It is now the case that nearly every key central bank is actively removing accommodation. Two of the last major holdouts are due to release their rate decisions next week – the ECB, which is expected to begin the process soon, and the RBA. So the big questions facing investors are how hard will the banks stop on growth in order to curb inflation, and will they cause a recession? For the ECB, we suspect that won’t be the case, at least not in 2022. But that clearly depends on the extent of the former and the aggressiveness of policy actions even in the face of a variety of global headwinds. We won’t get answers anytime soon, but this week’s heavy data slate will provide more timely insight into growth. The weekly agenda includes inflation and trade balance out of China and the US, and Japanese and European GDP.
Have a look at the most important events of the coming days in our usual weekly publication.
Monday – 06 June 2022
- Caixin Manufacturing PMI (CNY, GMT 01:45) – The manufacturing number is expected to rise slightly in May to 47.3 from 36.2, but holds below the key 50.00 pivot point.
Tuesday – 07 June 2022
- Interest Rate Decision & Statement (AUD, GMT 04:30) – The RBA minutes point to further tightening in June. The minutes to the last meeting revealed that policymakers discussed three possible options for the rate hike they delivered, and that while the majority opted for a 25 bp move, they not just considered a smaller 15 bp step, but also the possibility of a 40 bp boost to official rates. Australia’s unemployment rate fell to 3.9% – the lowest level in almost 50 years – as employment rose 4k over the month, which is a further indication that the labour market is strengthening and that companies are more confident that they will have sufficient work to keep staff. More arguments for additional tightening from the RBA, which seems on course to hike rates again in June.
- Composite PMIs (GBP, GMT 08:30) – The final May Composite PMI is expected higher at 57.6 from the 51.8 in preliminary readings for May.
- Trade Balance (USD, GMT 12:30) – The trade deficit for the US is expected to be lower in May to 90.3 bln from 109.8 bln in April.
- Ivey PMI (CAD, GMT 14:00) – A survey of purchasing managers, the Index provides an overview of the state of business conditions in the country.
- Gross Domestic Product (JPY, GMT 23:50) – GDP is the economy’s most important figure. The Q1 GDP for Japan is expected to contract at -0.3% q/q from -0.2% q/q, with headline at 1% y/y.
Wednesday – 08 June 2022
- Gross Domestic Product (EUR, GMT 09:00) – GDP is the economy’s most important figure. The final Q1 GDP for Europe is expected to remain steady at 0.3% q/q, with headline at 5.1% y/y.
- Crude Oil Inventories (GMT 15:00)
Thursday – 09 June 2022
- Trade Balance (CNY, GMT 03:00) – The trade surplus for China is expected to lower in May to 50.65 bln from 51.12 bln in April.
- Interest Rate Decision & Statement & Press Conference (EUR, GMT 11:45 & 12:30) – The ECB has already lost the battle to prevent second round effects, and it is now facing a much larger, permanent shift higher in prices. The ECB is looking more focused on keeping spreads in, and high-debt countries afloat, than on keeping a lid on inflation. The weakening of the EUR against the Dollar and speculation that the EURUSD could hit parity before the end of the year is partially due to this new view of a central bank that has long left the legacy of the inflation-focused Bundesbank behind. Lagarde’s confirmation that negative interest rates will end in Q3, and that there will be at least two rate hikes in July and September, finally put the ECB on the right path. But, with inflation expectations already rising and starting to crop up in wage demands and rent calculations, it is no surprise that the hawks like Holzmann warn that anything but a half point move in July will look halfhearted and ineffective. The doves are still resisting, and we suspect that Lagarde will focus on “gradual” but “decisive” action when she lays out the ECB’s path towards the phasing out of stimulus next week. In the end though, she may be forced to opt for the half point hike in July after all, as we expect further signs in coming weeks that medium term inflation expectations are moving past the ECB’s 2% target.
Friday – 10 June 2022
- Consumer Price Index (CNY, GMT 01:30) – May’s Chinese CPI is expected to grow by 1.8% from 2.1% on a yearly basis.
- Consumer Price Index (USD, GMT 12:30) – May’s CPI is anticipated to gain by 0.6% for the headline and 0.4% for the core, following gains of 0.3% and 0.6% respectively in March. CPI gasoline prices look poised to rise 4% in May, after an April energy price pullback that trimmed the huge March gains with the war in Ukraine. We see ongoing support for core prices from the lockdowns in Shanghai and the associated disruption to global trade. As-expected May CPI figures would result in an 8.1% y/y increase, following 8.3% in April and March’s 40-year high of 8.5%. Core prices should rise 5.8%, from 6.2% in April and March’s 40-year high y/y gain of 6.5%. Respective May PCE y/y chain price gains of 6.3% and 4.7% will sustain pressure on the Fed to rapidly remove policy accommodation.
- Unemployment Rate (CAD, GMT 12:30) – Canada’s employment rose 336.6k in February following the -200.1k fall in January, as Covid faded and business reopened. The rise was larger than expected. The jobless rate fell to 5.5% from 6.5%. The Canadian employment change for May is expected to rise by 55k from the disappointing 15.3k in April.