We have a
busy week ahead with several key economic events and announcements from central
banks.
On Tuesday,
in the United States the focus will be on the release of the CPI data. In the
United Kingdom, BoE Governor Andrew Bailey will address the House of Lords
Economic Affairs Committee in London, discussing central bank independence.
Nothing significant is expected from this type of event in general, but it’s
worth monitoring in case he mentions something new about inflation or future
rate hikes.
Moving on
to Wednesday, the U.K. will release the GDP m/m data, offering a snapshot of
economic growth. In the U.S. several important indicators will be released,
including the Core PPI m/m, the PPI m/m, the FOMC Economic Projections, FOMC
Statement, Federal Funds Rate, and the FOMC Press Conference.
Thursday
brings significant events for various countries. New Zealand will unveil the
GDP q/q figures, providing an overview of economic performance. Australia will
announce the employment change and unemployment rate data, shedding light on
the state of the labour market. In the eurozone, attention will be on the
announcement of the main refinancing rate, the monetary policy statement, and
the subsequent ECB press conference. Meanwhile, the United States will release
some important data including core retail sales m/m, the Empire State
Manufacturing Index, retail sales m/m, and the weekly unemployment claims
report.
Finally, on
Friday, Japan will make its monetary policy statement and announce the BoJ
policy rate. The BoJ will also hold a press conference to provide further
insights. In the United States, the Preliminary UoM Consumer Sentiment and
Preliminary UoM Inflation Expectations will be released, offering valuable
indicators of consumer confidence and inflation expectations.
The consensus for the CPI m/m in the U.S. is 0.2%, with the previous figure at
0.4%. Regarding y/y data, expectations suggest a moderation from 4.9% to 4.1%,
indicating a potential cooling down of inflation. It is likely that the CPI,
excluding Food and Energy components, will remain unchanged. However, there is
a possibility of a 0.4% increase in the Core CPI, according to Citi analysts.
Overall, the inflation data for the U.S. economy is expected to exhibit a
cooling trend in the near future. A softer data outcome for this week might
provide enough support for the Fed to hold off on raising interest rates,
possibly until the next meeting in July, where a 25bps increase could be on the
table. This data will play a crucial role in the Fed’s decision-making process.
However, a 0.5% or 0.6% increase in Core CPI m/m might force the Fed’s hand to
raise the federal funds rate by 25bps at this week’s meeting, despite previous
hints of a pause in the hiking cycle.
The
consensus for this week’s FOMC meeting is for a hawkish hold. Lately the
economic data for the U.S. has been mixed. According to ING, there is likely
some dissent among Fed members about the hike pause, which is likely to
intensify especially if inflation doesn’t cool down and the jobs market data
remains hot. As a reminder, the Canadian and Australian central banks surprised
with rate hikes as well.
At his meeting, the Fed will also update its dot plot chart for forecasts. If
rates remain unchanged this week, there is a strong possibility for a 25bps
hike in July.
For the
Australian economy the forward-looking indicators reflect that the labour
market is cooling down and this week’s data might be a confirmation of that
trend. Last month there was an increase in the unemployment rate, but the
labour market remains tight. Citi analysts estimate that the RBA is likely to
continue its hiking cycle in the near term even if the labour market loosens.
For the ECB
meeting, the market consensus is for a 25bps rate hike driven by inflation
running hotter than expected in the short term. The hike cycle is likely to
continue next month as well, with a re-evaluation in September based on new
forecasts.
The U.S.
core retail sales are expected to drop from 0.4% to 0.1%. and the retail sales
m/m to decrease from 0.4% to -0.1%. The drop is likely to be driven by a
decline in auto sales.
No change
is expected at this week’s BoJ meeting. Governor Kazuo Ueda lately had dovish
comments suggesting the Bank will likely maintain its current policy this week.
However, there is a possibility of a tweak in the yield curve control (YCC)
policy over the next few months if inflation stays at current levels.
The U.S.
preliminary UoM consumer sentiment is likely to rebound from 59.2 to 59.5 but
will remain below pre-pandemic levels. Meanwhile, the Prelim UoM Inflation
Expectations data is likely to drop from 4.2% to 4%. So far this year consumer
sentiment has been weak and an improvement in this week’s data might be due to
the fact that the gasoline prices have been softer and the jobs market has been
robust. Inflation expectations might decline for June, but the 1Yr expectation
will remain high.
USD/CAD
expectations
On the H1
chart, the pair ended the week near the 1.3330 level of support. From there a
correction is expected until the 1.3410 level of resistance. If that level
holds it can resume the downtrend targeting 1.3230.
On the
upside, the next resistance levels are at 1.3480 and 1.3550. On H1 a bullish
divergence seems to be forming which might suggest a bigger correction until
1.3480.
Last week
the BoC hiked the rate by 25bps in response to elevated levels of inflation,
signalling that further tightening might be necessary if the economic
conditions require it. On Friday the jobs market data for Canada came below
expectations, driving the CAD down a bit. However, there are data points
hinting that the labour market and wages remain strong which is contrary to
BoC’s inflation objectives, so more hikes are likely to follow.
There is no
significant data release for Canada this week, but the CPI prints in the U.S.
will be important to watch especially if they come in well above expectations.
USDCAD 1 hour chart
This article was written by Gina Constantin.