Macroeconomics: The Day Ahead for 12 June

Today’s data and events will set the tone for the rest of the week, and perhaps even the month, along with the speculative rumour mill about the French general elections. Topping the agenda are US CPI and much anticipated FOMC meeting, but ahead of that there are the UK monthly GDP and activity indicators, China’s CPI & PPI, and Japan’s PPI, and an as expected no change decision from the Bank of Thailand to digest, while ahead there are also India’s CPI and Industrial Production. In the commodity space, the IEA’s monthly Oil Market Report and the USDA’s WASDE are the headline items, though there are also monthly S&D reports from China’s Agriculture Ministry and France’s AgriMer, in addition to the weekly EIA oil and ethanol inventories data. There are a good many ECB speakers, while govt bond supply takes the form of UK 21-yr Index-Linked and German 10-yr, with the US 10-yr auction delayed until tomorrow due to the FOMC meeting.

** U.K. – April GDP, Industrial Production & Index of Services **

– Monthly GDP was slightly stronger than expected thanks to a much better than expected contribution from Services, very specifically a 0.17 ppt contribution from Information & Communication and 0.1 ppt from Professional Scientific. But this was heavily offset by very sharp -1.4% m/m falls in both Manufacturing and Construction Output, along with a hefty drag from Trade, with Exports down 2.4% m/m, while Imports jumped 11.0% (or 5.5% m/m ex-Precious Metals). Much of the weakness looks to be down to a combination of Easter timing effects and some mean reversion of large m/m jumps in some sub-sectors in February and/or March. It does however confirm that the March m/m GDP jump was a one-off, and that the underlying growth trend remains sluggish, even if somewhat better than had been expected at the turn og the year. Like yesterday’s labour data, it does little to change the BoE rate outlook, even if there should be some general discussion about whether the bigger drag on the economy is fiscal rather than monetary policy.

** China – May CPI and PPI **

– CPI turned out weaker than expected at an unchanged 0.3% y/y, and this despite a base effect drive boost from Food Prices that rose to -2.0% from -2.7%, but Non-Food slipped to 0.6% y/y from 0.7%, with Household Items a key drag at 0.8% y/y vs. April’s 1.4%, while core CPI slipped 0.1 ppt to 0.6%. Copper and Gold prices look to have been the items that saw a slightly better than expected -1.4% y/y for PPI, though base effects accounted for the lion’s share of the improvement from April’s -2.5%, and will also give a boost in June, before they turn adverse in July.  But overall weak domestic demand continues to be the main factor dampening disinflation. Credit aggregates may be released later today, and are expected to rebound after unexpectedly contracting in April, with Aggregate Social Financing and New Yuan Loans seen up CNY 2.3 Trln and 1.069 Trln respectively, in part due to typical seasonal factors, but specifically due to the issuance of the central govt special bonds, and a pickup in local govt issuance, but private lending data will likely underline continued weakness in consumer and business demand for credit. 

** India: Following on from the surprising election result, attention turns to today’s CPI and Industrial Production. CPI is seen barely changed at 4.88% y/y, with food prices likely to exercise some very modest upward pressure (more significantly on Friday’s  WPI), but core CPI will likely remain around its April record low of 3.2%. Industrial Production is expected to slow modestly to 4.6% from 4.9% y/y, echoing a modest setback in the Manufacturing PMI, though the sharp drop in non-petroleum exports does impart some downside risks.

** U.S.A. – CPI **

– Just ahead of the the FOMC meeting, a drop in energy prices (above all gasoline) is set to pace a muted 0.1% m/m rise in headline CPI, leaving the y/y rate unchanged at 3.4%, while core is seen up 0.3% m/m for a second month, easing the y/y rate 0.1 ppt to 3.5%, but in 3-mth annualized terms still running at a relatively ‘hot’ 4.0%, though better than Q1’s 4.8%. Housing (OER, last 0.4% m/m) will continue to be a key upward pressure on core and services CPI, along with Medical Care, but to some extent mitigated by falling new auto prices, and some discounting in consumer goods as discretionary spending weakens.

** U.S.A. – FOMC meeting **

– The ‘dot plot’ is expected to show only two rate cuts in 2024, but given that it was a fine line between two and three rate cuts in March, and the push back by Fed speakers on the rate cut trajectory since the April meeting, this would be very unsurprising, particularly as markets now only have one rate cut priced in by year end. The rest of the SEP (summary of economic projections) is likely to see Unemployment forecasts shaded higher, core PCE Deflator pushed up perhaps 0.2 ppt from March’s 2024 year end projection of 2.6% given the run of higher actual PCE data, but the 2024 GDP forecast will likely be cut, given the soft Q1 GDP. A good deal of the FOMC discussion will likely focus on whether rates are ‘sufficiently restrictive’, but the long-term neutral rate is unlikely to shift from March’s 2.6%. Of particular note in the statement, will be any changes to either ‘Recent indicators suggest that economic activity has continued to expand at a solid pace’ or ‘Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective’, given the run of recent data. If asked, Powell will likely reiterate that the next move in rates is unlikely to be up.