. 0.9% prior. These are
still really ugly inflation numbers and with the high wage growth rate, the BoE
should keep on hiking their bank rate.
The FOMC
Meeting Minutes shouldn’t be a market mover given that it’s a three-week old
report. The Fed hinted to a pause at the last policy decision by removing from
the statement the anticipation of more policy firming, which in the past
indicated a pause. Fed Chair Powell in his press conference left a door open to
another increase in June if the data suggests so. This was before the hot NFP
report and the following better than expected economic reports. In fact, recent
Fedspeak leant on the hawkish side, but we have to wait for another NFP and CPI
report before concluding that the Fed will hike again in June.
Thursday: The US
Initial Claims are expected at 250K vs. 242K prior, and Continuing Claims are
seen at 1800K vs. 1799K prior. Jobless Claims have been a market mover lately
because the market’s been trying to gauge if the mid-March banking woes
impacted the economy for the worse. After multiple misses in late March and
most of April, the data started to improve again and judging by the lower
continuing claims it looks like people are finding jobs pretty quickly. This is
also why Treasury yields have almost erased the huge decline since the Silicon
Valley Bank collapse.
Friday: The US
Core PCE Y/Y is the Fed’s preferred measure of inflation and not only it’s been
above the target for 2 years already, but it’s been really slow in coming down
to the Fed’s 2% target. The measure is expected to remain unchanged at 4.6% and
the longer it remains above target, the higher the risk that inflation
expectations really de-anchor.
This article
was written by Giuseppe Dellamotta.