- SUN: OPEC+
Meeting. - MON: Chinese
Caixin Services PMI (May), German Trade Balance (Apr), Swiss CPI (May), Turkish
Inflation (May), EZ/UK/US Final Services and Composite PMIs (May), EZ Sentix
Index (May), US Durable Goods (R), ISM Services PMI (May). - TUE: RBA
Announcement, NBP Announcement, EIA STEO, EZ/UK Construction PMI (May), EZ
Retail Sales (Apr). - WED: BoC
Announcement, Australian Real GDP (Q1), Chinese Trade Balance (May), German
Industrial Production/Output (Apr), US Goods Trade Balance (R) (Apr), Canadian
Trade Balance (Apr), US-UK Meeting in Washington. - THU: RBI
Announcement, Japanese GDP (Q1), EZ GDP (R) and Employment Final (Q1), US-UK
Meeting in Washington. - FRI: CBR
Announcement, Chinese Inflation (May), Norwegian Inflation (May), Canadian Jobs
Report (May).
NOTE: Previews are listed in day-order
OPEC+ Meeting (Sun):
It is currently unclear which path the
alliance of oil producers will opt for at the upcoming weekend meeting, although
desks are seemingly in consensus that the group will keep production steady,
but will stress flexibility. Analysts are also in unison in assigning non-zero
chances of further production cuts, mainly given the Saudi Energy Minister’s
recent warning to speculators, and the fall in prices since the group’s
surprise, coordinated, voluntary curb announcement in April. Sources also
suggested OPEC+ is unlikely to deepen output cuts at the June 4th meeting,
according to Reuters. Reuters OPEC+ sources added that ministers to meet at
10:00BST on Saturday and 13:00BST on Sunday, but said it is too soon to be sure
of the outcome on Sunday; another source said the idea of formalising the
voluntary cuts as an OPEC+ decision was being looked at. In terms of factors that
support further production cuts – oil prices have declined some 8% since the
eve of the additional, coordinated, and voluntary cuts announced between the
nine major members. Prices are now under the USD 80-85/bbl range – which
activated the OPEC put in April 2023 and October 2022, according to Goldman
Sachs. Furthermore, analysts have been citing the recent rout in oil prices to
extreme bearish positioning alongside expectations of a deeper global growth
slowdown – not helped by sentiment from the mini-banking crisis alongside the
US debt ceiling debacle. Chinese data has mostly been disappointing of late,
with the most recent Retail Sales, Industrial Output, and NBS Official PMIs all
pointing to slower economic activity, although the Caixin Manufacturing PMI
offered some relief as it was unexpectedly revised higher. On the flip side,
notions backing a hold include an expected tightening in the oil market on the
back of Chinese demand continuing to come back online. Several prominent desks
see the market in deficit in H2 2023. Analysts at ING believe the market to be
in a deficit of some 2mln BPD over the latter part of 2023, while Goldman Sachs
sees “signs that the market remains on track for H2 deficits.” Add to that, the
US Energy Secretary announced mid-May that the DOE is looking to purchase up to
3mln barrels of sour crude for the SPR. Despite the volumes being somewhat
small (vs the 220mln barrel release), ING at the time suggested “the move does
show that the US administration is serious about refilling the SPR, something
that the market started doubting in recent months”. Furthermore, on April 2nd,
OPEC countries in a surprise move over the weekend, announced coordinated
voluntary production cuts. The de-facto head of Saudi Arabia suggested the move
was “a precautionary measure aimed at supporting the stability of the oil
market,” according to Energy Intelligence. The total cuts announced by OPEC
amount to 1.157mln BPD (from May through to the end of 2023), and with Russia’s
previously announced 500k BPD, this equates to an OPEC+ tally total of 1.657mln
BPD. Desks suggest the group may want to, for this month at least, take a
wait-and-see approach to observe the effects of these cuts. It’s also worth
noting that FT reported recently that a slew of media groups have been barred
from attending the OPEC+ meeting this weekend, but given the meeting will be
happening over the weekend and during market closures, all information should
be known by the time oil futures come back online.
Swiss CPI (Mon):
Expectations are for Y/Y CPI to decline to
2.2% from 2.6%. Inflation in Switzerland experienced an uptick toward the start
of the year, but has since been gradually easing from the 3.0% mark and
approaching the 0-2% target band. In March, the SNB forecast Q2 inflation at
2.7% and the April figure was incrementally below at 2.6%; at the March
gathering, the SNB announced a hawkish-hike as their inflation forecasts were
lifted alongside 50bp tightening and the expected return to target pushed out
by two quarters. Commentary since, and after the April release, has made clear
that further tightening is to be expected and the SNB believes underlying
inflation remains strong. As such, the May print is unlikely to change the skew
for further tightening in June, but could if it continues to ease and spark a
dovish-alteration to the Bank’s inflation forecasts; a view supported by the
findings in the month’s PMI that “the pricing situation continues to ease”.
Albeit, and pertinent for the longer-term trajectory, the Swiss Federal Office
of Housing has approved the first ever increase in the rental reference rate to
1.50% (prev. 1.25%), effective June 2nd. The 25bp increase allows landlords to
hike rental prices by up to 3.0% and as such will fan the associated inflation
component and potentially weigh on broader economic activity; desks expect
further upside to the rental rate later in the year.
