Quarter-end will bring a day of reckoning at least for Q2, as portfolios are adjusted this week. Equities continue to loiter just below historic highs even in the face of the latest June Fed hike and relatively hawkish guidance. But there remain hurdles ahead for the rosy picture that they are pricing in. Commodity/crude oil prices are providing a gut check on the global economic cycle even as equity valuations remain all hopped up on lingering central bank stimulus.

United States: Upcoming data over the next couple of weeks will help both the FOMC and the markets fine-tune projections on policy. May durable orders, income and consumption highlight this week and are expected to show a dip in orders, and small gains in income and consumption. U.S. economic calendar begins with durable goods (Monday) seen sinking 1.0% in May vs -0.8% in April. Case-Shiller home prices may tick up to 197.6 in April from 195.4 (Tuesday) and consumer confidence is forecast to nudge up to 118.0 in June from 117.9. MBA mortgage applications are updated (Wednesday), while Pending home sales from the NAR are on Wednesday and EIA inventories are due after sparking recent bouts of crude oil selling. Q1 GDP may nose down to 0.9% on the third revision (Thursday), Personal income is set to rise 0.3% in May from 0.4% (Friday), while PCE spending rises 0.2% from 0.4%. Also, out (Friday) are Chicago PMI, which may dip to 58.0 in June from 59.4, with Michigan sentiment (final) June read seen steady at 94.5.

Canada: The Bank of Canada’s policy outlook will be in focus following last week’s decidedly “dovish” May CPI report that smashed July rate hike prospects. Governor Poloz and Deputy Governor Patterson step into the fray this week, which will be looked to for some further clues on the policy scenario. Poloz appears in a panel at an ECB event in Portugal (Wednesday), while any comments from the BoC head honcho will presumably be of the impromptu variety from the sidelines to reporters. Deputy Governor Patterson (Wednesday) delivers a speech in Calgary. The slate of economic data is highlighted by April GDP (Friday), the industrial product price index (Friday) and average weekly earnings (Thursday).

Europe: Data releases are on focus this week since confidence seems to be leveling off heading into the end of the Q2, so preliminary June inflation numbers are likely to bring a further deceleration in the headline rate and therefore to provide a possible confirmation to Central Bank that growth is indeed strengthening, with no nigh of higher inflation.  The data week starts with German Ifo Business Climate (Monday), which we expect to move sideways at high levels, with an unchanged overall reading of 114.6, as business expectations stagnate. ESI Economic Confidence (Thursday) meanwhile, is seen rising slightly to 109.3 from 109.2, after better than anticipated preliminary consumer confidence data and as PMI readings suggested improving manufacturing confidence and a soberer assessment in the services sector. With the recovery broadening and employment stabilizing, growth remains strong across the Eurozone. Headline rates meanwhile remain impacted by oil price developments, with subdued energy prices likely to shave another 0.1% points from preliminary June numbers. Data releases also include Italian HICP (Wednesday), German consumer confidence, retail sales and import price inflation as well as French consumer spending and Eurozone M3 money supply growth.

UK: Fundamental leads have been somewhat messy, while there has been a contrast within BoE guidance over the last week, with Governor Carney saying that now is not the time to hike rates, while the central bank’s chief economist, Haldane, mentions the opposite. This week’s House of Commons vote on May’s minority government’s legislative program is now a major focus. The vote should pass, though there is a risk it won’t, which could potentially lead to another election. Aside from this uncertainty, a salient upshot of the prevailing political dynamics is a likely softer attitude towards Brexit, which appears to be backed up by popular support. Any surety that UK is adopting a soft Brexit stance, which would imply keeping borders free, would potentially be a strong positive for the pound.

The calendar this week features the final release of Q1 GDP (Friday),  the CBI’s retail sales survey (Tuesday),the BoE’s monthly report on lending, where mortgage approvals is anticipated to have dipped to 64.0k in May from 64.5k, and the Gfk consumer confidence survey for June, which is seen dipping to -7 from -5.

Japan: Asia’s calendar features the typical heavy month-ending slate of indicators from Japan. Services PPI (Monday) starts off the week, with a 0.6% y/y gain seen in May after the 0.7% rise in April. Retail sales (Thursday) are projected at 2.0% y/y in May from 3.2% y/y in April. CPI (Friday) is expected to reveal ongoing sluggishness in Japan’s inflation backdrop, consistent with no change in BoJ accommodation for quite some time yet. May consumer prices (Friday) are seen improving to a 0.6% y/y rate of increase from 0.4% in April, with the core at +0.5% y/y from +0.3%. But Tokyo CPI is projected at 0.2% y/y in June, unchanged from the 0.2% in May, while the June Tokyo core CPI maintains the 0.1% growth rate seen in May. May unemployment (Friday) is anticipated at a 2.8%, identical to April. PCE (Friday) is expected to post a 1.0% y/y decline in May after the 1.4% April drop. Industrial production (Friday) is pegged to reverse 3.0% m/m in the preliminary report for May after the 4.0% final gain for April. Housing starts (Friday) are forecast to fall 1.0% y/y in May following the 1.9% improvement in April.

China: Further erosion is in store for China’s closely followed official manufacturing PMI (Friday), seen at 50.9 in June from 51.2 in May.

Australia: Australia has another sparse calendar this week with HIA new home sales for May on Thursday while May private sector credit is up Friday. Deputy Governor Guy Debelle speaks (Tuesday) at the Global FX Code of Conduct Launch (via video link). The Reserve Bank of Australia next meets on July 4th. where no change to the current 1.50% rate setting is anticipated.

New Zealand: New Zealand’s calendar is highlighted by the trade balance (Tuesday), expected to reveal a narrowing in the surplus to NZ$500 mln in May from NZ$578 mln in April. Building permits for May are due Friday. The Reserve Bank of New Zealand’s Mike Hannah, Head of Communications and Board Secretary, speaks (Tuesday). The bank’s next meeting is on August 10.

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Andria Pichidi

Market Analyst


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