Macroeconomics: The Day Ahead for 10 June

The week ends with a barrage of inflation data, headed up by the overnight China PPI/CPI and the upcoming US CPI, there are also Japan’s PPI and Norwegian CPI & PPI along with UK BoE 1-yr Inflation Expectations. While generally not attracting much attention, Czechia’s CPI data (way above forecasts at 16.0% y/y) will get particular attention after President Zeman purged 3 hawkish members of the CNB board, and replaced them with more dovish members (two of whom are previous board members – Frait and Zamrazilova), which follows the earlier decision to appoint the super dovish Michl as new the central bank governor as of July, who voted against the last rate hike and will vote against a likely 75 bps at the 22 June meeting, which will be Rusnok’s last meeting as governor. Be that as it may, US Michigan Sentiment, Canadian labour data and India’s Industrial Production are also due, with a smattering of ECB speakers and an expected 100 bps rate cut to 10.0% in Russia. The run of China, Japan and South Korea data overnight will probably attract less attention than other local news, which includes a nod for a revival of the Ant Financial IPO from the the Chinese authorities, though the company said it has no plans for a relaunch; another warning from Japan Finance Minister Suzuki (and BOJ and Japan FSA) on JPY weakness, though he made no comment on the possibility of intervention; while in South Korea the truckers strike is broadening, and is posing a threat to raw materials supplies for the petrochemical and semiconductors. A ‘summer of discontent’ in terms of industrial relations and social unrest (the latter above all in EM) across much of the world looks to be pretty much baked in the cake. Last but not least for agricultural commodities the USDA publishes its monthly WASDE report, and while there are not expected to be any large changes to US crop estimates, a close eye will be kept on estimates for India, where a substantial downward revision has already been flagged by the USDA’s India attache, though trade estimates are reportedly even lower (and because of different crop year timings in US and India, the fall is optically overstated)

Next week’s busy schedule has the US FOMC, BoE, BoJ, SNB and Brazil BCB policy meetings, along with a rash of data from China (Industrial Production, Retail Sales, FAI, Property Investment and Unemployment), UK (month GDP, Industrial Production, Trade, Unemployment & Retail Sales) and USA (PPI, Retail Sales, Industrial Production, NFIB, NAHB, NY & Philly Fed surveys and Housing Starts). While the focus will inevitably fall on  the FOMC, it is worth noting that there is plenty of speculation that the SNB may in fact raise rates 25 bps as against a consensus of no change.

** U.S.A. – May CPI **

– After a brief reprieve in April, energy prices (above all gasoline) are expected to drive headline CPI by 0.7% m/m for an unchanged 8.2% y/y, with core prices remaining elevated at an anticipated 0.5% m/m, though thanks to base effects this would see the y/y rate fall to 5.9% from 6.2%. Favourable seasonal adjustment (due to the driving season) should help to mitigate some of the upward pressure from gasoline, in contrast to the prior 3 months used Autos will not be acting as a downside counterweight. While there has been some moderation in core goods pressures, Services pressures (housing OER, travel and leisure) are likely to remain elevated. This month’s outturn will have little bearing on the Fed’s rate decision next week or in July, and with gasoline prices hitting a fresh high this week (avg. $5.00 per gallon) June CPI will also remain high in m/m terms. To justify a pause after September, energy and food pressures will have to moderate substantially in July & August, as more modest 2021 m/m gains of 0.5% and 0.3% fall out of the comparison. Per se the peak in inflation in y/y may still be a few months away. Michigan Sentiment is expected to dip to a new 11-yr low at 58.1 from 58.4, with inflation pressures, above all the rise in gasoline prices continuing to weigh heavily on Sentiment.