The Economic Week Ahead

The FOMC decision and projections will be front and center this week. The ebb of inflation pressures and cooling of policy expectations will be food for thought for the FOMC. But, that shouldn’t deter the Committee from hiking rates by 25 bps Wednesday to 1.00-1.25%. However, with the slowing in U.S. inflation dynamics, the downward revision in the ECB’s inflation outlook, alongside the drop in energy prices, the political morass and latent tech volatility will give Fed doves more ammo to argue for a less aggressive normalization path, especially amid the likely delays in tax reform and other fiscal measures.

United States: The U.S. economic calendar may be overshadowed by the FOMC meeting, but there will be several relevant data releases that could give the markets and Fed pause by impacting views of the future, especially CPI and retail sales. Headline CPI (Wednesday) may slump 0.1% from 0.2%. Retail sales (Wednesday) are forecast to drop 0.1% in May or flat ex-auto, still struggling to regain lost momentum. Headline May PPI (Tuesday) is seen sinking 0.2% from 0.5%; core may rise 0.2% vs 0.4% or 2.0% y/y. Business inventories are also on tap (Wednesday), projected to sink 0.2% in April. The Treasury budget gap (Monday) is expected to hit -$87 bln for May, a 66% deterioration from -$52.5 bln a year ago. After the FOMC decision on Wednesday there will be a rash of data (Thursday) after the fact. Philly Fed index is seen falling to 22.0 in June from 38.8; Empire State may rebound to 6.0 in Jun from -1.0; import prices are seen flat in May, export prices may rise 0.2%; initial jobless claims are expected to dip 6k to 239k for the June 10 week; industrial production is forecast to be flat in May, while capacity use holds steady at 76.7%. NAHB housing market index may slip to 69 in June from 70.

Canada: The Canadian calendar is relatively thin after the busy start to the month. The manufacturing report (Thursday) is the main data feature this week, with shipment values expected to rise 0.7% m/m in April after the 1.0% gain in March. Another installment of housing data is due, with May existing home sales (Thursday) and the Teranet/National Bank HPI (Wednesday) scheduled for release. The April international securities transactions report will be available on Friday. Bank of Canada Senior Deputy Governor Wilkins delivers a speech titled “Canadian Economic Update: Strength in Diversity.” Monday’s speech is scheduled for release at 13:20 ET.

Europe: This week’s set of data releases, focuses mainly on final inflation data for May, which are unlikely to bring major surprises. The most important number will be German ZEW investor confidence (Tuesday) for June. A modest rise expected in the headline reading to 21.0 from 20.6 in the previous month, backed by the ECB’s cautious approach to exit steps and the improved overall economic outlook, which has been underpinning stock markets. Inflation data should confirm the German HICP rate at 1.4%, the French at 0.9% and the overall Eurozone number (Friday) at 1.4% y/y. The ECB already cut back its inflation projections at the July meeting as oil price developments mean the trajectory is lower than previously thought and while growth is improving and employment picking up, this has at least so far not led to a broad rise in wages. So the central bank can afford to take a relaxed stance on exit steps, even as growth forecasts are being revised up. Other data releases include Eurozone production and trade data for April. Germany will sell 10-year Bunds on Wednesday.

UK:  Markets this week will be looking to see how secure prime minister May is as she lost a lot of political capital with her decision to call a snap election having backfired spectacularly. There are also big questions about how effective the new, fragile government will be in implementing policy, and what this will mean for the UK’s Brexit negotiation stance. So far, both May and the EU have stressed that there should be no delay in getting down to Brexit negotiations, which are due to commence on June 19. The calendar picks up a gear this week. Top of the list is the BoE MPC’s June policy meeting (announcement Thursday), where the Old Lady of Threadneedle Street is widely expected to leave policy settings unchanged. The tone of the minutes will interest, and given the tricky political backdrop will likely show a stepped-up degree of dovishness while remaining in the bounds of an overall neutral policy stance. Data is highlighted by May inflation figures (Tuesday). Labor market data, meanwhile, (Wednesday) has us anticipating an unchanged 4.6% reading in unemployment. Average household income data will be scrutinized for signs of weakness. We see retail sales (Thursday) contracting by 1.0% m/m in official May data, expecting payback after a stellar 2.3% m/m gain in April.

Japan: In Japan, the MoF June business outlook survey (Tuesday) is expected at 0.6 from 1.1 previously. Wednesday brings revised April industrial production. The BoJ will announce its policy intentions on Friday, with the two-day meeting unlikely to result in any changes, though reports last week indicated the Bank may upgrade its economic outlook, while lowering its inflation forecasts.

China: In China, May industrial production (Wednesday) is expected to slip to a 6.3% y/y pace from 6.5% in April, while May retail sales (Wednesday) should tick up to 10.8% y/y from 10.7%. May fixed investment (Wednesday) is estimated up 8.7% y/y from 8.9%. India May CPI (Monday) is expected to dip to 2.3% y/y from 3.0%, while April industrial production (Monday) should remain steady at 2.7% y/y. The May trade deficit (Wednesday) is set to narrow to $12.0 bln from $13.2 bln, as May WPI (Wednesday) is forecast to fall to 2.9% y/y from 3.9%

Australia: Australia’s calendar has May employment (Thursday), projected to expand 15.0k after the 37.4k gain in April. The unemployment rate is expected at 5.7%, identical to the 5.7% in April. There are two speeches by Reserve Bank of Australia Deputy Governor Debelle this week: The first speech is on Monday to the Global FX Code of Conduct Launch in Hong Kong (by video.) The second speech is on Thursday, at the Thomson Reuters Industry event in Sydney.

New Zealand: New Zealand’s calendar is highlighted by Q1 GDP (Thursday), expected to improve 0.9% after the 0.4% gain in Q4 (q/q, sa). The current account (Wednesday) is seen improving to a NZ$1.3 bln surplus from the -NZ$2.3 bln deficit in Q4. The Reserve Bank of New Zealand meets on June 22.


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Andria Pichidi

Market Analyst


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