Weekly Market Outlook (17-21 June)

Upcoming events:

• Monday: People's Bank of China (PBoC) Multilateral, New Zealand Services PMI, Industrial Production and Retail Sales in China, Eurozone Wage Growth.
• Tuesday: Reserve Bank of Australia policy decision, Eurozone ZEW, US retail sales, US industrial production.
• Wednesday: UK Consumer Price Index, US NAHB Housing Market Index, Bank of Canada meeting minutes.
• Thursday: New Zealand GDP, PBoC LPR, SNB Policy Decision, Bank of England Policy Decision, US Housing Starts and Building Permits, US Unemployment Claims.
• Friday: Australia/Japan/Eurozone/UK/US Rapid PMIs, Japanese CPI, UK Retail Sales, Canadian Retail Sales.

Monday

The People's Bank of China (PBoC) is expected to keep its multilateral interest rate unchanged at 2.50%. There does not appear to be any urgency to ease policy further amid improving economic data. The central bank is also likely to keep interest rates (LPR) unchanged at 3.45% for 1 year and 3.95% for 5 years on Thursday.

Tuesday

The Reserve Bank of Australia is expected to keep interest rates unchanged at 4.35%. As a reminder, the central bank has become a bit more hawkish amid the lack of clear improvement in inflation, and said it cannot rule out or rule out future changes in the cash interest rate.

The Reserve Bank of Australia's forecasts were revised to show interest rates will likely remain at 4.35% until mid-2025. Recent data supports the need to keep policy on hold as the monthly inflation report surprised to the upside and labor market data came in stronger than expected.

The monthly US retail sales index is expected to come in at 0.3% vs. 0.0% previously, while the previous monthly retail sales index is expected to come in at 0.2% vs. 0.2% previously. Consumer spending remained stable, which is to be expected given strong wage growth and a resilient labor market. We've got some worrying signs from the UMich Consumer Confidence Index that may indicate that consumer spending is likely to ease a bit.

Wednesday

UK CPI YoY is expected at 2.0% vs. 2.3% previously, while Core CPI YoY is expected at 3.5% vs. 3.9% previously. The latest report was a bit disappointing for the BoE, as services inflation, which is what the central bank is most concerned about, came in much higher than expected at 5.9% y/y versus the BoE's estimate of 5.5%.

This report won't change anything for the Bank of England's upcoming decision on Thursday, but a surprise soft release could lead to the market further pricing in interest rate cuts and tilting the central bank's decision towards a more pessimistic side.

Thursday

The SNB is expected to cut interest rates to 1.25% although market rates stand at around 60%, so it is closer to flipping the currency between 1.50% and 1.25%. The latest inflation rate was in line with the Swiss Central Bank's estimate of 1.4% y/y (core 1.2% y/y).

The Swiss franc has seen a strong rise recently due to comments from Chairman Jordan Jordan, who said that if any inflation risks materialize, they will likely be linked to a weaker franc that can be countered by selling foreign currencies (buying the Swiss franc).

He also touched on the neutral interest rate (r*) and said that they estimate it to be around 0%. So, even if they cut interest rates, in theory their policy will remain restrictive, and if inflation rises somewhat in the coming months, they could intervene by buying the Swiss franc.

The Bank of England is expected to keep interest rates unchanged at 5.25%. As a reminder, the last meeting was a bit more pessimistic than expected, with Ramsden joining Dhingra to vote on a rate cut, and Governor Bailey making some dovish comments such as saying they might cut the rate more than the market expected.

It is clear that the central bank is keen to cut but nevertheless wants more confidence before easing interest rates. The UK CPI is likely to be formed the day before.

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. Initial claims continue to hover around the cycle lows, while continuing claims remain steady around the 1800K level.

This has led to a weaker and weaker market reaction as participants become accustomed to these numbers. However, we had a notable loss in both initial and continuing claims last week although the reason may have been just a seasonal effect or a measurement adjustment.

Initial claims this week are expected to be 240K vs. 242K previously, while there is no consensus at the time of writing on continuing claims although the previous release showed an increase to 1820K vs. 1790K previously.

Friday

Japan's YoY core CPI is expected to come in at 2.6% versus 2.2% previously. The Tokyo CPI saw an increase in all inflation measures compared to the previous month, so we may see the same thing happen for national readings. Not much should change for the Bank of Japan at the moment as it will likely need a few more reports before deciding whether to raise interest rates again.

As a reminder, the central bank disappointed the market last week by keeping everything unchanged despite expectations of a reduction in bond purchases. However, in the press conference, Governor Ueda previously pledged the reduction immediately after the next meeting and stated that it would be “significant.”

Friday will also be a flash day for Purchasing Managers' Indices (PMIs), with markets, as is usually the case, more focused on US readings:

• Eurozone Manufacturing PMI: expected to reach 48.0 vs. 47.3 previously.
• Eurozone services sector PMI: expected to reach 53.5 versus 53.2 previously.
• UK Manufacturing PMI: Expected 51.0 vs. 51.2 previously.
• UK Services PMI: Expected 53.2 vs. 52.9 previously.
• US Manufacturing PMI: Expected 51.0 vs. 51.3 previously.
• US Services PMI: expected to reach 53.5 versus 54.8 previously.