Weekly Market Outlook (20-24 May)

Upcoming events:

• Monday: People's Bank of China LPR, Waller Federal Reserve Bank.
• Tuesday: Reserve Bank of Australia meeting minutes, Canadian Consumer Price Index.
• Wednesday: Reserve Bank of New Zealand policy decision, UK CPI, FOMC minutes.
• Thursday: New Zealand Q1 retail sales, Australia/Japan/Eurozone/UK/US flash PMIs, Eurozone negotiated Q1 wage growth, and US unemployment claims.
• Friday: Japanese CPI, UK Retail Sales, Canadian Retail Sales, US Durable Goods Orders.

Monday

The People's Bank of China (PBoC) is expected to leave interest rates on one-year and five-year loans unchanged at 3.45% and 3.95%, respectively. Last week, the central bank kept the multilateral interest rate unchanged at 2.50%. Overall, this is a reliable introduction to the change in LPR rates. We've been getting some mixed economic data lately but overall it looks like the People's Bank of China has no urgent reason to ease policy further.

Tuesday

Canadian CPI YoY is expected to come in at 2.8% vs. 2.9% previously, while M/M is expected at 0.5% vs. 0.6% previously. The focus will be on core inflation measures although that is what the Bank of Canada is most interested in. The average CPI on an annual basis is expected to be 2.9% versus 3.1% previously, while the average Consumer Price Index (CPI) on an annual basis is expected to be 2.7% versus 2.8% previously. Such readings or even lower would give the Bank of Canada enough confidence to implement its first interest rate cut in June, as it would be within its target range of 1-3%.

Wednesday

The Reserve Bank of New Zealand is expected to keep the official cash rate (OCR) unchanged at 5.50%. The central bank has limited tolerance for increasing the time to achieve the 1-3% inflation target.. The latest CPI report for the first quarter showed inflation falling further, while the labor market report saw another rise in the unemployment rate and job losses in the first quarter. The market expects the Reserve Bank of New Zealand to ease policy in August while the central bank continues to repeat that it does not expect policy normalization before 2025.

UK CPI YoY is expected to come in at 2.1% vs. 3.2% previously, while Core CPI YoY is expected at 3.7% vs. 4.2% previously. The Bank of England is mostly focused on services inflation, and this will have a major impact on market expectations. As a reminder, we will have another CPI report before the next BoE meeting, but if this week's inflation data is good, the market is likely counting on higher chances of a rate cut in June already.

FOMC minutes are generally not a great market-moving release Because the market already knows what to expect
It becomes outdated when it expires as more data is released in the meantime. I was expecting the market to move this time because it was possible that the Fed would have refrained from mentioning the reduction in the quantitative period in the last meeting but included it in the meeting minutes. Since they already reported the drawdown in the last decision, I can't see the minutes being a big deal.

Thursday

The negotiated wage growth in the euro zone in the first quarter is what the European Central Bank has been waiting for for months to give it more confidence about the inflation outlook. The data is unlikely to change their plan to deliver the first interest rate cut in June Since they had sent a severe telegram in the meantime, it would be very bad to retreat at this point. However, May shape market expectations The number of interest rate cuts for the rest of the year.

Thursday will also be a flash day for PMIs for many advanced economies with the biggest focus as usual on the Eurozone, the UK and especially the US PMIs:

• The Eurozone Manufacturing PMI is expected to come in at 46.6 versus the previous 45.7.
• The Eurozone Services PMI is expected to come in at 53.5 versus the previous 53.3.
• UK Manufacturing PMI is expected to come in at 49.2 vs. 49.1 previously.
• UK Services PMI is expected to come in at 54.8 versus the previous 55.0.
• No consensus on US Manufacturing PMI vs. 50.0 previously.
• The US Services PMI is expected to come in at 51.5 versus 51.3 previously.

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 continue to hover around the cycle lows, while continuing claims remain steady around the 1800K level. Initial claims this week are expected to be 220K vs. 222K previously, while there is no consensus at the time of writing on continuing claims although the previous release showed an increase to 1794K vs. 1785K expected and 1781K previously.

Friday

Japan's YoY core CPI is expected to come in at 2.2% vs. 2.6% previously, while there is no consensus on key and fundamental numbers at the time of writing. This report does not generally move the market because we will see the CPI in Tokyo weeks ago, which is a leading indicator of the national CPI numbers.. In any case, surprises may have an impact on the market, but it seems increasingly likely that the Bank of Japan will not be able to raise interest rates further this cycle.