ISM Services (Mon):
The headline is expected to rise to 52.1 in
May from 51.9 in April. As a proxy, the S&P Global flash PMI data showed
the US services sector saw a strong performance in May, seeing the fastest
growth in activity in over a year, with service providers stating that demand
was being driven by both new and existing clients. New business and export
orders also rose at a solid clip. That said, inflationary pressures remained
high, with input prices and output charges increasing faster than average,
S&P said. But service providers were able to bring in new staff at a
quicker pace, and job creation reached a 10-month high. Overall, service firms
are optimistic about future business activity, with the highest level of
confidence in a year. Analysts have also been noting the divergence in
manufacturing and services conditions. Goldman Sachs notes that despite robust
growth in services, manufacturing has contracted since October, with
country-level indices reflecting underperformance. GS says there are three
drivers explaining these trends: the cyclical nature of goods demand,
normalisation after the pandemic, and reduced import demand. GS says these
factors account for about 75% of the gap between manufacturing and services
PMIs. And going forward, the bank thinks manufacturing will likely continue to
lag behind services.
RBA Policy Announcement (Tue):
The RBA is expected to keep rates unchanged at
its meeting next week according to 22 out of 30 economists surveyed by Reuters
and with money markets pricing in a 67% probability for the Cash Rate Target to
be maintained at the current level of 3.85%, and a 33% chance of a 25bps hike. The
RBA surprised markets at last month’s meeting when it delivered an unexpected
rate increase to resume the policy tightening cycle with an 11th hike in 12
meetings, while its language remained hawkish as the Board expects that some
further tightening of monetary policy will be needed and remains resolute in
its determination to return inflation to target with the central bank to do
what is necessary to achieve that. Furthermore, its central forecast is that it
will take a couple of years before inflation returns to the top of the target
range and noted that although inflation has passed its peak, it is still too
high at 7%. Furthermore, Governor Lowe commented shortly after the meeting that
the Board had a strong consensus to raise rates and is deadly serious about
bringing inflation back down, while the RBA’s quarterly Statement on Monetary
Policy stuck with the hawkish tone in which it reiterated that it will do what
is necessary to return inflation to target and some further tightening may be
required to do that over a reasonable timeframe. The language from the central
bank clearly points to further rate increases, although some recent data
releases have disappointed and support the case to keep rates on hold after the
Manufacturing PMI returned to contraction territory last month and with Retail
Sales sluggish, while jobs data showed a surprise contraction in the Employment
Change and increase in the Unemployment Rate to 3.7% from 3.5%. Nonetheless,
another surprise rate increase cannot be ruled out given that inflation remains
far from the central bank’s 2%-3% target range as the latest monthly CPI rose
to 6.8% vs. Exp. 6.4% (Prev. 6.3%) and boosted some rate hike bets, while
Goldman Sachs raised its terminal rate forecast to 4.35% from 4.10% and now expects
the RBA to hike by 25bps in both June and July.
BoC Policy Announcement (Wed):
In recent months there has been an expectation
that the BoC would keep its policy rate unchanged through the rest of this
year, but analysts note that stronger-than-expected GDP and CPI metrics, as
well as a buoyant housing market present officials with the case to lift rates
by 25bps in June. Minutes from its last meeting revealed that officials had
discussed raising interest rates due to concerns about persistent inflation.
Resilient economic growth, challenges in lowering inflation, and the risk of
delaying action were the main arguments in supporting the case for a rate rise.
While the BoC expects inflation to ease, it is cognizant that reaching its 2%
target may take longer due to high services costs. Money markets are currently
assigning a probability of around 35% that rates will be lifted by 25bps to
4.75% in June, though are fully pricing in a hike by the September meeting.
Australia GDP (Wed):
Real Q1 GDP Q/Q is expected to show growth of
0.3% (prev. 0.5%) with the Y/Y seen at 2.4% (prev 2.7%). Analysts at Westpac
expect Q/Q growth of 0.2%, slightly below market forecasts. The desk suggests
that “ Domestically, the detail is expected to show consumer spending stalled
flat with the only growth coming from a lift in new business investment and
public demand.” It’s worth noting the GDP metric will be released after the RBA
policy announcement, whereby the central bank is expected to keep rates
unchanged at its meeting next week according to 22 out of 30 economists
surveyed by Reuters and with money markets pricing in a 67% probability for the
Cash Rate to be maintained at the current level of 3.85%, and a 33% chance of a
25bps hike.
China Trade Balance (Wed):
Chinese Trade Data for May is scheduled next
week and market participants will be eyeing the release as a gauge for the
health of the world’s second-largest economy after the recent bout of mostly
weaker-than-expected indicators, and following the softer trade figures in the
prior month. China’s dollar-denominated exports rose by 8.5% in April which
topped forecasts for 8.0% growth, but slowed from the 14.8% pace in March,
while imports unexpectedly contracted by 7.9% Y/Y which analysts had forecast
to print flat. This suggests an uneven economic recovery and weak domestic
demand which was also evident in China’s inflation data for that month in which
CPI printed at the slowest pace of increase since February 2021 and factory
gate prices showed deeper deflation. Furthermore, Goldman Sachs noted the
softer trade data in April likely reflected post-Lunar New Year residual
seasonality, while Capital Economics expects the continued weakening of exports
to persist amid the gloomy outlook for external demand before bottoming out
later in the year.
