- Central banks likely to dominate schedule as hawkish RBNZ rate hike, lowly French and German Consumer Confidence, India agri measures are digested; US Durables, Mexico monthly GDP ahead; Brainard, Lane and Panetta the highlights of central bank speakers; FOMC minutes; German, US and Canada bond sales
- US Durable Goods Orders: reasonably solid increase expected after March jump, but mostly inflation related
- US FOMC minutes: discussion on rate trajectory and QT in focus, opinions starting to diverge on medium-term path after summer hikes
EVENTS PREVIEW
Central banks are likely to dominate the day’s proceedings, despite a relatively busy run of data that has final Q1 GDP from Germany and Singapore, Australia’s Q1 Construction Work Done along with French and German Consumer Confidence to digest ahead of US Durable Goods Orders and Mexico’s monthly GDP. But there is the expected RBNZ 50 bps rate hike and hawkish guidance (terminal rate now seen at 4.0% vs. prior 3.25%) to digest ahead of a raft of ECB, BoE, BoJ and CEE central bank speakers, accompanied Fed’s Brainard and the May FOMC minutes. The ECB appears to be following in the Fed’s footsteps by effectively pre-announcing policy moves with two 25 bps rate hikes now pretty much inked in for July and September, along with the end of QE, even if the hawks will probably keep pressing for a more aggressive trajectory. While there are many ECB speakers today, it will be the speeches by the generally dovish Lane and Panetta following on from Lagarde’s blog piece and speech, which will be of particular interest. and Govt bond supply sees another deluge of munis in China, along with German 15-yr, Canadian 10-yr and US 7-yr and 2-yr FRN, while the earnings schedule features Russia’s second largest gas producer Novatek and more Canadian Banks (BMO and Bank of Nova Scotia). The US PMIs were perhaps the most interesting of yesterday’s G7 readings, given that the steep drop in the UK Services PMI has long been flagged. Markit’s US report highlighted “The surge in input prices was linked by companies to supplier-driven price hikes for a wide variety of goods and services as demand often continued to outstrip supply, as well as higher interest rates, wage bills, fuel costs and higher transportation fees. Average prices levied for goods and services also rose markedly, albeit with the rate of inflation easing from April’s series-record high as some companies reported challenges passing further surges in costs on to customers.” It also observed: “Business confidence across the private sector remained upbeat, with firms recording a stronger degree of optimism in the outlook for output over the coming year in May. Firms were buoyed by ongoing sales growth and investment in local supply chains which it is hoped will ease bottlenecks. However, although higher than April, the degree of positive sentiment was below levels seen earlier in the year amid concerns regarding inflation and customer spending patterns.’
** France/Germany – May Consumer Confidence **
– German Consumer Confidence edged up off its all-time low, thanks to less pessimism about income and the general business cycle, but in a clear sign that inflation pressures are biting into consumer spending, the ‘willingness to buy’ sub-index slipped further to -11.1 vs. prior -10.6 and June 2021’s +10.0 reading. France’s Consumer Confidence unexpectedly fell to 86 vs. an expected marginal rise to 89, with a deteriorating outlook on prices as well as employment dragging the headline index lower, which leaves it not only a long distance from a long-term average of 100, but also at an 8-yr low, i.e. nearing the lows of the Euro crisis.
** U.S.A. – May FOMC Minutes / April Durable Goods Orders **
– Durable Goods Orders are expected to rise a healthy 0.5/0.6% m/m on headline and core measures, following March’s 1.1% headline and 1.4% ex Transport, with some upside risks to headline from transport, though as with Retail Sales a good part of any gain will in fact be price related. The early May FOMC minutes will combed for clues on the rate trajectory, with a large majority likely to have backed the heavily flagged series of 50 bps hikes through to July. The question more poignantly is the discussion about how much above the neutral rate to 2.50% might need to go, and how many back the very hawkish Bullard view that the faster and higher they hike, the more they could cut rates in 2023, if the economy slows more than anticipated. On the other hand, Bostic has suggested “a pause in September might make sense”, depending on ” on the ground dynamics that we are starting to see”. The discussion on QT and the pace of the run-off will also be of interest, though primarily in terms of what size balance sheet they ultimately see as desirable, with opinions likely to diverge quite sharply. A further point of interest is what sort of degree of tightening financial conditions they would welcome, and at what point would the pace or extent of the tightening start to raise alarm bells (something which the generally hawkish Esther George mentioned on Monday)- the discussion around this will perhaps be of greater interest in the June minutes, given the more persistent sell-off in equities and latterly credit in recent weeks. The discussion around growth and inflation will also be of interest, above all the degree to which they dismiss Q1 headline GDP and focus on Final Sales to Domestic Buyers, and whether any officials highlighted an easing in the pace of core PCE deflator gains.
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ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
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