UPCOMING EVENTS:
- Monday: PBoC MLF, New Zealand Services PMI, Chinese Industrial Production and Retail, Eurozone Wage Growth.
- Tuesday: RBA policy decision, ZEW eurozone, US retail sales, US industrial production.
- Wednesday: UK CPI, US NAHB housing market index, BoC meeting minutes.
- Thursday: New Zealand GDP, PBoC LPR, SNB policy decision, BoE policy decision, start of US housing and building permits, US unemployment claims.
- Friday: Australia/Japan/Eurozone/UK/US Flash PMIs, Japanese CPI, UK retail sales, Canada retail sales.
Monday
The PBoC is expected to leave the MLF rate unchanged at 2.50%. There appears to be no urgency to ease policy further as economic data improves. The central bank is also likely to leave the LPR rate unchanged on Thursday at 3.45% for the 1-year rate and 3.95% for the 5-year rate.
PBoC
Tuesday
The RBA is expected to leave the cash rate unchanged at 4.35%. As a reminder, the central bank turned somewhat more hawkish in the absence of a clear improvement in inflation and said it could not rule out future changes in cash rates.
The RBA’s forecasts have been revised to show that rates are likely to remain at 4.35% until mid-2025. Recent data supports the case for keeping policy unchanged, as the monthly inflation report surprised on the upside and labor market data came in stronger than expected.
RBA
US retail sales M/M are expected at 0.3% versus 0.0% previously, while the ex-Auto measure is seen at 0.2% versus 0.2% previously. Consumer spending has remained stable, as you would expect given solid wage growth and a resilient labor market. We’re getting some concerning signals from UMich Consumer Sentiment that could indicate that consumer spending is likely to soften somewhat.
US retail sales on an annual basis
Wednesday
The UK CPI Y/Y is expected at 2.0% versus 2.3% previously, while the Core CPI Y/Y is estimated at 3.5% versus 3.9% previously. The latest report was a bit of a disappointment for the BoE, as services inflation, which the central bank cares most about, came in much higher than expected at 5.9% annualized, compared to the BoE’s estimate of 5.5%.
This report won’t change anything for Thursday’s upcoming BoE decision, but a surprisingly soft release should see the market increase rate cuts and tilt the central bank’s decision toward a more dovish side.
UK core annualized CPI
Thursday
The SNB is expected to cut interest rates to 1.25%, although the market price is around 60%. So it is more likely a coin between 1.50% and 1.25%. The latest inflation figure was in line with the SNB estimate of 1.4% annualized (core 1.2% annualized).
The Swiss Franc recently appreciated sharply following comments from Chairman Jordan in which he said that if any inflation risk were to emerge, it would most likely be associated with a weaker Franc, which could be countered by selling foreign exchange ( buying CHF).
He also addressed the neutral interest rate (r*) and said they estimate it to be around 0%. So even if they were to cut rates, their policy would still be restrictive in theory and if inflation rose slightly in the coming months, they could simply intervene by buying Swiss francs.
SNB
The BoE is expected to leave the bank rate unchanged at 5.25%. As a reminder, the last meeting was a little milder than expected, with Ramsden joining Dhingra in voting for a rate cut and Governor Bailey making some milder comments, such as saying they could cut more than the market expected.
It is quite clear that the central bank is keen to cut, but still wants some more confidence before easing the policy rate. The tone will likely be set by the British CPI the day before.
BoE
The US Jobless Claims remains one of the top publications we follow each week, as it is a more up-to-date indicator of the state of the labor market. Initial claims continue to hover around the cycle low, while continuing claims remain firmly around the 1800,000 level.
This has led to a weaker and weaker market reaction as participants became accustomed to these numbers. Nevertheless, we got a notable miss in both Initial and Continuing Claims last week, although the culprit may have just been a seasonal effect or measurement adjustment.
This week, initial claims are expected at 240,000 versus 242,000 previously, with no consensus on ongoing claims at the time of writing, although the earlier release showed an increase to 1820,000 versus 1790,000 previously.
US Unemployment Claims
Friday
Japan’s core annualized CPI is expected to be 2.6%, up from 2.2% previously. The Tokyo CPI saw all inflation measures rise compared to the previous month, so we could see the same thing happen for the national measures. Not much should change for the BoJ at this point as they will likely need a few more reports before deciding on another rate hike.
As a reminder, the central bank disappointed the market last week by leaving everything unchanged despite expectations of a reduction in bond purchases. Nevertheless, during the press conference, Governor Ueda promised a reduction immediately after the next meeting, saying it will be “substantial.”
Japan Core-Core CPI on an annual basis
Friday will also be Flash PMI day where, as is usually the case, markets will focus more on the US data:
- Eurozone manufacturing PMI: 48.0 expected versus 47.3 previously.
- Eurozone services PMI: 53.5 expected versus 53.2 previously.
- UK Manufacturing PMI: 51.0 expected versus 51.2 previously.
- UK Services PMI: 53.2 expected versus 52.9 previously.
- US Manufacturing PMI: 51.0 expected versus 51.3 previously.
- PMI for the US services sector: 53.5 expected versus 54.8 previously.
Flash PMI