Key Events This Very Busy Week: CPI Tomorrow And Central Banks Galore

After a very quiet week for markets and newsflow, this week steps up the action with the FOMC on Wednesday the obvious highlight, although tomorrow's US CPI print is probably the event of the week in terms of potential vol as it could impact final pricing for the FOMC and impact terminal pricing as well. The ECB (Thursday) and the BoJ (Friday) are also making policy decisions.

Rounding out the week's main events, DB's Jim Reid writes that in Asia investors will be hotly anticipating China's key monthly activity indicators (Friday) including industrial production and retail sales after recent disappointing data releases. In other US data, the key releases outside of CPI are PPI (Wednesday), retail sales and industrial production (Thursday) and the UoM Michigan survey (Friday) with the important inflation expectations series thrown in for good measure. Key European data releases include UK GDP and labor market indicators and the German ZEW survey (both tomorrow).

Going through some of this in more detail, there is around a 30% probability priced into the FOMC this week. DB expect them to hold but raise rates in July (we will do a full preview tomorrow). Economists expect the meeting statement, Summary of Economic Projections (SEP), dot plots, and Chair Powell's press conference to skew hawkish, signalling the likely need for further policy tightening as soon as the July 26 meeting.

The last swing factor for the FOMC will clearly be CPI tomorrow. Here consensus expects a +0.2% month-over-month advance for headline CPI (vs. +0.37% previously) and a +0.4% increase for core (vs. +0.41%). This would lead the former to drop by about a full percentage point to 4.1% YoY, with the latter down -0.3% to 5.2%, with the 3, 6 and 12 month core readings all still struggling to gain much downward momentum below 5% at the moment. For PPI the day after, DB expect the headline series (-0.2% vs. +0.2) to underperform the core component (+0.2% vs. +0.2%) due to energy prices.

Staying with prices, another insight into inflation pressures will come from the University of Michigan's consumer survey for June, with inflation expectations especially in focus after the gauge for the next 5-10 years climbed to an 11-month high of 3.1% last month, albeit revised down (as it often is) 0.1pp from the first print. For the sentiment index itself, consensus sees a 60.1 reading, a jump from 59.2 in May but still below the 63.5 reading in April.

On the other side of the Atlantic, the ECB is expected to deliver another +25bps hike, followed by an additional one in July that would take the terminal rate to 3.75% with the risk of moving towards 4.00-4.25% in the autumn and more hawkish messaging.

According to Rabobank, "unlike the Fed, the ECB is widely expected to continue its streak of rate hikes – it is still lagging a few steps, of course. So here too, the actual rate decision will draw less attention than the central bank’s communication about the path forward. The new staff projections may help in this communication effort. Given our current economic outlook, we like the market-implied pricing of a 3.75% terminal rate, and we mainly disagree with the markets pricing in rate cuts very early in 2024. The ECB seems to be of a similar mind, and keeping the medium-term inflation forecast a smidge above 2% may help signal that markets are pricing rate cuts too early."

But the ECB’s peak rate also remains subject to upside risks. One of the reasons we expect that the Governing Council can soon stop tightening policy further is the expected headwinds from abroad. So, if the US recession does not materialise as early as expected, that might not only force the Fed to go higher; it could also put more pressure on the ECB, if it adds to the strength of Eurozone activity.

The BoJ will round out the busy week for central banks on Friday. Virtually nobody expects changes to the current policy. Given there won't be an Outlook Report, the central bank is likely to continue to focus on downside inflation risks while inflation and currency are among key catalysts for a policy change.

The one central bank that may be bucking the trend of racing to the top is the PBOC. Speculation that the Chinese central bank may cut its MLF rate by 5-10 basis points this Thursday already is increasing. In addition to the several structural challenges facing the Chinese economy, the latest inflation data hinted at a further deceleration of both consumer and producer prices. Rabobank's China strategist does not expect a cut in June quite yet, but it does have two rate cuts pencilled in for early Q3 and Q4; this has already contributed to CNY weakness. Indeed, the PBOC’s room to cut rates may be somewhat limited by the remaining upside potential for US policy rates, and the impact that further widening of rate differentials would have on the currency

Courtesy of DB, here is a day-by-day calendar of events

Monday June 12

Data: US May monthly budget statement, Japan May PPI, machine tool orders Central banks: ECB's Simkus speaks, BoE's Mann speaks
Earnings: Oracle

Tuesday June 13

Data: US May CPI, NFIB small business optimism, UK May jobless claims change, April average weekly earnings, ilo unemployment rate 3mths, Italy Q1 unemployment rate quarterly, Germany June ZEW survey, April current account balance, Eurozone June ZEW survey
Central banks: BoE Governor Bailey testifies to House of Lords, BoE's Greene testifies to Parliament

Wednesday June 14

Data: US May PPI, UK April trade balance, monthly GDP, manufacturing production, index of services, construction output, Germany May wholesale price index, Eurozone April industrial production
Central banks: Fed's decision

Thursday June 15

Data: US May retail sales, industrial production, capacity utilization, import and export price index, June Philadelphia Fed business outlook, Empire manufacturing index, April business inventories, initial jobless claims, China May industrial production, retail sales, property investment, new home prices, Japan May trade balance, April tertiary industry index, core machine orders, Italy April general government debt, Eurozone April trade balance, Canada May housing starts, existing home sales, April manufacturing sales
Central banks: ECB decision, ECB's Villeroy speaks, BoE's Cunliffe speaks
Earnings: Adobe, Kroger

Friday June 16

Data: US June University of Michigan survey, New York Fed services business activity, Italy April trade balance, Eurozone Q1 labour costs, Canada April wholesale trade sales
Central banks: BoJ's decision, BoE's inflation attitudes survey, ECB's Villeroy and Holzmann speak

* * *

Finally, looking at just the US, Goldman writes that the key economic data releases this week are the CPI report on Tuesday and the retail sales and Philly Fed manufacturing reports on Thursday. The June FOMC meeting is this week, with the release of the statement at 2:00 PM ET on Wednesday, followed by Chair Powell’s press conference at 2:30 PM.

