Written Commentary
- US CPI and UK GDP top busier run of data; Japan Machinery Orders, UK RICS House Prices, BoK and BNM rate holds to digest; US weekly jobless claims and Brazil Retail Sales ahead; final day of NATO Summit, Fed speak, Pepsico earnings, Italy and US debt sales
- UK GDP: stronger than expected rebound gives BoE more time to assess inflation outlook, underlying trend still not clear, but Q2 GDP set to maintain solid Q1 pace, barring a June setback
- US CPI: gasoline prices to drag on headline, auto prices and recreation disinflation to help offset housing in core; ‘good, but no cigar’ in Fed rate cut terms
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EVENTS PREVIEW
US CPI and UK monthly GDP are the headline items in statistical terms, accompanied by UK RICS House Price Balance and other monthly activity indicators, Japan’s Private Machinery Orders, US weekly jobless claims and Brazilian Retail Sales. A busier day for central bank policy meetings, though the Bank of Korea and Bank Negara Malaysia held rates at 3.50 and 3.0% respectively and Serbia’s NBS is expected to follow suit (6.25%), while Fed speak comes via way of Cook, Bostic and Musalem. Pepsico and Conagra Brands publish quarterly earnings, and Italy (3, 7 & 19-yr) and US 30-yr hold govt bond auctions. The IEA rounds off this week’s run of monthly oil market reports, though how much it will add to an already established impression that demand is proving modestly better than had been anticipated, while greater OPEC+ compliance with production targets and somewhat smaller increases in non-OPEC supply, leave the overall impression of a well-balanced market in S&D terms. While Boe’s Mann’s comments were typically hawkish yesterday, the impression from Pill was that persistently Services inflation and current wage growth are a real concern, and as per his comments the outcome of next week’s Average Hourly Earnings are unlikely to tip the balance. This sits in contrast to the BoE June statement that suggested the rate decision was ‘finely balanced’, the open question is whether he is on his own, or represents the majority view – for the time being markets are pricing in only a 60% chance of an August cut, and not quite 100% for September (see chart). The other focal point for the day will be Biden’s performance at the NATO Summit’s closing press conference, as pressure for him to stand aside in the presidential election continues to build.
** U.K. – May GDP and activity indicators **
– The stronger than expected 0.4% m/m increase does look to be a case of a bounce after the weather in April, Services (most notably professional, scientific and technical activities and administrative and support) made the largest contribution (0.22 ppt), along with Wholesale/Retail (0.18 ppt) and Construction (0.11 ppt), while Information & Communication was a drag (-0.10 ppt). But with poor weather resuming in June (as per this week’s BRC and Barclaycard), it is open to question whether this is still just a very erratic pattern within a sluggish underlying trend, or a sign of improving momentum. It does nevertheless suggest that the BoE can take its time in assessing inflation trends, per se pushing back somewhat on the rate cut timeline, given that barring a m/m drop in June GDP, Q2 GDP is likely to hold at the same pace as Q1 (0.7% q/q).
** U.S.A. – June CPI **
– CPI is forecast to show a modest rise of just 0.1% m/m headline, taking the y/y rate down 0.2 pts to 3.1%, still just above the June 2023 low of 3.0%, with the drop in Gasoline prices bearing down, perhaps a little exaggerated by seasonal adjustment. Core CPI is however seen up 0.2% m/m to be unchanged at 3.4% y/y, with housing pressures still visible if moderating, but also offset by falling used car prices and some disinflation from recreation. It would give the Fed scope to gradually push the door open to a rate cut in September.
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