Upcoming events:
- Monday: New Zealand Services Purchasing Managers' Index.
- Tuesday: Japanese Producer Price Index, UK Labor Market Report, Eurozone ZEW, US NFIB Small Business Optimism Index, US Producer Price Index, Fed Chairman Powell's speech.
- Wednesday: Australian Wage Price Index, Eurozone Industrial Production, US CPI, US Retail Sales, US NAHB Housing Market Index, PBoC MLF.
- Thursday: Japan GDP, Australian Labor Market Report, US Housing Starts and Building Permits, US Unemployment Claims, US Industrial Production.
- Friday: New Zealand Producer Price Index, Chinese Industrial Production and Retail Sales, Waller's Fed Speech.
Tuesday
The UK unemployment rate is expected to rise to 4.3% versus 4.2% previously, with average hourly earnings (including bonus) reaching 5.3% versus 5.6% previously. Barring big surprises, this report is unlikely to change much for the Bank of England The central bank is focusing more on the two inflation reports ahead of the June meeting Where it can achieve the first interest rate cut. The market sees a 50/50 chance of a rate cut in June at the moment.
Unemployment rate in the United Kingdom
US Monthly Producer Price Index is expected at 0.2% vs. 0.2% previously, while Core PPI is expected at 0.2% vs. 0.2% previously. There is a risk of an upside surprise Taking into account that both price components paid in the ISM PMIs jumped to their highest levels during the session. The market will likely focus more on the US CPI report that will be released the next day, although the hot PPI could lead to some defensive positions in the CPI data.
US Core Producer Price Index on an annual basis
Wednesday
The Australian Wage Price Index is expected to be 1.0% quarterly versus 0.9% previously. The Australian labor market remains very tight with high wage growth and persistently high inflation. However, in its latest policy decision, the Reserve Bank of Australia refrained from becoming overly hawkish as the central bank continues to wait for more information. The market is now seeing its first rate cut sometime in the second quarter of 2025, with some chances of a rate hike this year. Higher wage growth without a more flexible labor market is likely to make it difficult for the RBA to reach its target “Within a reasonable period of time.”.
Wage price index in Australia on an annual basis
US CPI Y/Y is expected to come in at 3.4% vs. 3.5% previously, while M/M is expected at 0.3% vs. 0.4% previously. Monthly core CPI is expected to come in at 0.3% versus 0.4% previously. Given the market's pricing and general fear of continued high inflation, a downward surprise is likely to elicit a much larger reaction than an upward surprise. Fed Chairman Powell contradicted expectations of a hike in interest rates by stating this They will need “convincing” evidence. That their policy is not restrictive enough.
So, if inflation remains high but does not accelerate again significantly, it will keep interest rates higher for longer. The market expects roughly two interest rate cuts (45 basis points) by the end of the year, which could easily go back to one or even zero if we get another hot inflation report. A simple report might add one more cut to rates but not much more than that, as the Fed will want to cut interest rates at a meeting containing the key interest rate (barring a rapid deterioration in the labor market), which takes place in September at the earliest.
Core US CPI on an annual basis
The US Retail Sales report is expected to come in at 0.4% vs. 0.7% previously, while the previous US Retail Sales report is expected at 0.2% vs. 1.1% previously. We've recently had some weak reports on consumer sentiment which could lead to a decline in consumer spending. Retail sales data is very volatile and since it will be released at the same time as the CPI report, the market will likely ignore this release.
US retail sales year-over-year
The People's Bank of China (PBoC) is expected to keep its multilateral interest rate unchanged at 2.50%. Data out of China was mostly positive With recent inflation rates slowly emerging from deflation. Therefore, the central bank is likely to keep interest rates steady for now since there is no urgent need.
People's Bank of China
Thursday
The Australian labor market report is expected to show 25.3K jobs added in April versus -6.6K in March with the unemployment rate rising to 3.9% versus 3.8% previously. The Reserve Bank of Australia is focusing more on inflation But if labor market tightness persists, especially as wage growth picks up, it will make it difficult for the central bank to reach its target “within a reasonable time frame.”
Unemployment rate in Australia
US unemployment claims remain one of the most important releases to follow each week, as they are a convenient indicator of the state of the labor market. This is because inflation rate falling to the target level set by the Federal Reserve is more likely as the labor market weakens. However, a flexible labor market can make achieving the goal more difficult.
Initial claims saw their first notable loss last week at 231K versus 215K previously, the highest since August 2023. Of course, a single loss does not constitute a trend, but it is worth monitoring this given recent events. Miss out on the NFP report and weak consumer confidence data. Initial claims this week are expected to be 220K vs. 231K previously, while there is no consensus at the time of writing on continuing claims although the previous release showed an increase to 1785K vs. 1785K expected and 1768K previously.
US unemployment claims