Macroeconomics: The Day Ahead for 24 June

The week gets off to a quiet start statistically, with Singapore CPI to digest ahead of Germany’s Ifo Business Climate, the UK CBI Industrial Trends, and US Dallas Fed Manufacturing surveys. There will however be an abundance of Fed and ECB speakers, though in a number of cases they will be addressing regulatory topics, though these require a good deal of attention given the increasing regulatory focus on bank holdings of illiquid assets in their capital structures, and concerns about ‘risk transfer’ products. Fresh cyclical highs for the USD vs. JPY overnight and further intervention jawboning from Japan’s FX supremo Kanda, and continued pressure on the CNY underline the pain being felt in Asia and EM more broadly from the Fed’s high for longer stance, and will probably revive ‘currency wars’ chatter.

Germany’s Ifo Business Climate follows the unexpected drop in the array of flash PMIs, though the consensus looks for a not atypical divergence via a marginal improvement to a historically still very weak 89.6 from 89.3, paced equally by expectations and current conditions. The UK CBI Industrial Trades survey is expected to see Orders rebound from a 10 pt drop to -33 in May to -25, while Selling Prices are seen unchanged at +15 (3-month low).

RECAP: The Week Ahead Preview:
The new week brings a hotchpotch of data and surveys, with the US looking to Personal Income & PCE, Consumer Confidence, Durable Goods Orders, House Prices and New and Pending Home Sales. In Europe and the UK surveys dominate with Germany’s Ifo, UK CBI Industrial Trends & Distributive Trades, EC Confidence among the highlights. Japan looks to the usual end of month data rush: Tokyo CPI, Industrial Production, Retail Sales and Unemployment, while Australia has CPI. There will be an abundance of Fed and ECB speakers, the BoE publishes its Financial Stability Report, rate decisions in Sweden, Czechia, Turkey, Colombia, Mexico and Philippines – mostly seen holding rates, except for Czechia’s CNB (-25 bps) and Colombia’s BRC (-50 bps). The week ends with a 2-day EU leaders’ summit, as well as the first round of the French General Election next Sunday (with the UK voting the week after), and earlier in the week the WEF holds its ‘Summer Davos’ in Dalian, China. The commodities sector looks USDA 2024 US acreage planted, Q2 agricultural inventories and various monthly Livestock reports, Brazil’s Unica Sugar production report, and Canada’s Statcan updates on grains and oilseeds seeded areas. As the week goes on, the focus will also turn to quarter end flows in bonds and equities, which will likely make for some occasionally anomalous price action.

** U.S.A. – Friday’s PCE deflators will be the focal point, and are expected to echo CPI, with headline seen flat m/m to edge the y/y rate down 0.1 ppt to 2.6%, and core seen up 0.1% to bring the y/y down to 2.6% from 2.8%, the lowest since March 2021 (i.e. when the Fed was still in ‘team transitory’ mode). Gasoline prices and food will likely be the key drag, while weaker transportation and financial services prices will largely offset continued upward pressure from health care on the core. Fed speakers will acknowledge that the disinflationary trend has resumed but needs to persist for a few months to open the door to a rate cut. Ahead of that Tuesday has Consumer Confidence, seen easing to 100.0 after unexpectedly bouncing back to 102.0 from April’s drop, paced by improvements in the Labour differential and Willingness to buy metrics. Lower mortgage rates, a buoyant stock market and lower gasoline prices should support, but the consensus is doubtless predicated by the sharp drop in Michigan Confidence. CS CoreLogic and FHFA House Prices are both seen up 0.3% m/m, with base effects dictating an expected dip y/y to 7.0%, while New Home Sales are forecast to rebound 1.7%, after dropping 4.7% m/m in April, though rising stocks of unsold Existing Homes, and last week’s run of weak housing data impart some downside risks, while Pending Home Sales are expected to post a dead cat bounce of 1.1% m/m, after sliding 7.7% in the previous month. Q1 final GDP (seen unrevised), a wide though slightly smaller Trade deficit, and the Richmond and KC Fed surveys are also due.

** Eurozone – next Sunday’s first round of Assembly elections will continue to cast a long shadow, with the focus statistically on Friday’s run of provisional CPI readings from France, Italy & Spain, along with Monday’s German Ifo Business Climate. The latter follows the unexpected drop in the array of flash PMIs, though the consensus looks a not atypical divergence via a marginal improvement to a historically still very weak 89.6 from 89.3, while Wednesday’s GfK Consumer Confidence is also seen higher at -19.5 from -20.9, despite an expected rise in Unemployment claims of 15K, which would see the Unemployment Rate go up to 6.0%, the highest since May 2021. French Consumer Confidence is unsurprisingly expected to dip 1 pt to 89. All of the national CPI reports are expected to fall in y/y terms on the month, with France HICP benefitting from lower petrol prices and benign Food price base effects. Spanish HICP is expected to post a sharper drop to 3.5% y/y from 3.8%, paced above all by petrol and utilities base effects, while Italy’s HICP will likely back to 0.6% y/y from 0.8%, on the back of falls in food & energy prices, with core also likely to dip. Going into the weekend opinion polls continued to show Le Pen’s RN ahead on 35%, the Alliance of the Left on 29% and Macron’s Renaissance trailing on 21%, with little movement seen on the week.

