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Macroeconomics: The Day Ahead for 20 June

  • Busier schedule lacks market moving data; digesting as expected China LPR cuts, lower than expected German PPI, RBA minutes; awaiting more central bank speakers, US Housing Starts, FedEx earnings; UK 5-yr, German 2-yr
  • Schnabel and Lane diverge on policy outlook, long summer tussle over ECB September rate hike likely, fuelling more short-end volatility
  • US Housing Starts seen little changed at around long-term average; low inventories, discounts, rotation cushion against rates and affordability headwinds

EVENTS PREVIEW

The data and event schedule is busier today, but statistically, it lacks any real market movers, with lower-than-expected German PPI, Malaysian Trade and Taiwan Export Orders to digest ahead of US Housing Starts and the Philly Fed Services survey. As was heavily flagged by last week’s MTLF operation, 1 and 5-yr Loan Prime Rates were cut by 10 bps to 3.55% and 4.20%, with market reaction showing that many had expected, or rather hoped for more. But as previously noted, it is the details on fiscal stimulus measures that markets are waiting for. There are also the RBA minutes and speeches to digest, with another relatively busy run of Fed, ECB and Riksbank speakers also on tap. Logistics bellwether FedEx’s earnings report will be closely watched, while govt bond supply comes via way of UK 5-yr and German 2-yr. Yesterday’s ECB speakers were notable for Lane re-emphasizing data dependency, and noting that it was much too early to speculate about a September rate hike. By contrast, Schnabel banged loudly on the hawkish drum, stressing that the ECB has been behind the curve on rates, and the need to ‘err on the side of doing too much’ given that ‘inflation risks are tilted to the upside’. and ‘there’s a limit to how long inflation can stay above 2.0%’. The face-off between the ECB’s hawks and doves will therefore likely prompt more volatility in EU short-term rates throughout the summer.

** U.S.A. – May Housing Starts **

Following on from a much better than expected rebound in the NAHB, which saw all sub-indices rise to 11 or 12-month highs, and per se confirms that the US housing is gradually recovering from its downturn, today’s Housing Starts are seen little changed at 1.40 SAAR, very much around the long-term average. It has to be added that low inventories of existing homes, and a degree of rotation by homebuyers from single to multi-family homes, continues to provide considerable support for the sector, along with ongoing discounts, even if these are starting to diminish.

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