Monday, June 12

There are no major economic data releases scheduled.

Tuesday, June 13

08:30 AM CPI (mom), May (GS +0.21%, consensus +0.2%, last +0.4%); Core CPI (mom), May (GS +0.44%, consensus +0.4%, last +0.4%); CPI (yoy), May (GS +4.19%, consensus +4.1%, last +4.9%); Core CPI (yoy), May (GS +5.32%, consensus +5.2%, last +5.5%): We estimate a 0.44% increase in May core CPI (mom sa), which would nonetheless lower the year-on-year rate by two tenths to 5.3%. Our forecast reflects a 3% increase in used car prices reflecting the auction-price strength in the spring, as well as large start-of-summer price increases for hotel and recreation categories. We also expect another gain in the car insurance category as carriers continue to offset higher repair and replacement costs. However, we look for a second straight decline in new car prices due to rebounding incentives. We also believe the March/April slowdown in shelter categories was genuine—reflecting a waning boost from post-pandemic lease renewals—and we look for additional slowing in May (we estimate +0.50% for both rent and OER). We estimate a 0.21% rise in headline CPI, reflecting higher food (+0.5%) and lower energy (-3.0%) prices.

Wednesday, June 14

08:30 AM PPI final demand, May (GS -0.1%, consensus -0.1%, last +0.2%); PPI ex-food and energy, May (GS +0.2%, consensus +0.2%, last +0.2%); PPI ex-food, energy, and trade, May (GS +0.2%, consensus +0.2%, last +0.2%): We estimate a 0.2% increase for PPI ex-food and energy and PPI ex-food, energy, and trade. We estimate that headline PPI declined 0.1% in May.
02:00 PM FOMC statement, June 13-14 meeting: As discussed in our FOMC preview, we expect the FOMC to pause at its June meeting next week before it considers another rate hike. The Fed leadership has signaled that it sees pausing as the prudent course because uncertainty about both the lagged effects of the rate hikes it has already delivered and the impact of tighter bank credit increases the risk of accidentally overtightening. Still, we expect the Summary of Economic Projections to show higher GDP growth (+0.6pp to 1%), a lower unemployment rate (-0.4pp to 4.1%), and high core PCE inflation (+0.2pp to 3.8%) in 2023, reflecting the stronger activity and labor market data and the firmer inflation numbers since the March SEP. We expect the median dot to show one additional hike to a new peak of 5.25-5.5%, in line with our own forecast. Our best guess is that 6 participants will project one more hike, 6 participants will project more than one, and 6 participants will project a flat path through the end of 2023.

Thursday, June 15

08:30 AM Retail sales, May (GS -0.6%, consensus -0.1%, last +0.4%); Retail sales ex-auto, May (GS -0.3%, consensus +0.1%, last +0.4%); Retail sales ex-auto & gas, May (GS -0.1%, consensus +0.3%, last +0.6%); Core retail sales, May (GS flat, consensus +0.2%, last +0.7%): We estimate core retail sales were unchanged in May (ex-autos, gasoline, and building materials; mom sa). Our forecast reflects mixed high-frequency consumer spending data, another month of flat-to-down grocery spending due to the expiration of pandemic food stamp benefits, and potentially unfavorable seasonal factors. We estimate a 0.6% drop in headline retail sales, reflecting lower auto sales and gasoline prices.
08:30 AM Initial jobless claims, week ended June 10 (GS 245k, consensus 250k, last 261k); Continuing jobless claims, week ended June 3 (consensus 1,787k, last 1,757k): We estimate initial jobless claims declined to 245k in the week ended June 10.
08:30 AM Philadelphia Fed manufacturing index, June (GS -10.4, consensus -13.0, last -10.4): We estimate that the Philadelphia Fed manufacturing index was unchanged at -10.4 in June, reflecting the lackluster rebound in East Asian trade and industrial activity.
08:30 AM Empire State manufacturing survey, June (consensus -15.1, last -31.8)
08:30 AM Import price index, May (consensus -0.6%, last +0.4%)
09:15 AM Industrial production, May (GS flat, consensus +0.1%, last +0.5%); Manufacturing production, May (GS +0.1%, consensus +0.2%, last +1.0%); Capacity utilization, May (GS 79.6%, consensus 79.7%, last 79.7%): We estimate industrial production was flat in May, as strong natural gas utilities and oil and gas extraction are offset by weak auto production and mining. We estimate capacity utilization edged down to 79.6%.

Friday, June 16

10:00 AM University of Michigan consumer sentiment, June preliminary (GS 60.0, consensus 60.0, last 59.2); University of Michigan 5–10-year inflation expectations, June preliminary (GS 3.0%, consensus 3.1%, last 3.1%): We estimate that the University of Michigan’s consumer sentiment index edged up to 60.0 in the preliminary June report. We expect that the report’s measure of long-term inflation expectations pulled back a tenth to 3.0%, reflecting lower gasoline prices and diminished uncertainty related to banking stress.

Source: DB, Goldman, BofA

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