** Japan: A typically busy end of month week for domestic data will find its focus in Friday’s Tokyo CPI, which is expected to see headline and core CPI tick up 0.1 ppt to 2.3% and 2.0% y/y respectively, paced by the ending of some utility price subsidies, as will be evident from an unchanged 1.7% y/y on the ex-Fresh Food & Energy metric. Services PPI earlier in the week is forecast to rise to 3.0% y/y from 2.8%, indicative of some pipeline pressures, primarily paced by some clawback for higher wage settlements. If correct, then a further small rate hike to 0.25% at the BoJ’s July 31 meeting seems probable. Activity metrics are expected to see Retail Sales unchanged at 2.0% y/y, mostly due to adverse base effects, while Industrial Production is seen posting a solid 2.0% m/m rebound, after falling 0.9% in April.

** Australia: Adverse base effects are likely to account for the anticipated uptick in May CPI to 3.8% y/y from 3.6% (despite a sharp fall in the MI Inflation gauge), with continued falls in food and energy prices likely to be offset by upward pressure on insurance premiums and housing. But it will be the June and Q2 CPI readings that the RBA is focussing on, as per Governor Bullock, with some market speculation that the RBA might hike again in August, though this still seems to be a relatively low probability.

** Central banks: Sweden’s Riksbank is expected to hold rates at 3.75%, erring on the side of caution, in part predicated by a ‘high for longer’ Fed and ECB caution on its rate trajectory, as well as higher than expected core CPIF ex-energy (May 3.0% y/y vs. expected 2.6%). It will likely keep its rate trajectory unchanged, signalling two further 25 bps rate cuts this year, and anticipate that CPIF is set to head down to and remain at or target in H2 2024. Turkey’s TCMB is seen on hold at 50.0%, with May’s expected peak in CPI at 75.45% y/y proving to be a little higher than anticipated, even if core CPI slipped to 75.0% y/y from 75.8%, but it will be concerned that USD strength on the back of the Fed’s hawkish stance may hamper the anticipated sharp fall in inflation in H2. It will nevertheless continue to use other instruments to tighten policy (reserve requirements, credit growth and de-dollarization measures). Having been at the vanguard of global rate cuts, some LatAm central banks are being effectively forced on to the backfoot by local currency weakness (or rather USD strength), and fiscal/political concerns, as was seen in Brazil last week, with this week’s IPCA-15 inflation seen ticking higher to 4.13% y/y, largely due to adverse base effects, and all eyes on the minutes of last week’s meeting, above all for the extent of any hawkish tilt that was absent from its statement, as well as on its quarterly inflation report (seen rising inflation forecasts), and on the National Monetary Council (CMN) decision on the 2027 inflation target. Banco de Mexico is seen holding rates at 11.0% for a second month, with the tumble in the MXN, uncertainty about constitutional reforms following the elections and inflation still well above its target of 3.0% (plus/minus 1.0%) at 4.6% y/y, but some emergent weakness in activity indicators, making for a challenging outlook, though it will likely stick with a cautious easing bias, contingent on incoming data. By contrast, Colombia’s BRC is expected to cut rates by 50 bps to 11.25%, and retain its easing bias, with the focus on divisions on the policy committee about the inflation and rates outlook, with one member likely to vote again for larger cut. Also of note will be any comments on the renewed weakness in the COP, even if this has been broadly in line with other LatAm and EM currencies.

There are just 9 S&P 500 companies reporting this week, though these include bellwethers such as FedEx, General Mills and Nike. Worldwide highlights for the week as compiled by Bloomberg News are likely to include: Alimentation Couche-Tard, FedEx, General Mills, H&M Hennes & Mauritz, Micron Technology, Naspers, Nike, Paychex and Prosus. The big question is whether the sell-off at the end of last week in tech stocks was largely quarterly ‘triple witching’ related, or more a case of increasing concern that the year to date 14.6% y/y rally in the S&P 500, has been too heavily concentrated information technology (up 28.2%, with Nvidia up 155%) and communications (24.3%). AAII Bullish Sentiment at 44% is about 8 ppts above its historical average, while the latest BoA survey showed fund managers were the most bullish since last 2021, just before the 2022 rout.

Outside of the US with another large $183 Bln total offering of 2, 5 & 7-yr & $28 Bln of 2-yr FRN, it will be a lighter week for govt bond supply, with the Eurozone looking to auctions of EU, German and Italian debt, the UK selling 14-yr and I-L 9-yr, and Japan awaiting 2 & 20-yr.