US-UK Meeting (Wed/Thu):
UK PM Sunak is set to visit Washington DC on
June 7 and 8 for meetings with US President Biden, Congress members, and US
business leaders. The visit seeks to bolster discussions on strengthening
cooperation and coordination between the UK and US, particularly on economic
challenges defining the future, including supply chain security and transition
to zero carbon economies. Sunak’s visit will also offer an opportunity to
discuss issues such as support for Ukraine, following the G7 summit. Prior to
this, Sunak met with CEOs of OpenAI, Google DeepMind, and Anthropic, discussing
‘international collaboration’ on AI.
RBI Policy Announcement (Thu):
The RBI will conduct its 3-day policy meeting
next week with the central bank expected to maintain the Repurchase Rate at the
current level of 6.50%, according to all 64 economists surveyed in a Reuters
poll. As a reminder, the RBI defied market expectations for a 25bps hike at the
last meeting in April and instead opted to keep rates unchanged via a unanimous
decision, while the MPC maintained its policy stance of remaining focused on
the withdrawal of accommodation through a 5-1 vote to ensure that inflation
progressively aligns with the target whilst supporting growth in which external
MPC member Varma expressed reservations over this part of the resolution.
Despite the surprise decision to keep rates unchanged, the rhetoric from
Governor Das remained hawkish as he noted that the decision to pause was for
that meeting only and the MPC stands ready to act if warranted, as well as
adding that they will not hesitate to take actions if needed at future policy
meetings and the policy stance can still be regarded as accommodative. This
clearly suggests there is scope for further tightening, while the minutes from
the meeting also stated that inflation remains elevated and generalised which
is still the biggest risk to the Indian economy and the MPC must remain on high
alert and ready to act pre-emptively if risks intensify to both growth and inflation.
Nonetheless, the further softening of inflation to within the 2%-6% target
range reduces the urgency for the central bank to act as CPI Y/Y slowed in
April to 4.7% vs. Exp. 4.8% (Prev. 5.66%), while weaker-than-expected
Industrial Production which printed at 1.1% vs. Exp. 3.3% (Prev. 5.6%) also
supports the case for the central bank to continue refraining from further
tightening, although GDP data recently provided some encouragement and printed
firmer-than-expected at 6.1% vs. Exp. 5.0% (Prev. 4.4%) for the January-March
quarter.
China Inflation (Fri):
Headline CPI Y/Y for May is expected have
ticked up to 0.4% (prev. 0.1%), while the PPI Y/Y metric is seen at -3.2%
(prev. -3.6%). Typically, the anecdotal commentary within the monthly PMIs are
taken as a proxy for the inflation figures released later. However, the PMIs
from NBS and Caixin saw a divergence this month, with the former seeing its
Manufacturing reading slipping further into contraction, while the latter saw
its respective reading unexpectedly revised into growth. Nonethless, the
commentary from the Caixin release suggested “Prices continued to plunge. As
deflationary pressure has grown, the gauges for input and output prices
remained well below 50.0 for the second straight month, logging their
second-lowest readings since early 2016. Input prices were dragged down by
falling food, fuel and industrial metals costs, while prices charged to
customers were constrained by heated market competition.” Meanwhile, on the
more-disappointing NBS data, analysts at Nomura suggested “The sharper
contraction in the manufacturing PMI suggests that the risk of a downward
spiral, especially in the manufacturing sector, is becoming more real”, and
added that the weakness in demand is the main culprit for the manufacturing
sector. Overall, recent data out of China has largely surprised the downside
and raised concerns about the economic activity in the world’s second-largest
economy. Chinese Global Times recently said “Experts expect full-year GDP
growth to exceed 6%”, and added the PBoC may cut the RRR by 0.25ppts “if the
Chinese economy maintains a stable recovery in the second half of 2023 and
requires more liquidity”, citing experts.
Norway Inflation (Fri):
May’s print follows on from a
hotter-than-expected April release which prompted the likes of SEB to upgrade
their CPI-ATE (core) trajectory given price pressures and ongoing NOK pressure.
Throughout May, the NOK has continued to depreciate with EUR/NOK surpassing the
12.00 handle at one stage. Additionally, the latest Norges Bank expectations
survey showed increases in 12-month inflation, 2023 real wages and annual wage
growth vs the last release. Factors which add further credence to those calling
for Norwegian inflation to be stickier and perhaps higher than the Norges Bank
has forecast. At the March MPR, the Norges Bank forecast June (the nearest
reference) headline CPI at 5.14% and CPI-ATE at 6.01%; if surpassed again, then
the release will likely cement an upward-revision to the Policy Path in June to
show a terminal rate at or possibly even above 3.75% vs the current 3.60%
projection.
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