- Digesting China rate cut, UK labour market report, Australia & Japan confidence surveys; awaiting German ZEW, US CPI, NFIB Small Business Optimism; OPEC Oil Market Report; BoE’s Bailey heads modest run of central bank speakers; busy run of government bond auctions
- UK labour data: broad strength in labour demand and jump in wages piles pressure on BoE; revisions raise question over reliability
- Germany ZEW survey: current situation seen posting larger fall, expectations also seen lower
- US CPI: headline expected to post modest m/m rise, but core seen sticky; base effects likely key driver of falls in y/y rates
EVENTS PREVIEW
All eyes remain on the FOMC decision tomorrow, but with China’s PBOC stealing the limelight overnight with a 10 bps rate to its 7-day Reverse Repo rate (per se cementing expectations of a similarly sized cut to the 1-yr MTLF rate on Thursday), and UK labour data, Australian and Japanese confidence surveys to digest, and US CPI, NFIB Small Business Optimism and German ZEW surveys ahead, there are some distractions from the Fed vigil. BoE’s Bailey testimony to the House of Lords Economic Affairs Committee heads a modest run of central bank speakers, with OPEC publishing its monthly Oil Market Report amid an array of signals that it has lost control over oil prices, while a busy day for Govt bond issuance sees sales in UK, Germany, Italy, Netherlands, Finland and the US. Germany’s ZEW survey is expected to see another more modest drop in Expectations, and a sharpish drop in the Current Situation to -40.2 from -34.8.
** U.K. – April/May labour market indicators **
The scale of the revisions to the prior report, above all April HMRC Payrolls being revised to a gain of +7k from a drop of 136K clearly begs many questions about the reliability of U.K. labour statistics, which only adds to the challenges for the MPC. Be that as it may, the latest report was universally strong, and markets have already started to factor in the chance of a 50 bps BoE rate hike in response. While 23K rise in May Payrolls was in line with forecasts, the 250K jump in the less timely LFS Employment measure, and a 13.6K drop in the Claimant Count points to very robust labour demand, with the 35K drop in Vacancies to 1.051 Mln meaning that they remain sky high on any historical comparison. But it is the strength of the rise in headline and ex-Bonus Average Weekly Earnings to 6.5% and 7.2% y/y respectively, which really piles the pressure on the MPC, particularly given a 7.6% y/y rise in Private Sector Wages.
** U.S.A. – May CPI **
CPI is seen up a very ‘average’ 0.2% m/m, but core expected to post a rather ‘sticky’ rise of 0.4% m/m, which thanks to large base effects above all from energy prices, will see y/y rates slow to 4.1% from 4.9% headline, and a more modest 5.2% from 5.5% for core. Easing housing costs (OER) will help at the core level, and much may also depend on the degree of divergence on new (seen lower) and used (Manheim index suggests higher) auto prices, and it is worth noting that beneficial base effects will be even bigger in the June report, which comes just ahead of the next FOMC meeting in July. The key in any evaluation of today’s report will be differentiating between the substantial base effects, and any material signs of disinflationary trends emerging, which thus far have been modest.
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