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Key Events
G10
In the US, the most important data is:
- CPI – Thursday. Consensus expects core MoM CPI to remain at 0.2%. But as always, the services-good breakdown will be key to the inflation outlook.
- PPI – Friday. Together with the CPI, the PPI will give an estimate of PCE (the more important inflation indicator for the Fed).
In the Eurozone and UK, it is a light data week:
- Final National EZ CPI – German (Thursday), France and Spain (Friday). Prelims showed services inflation momentum remained strong, but did wage-intensive sectors drive this? We expect momentum there will peak soon across EZ.
- May UK Monthly GDP – Thursday. Expectations are for rise in MoM growth, led by a growth in services and a tick back up in manufacturing production.
Elsewhere in G10:
- Japan Wage Data – Monday. Pay attention to the same sample data for wage growth above 2%. Are above-inflation wage hikes for union workers boosting overall wage growth?
- Australia NAB Business Survey – Tuesday. We continue to watch the forward orders component for signs of further demand contraction. Prices will be important, too.
EM
- Hungary inflation to stall – Tuesday. Helpful base effects should mean a temporary halt to rising inflation.
- Mexico inflation to remain high – Tuesday. CPI likely accelerated to 4.8% YoY, above target of 3% +/- 1%. Core inflation should stay around 4.2%, but the key focus for Banxico is core services, which was 5.2% YoY in May.
- China CPI to remain low – Wednesday. CPI is likely to remain close to zero and PPI negative for the 21st consecutive month.
- Brazil inflation boosted by base effects – Wednesday. Base effects will push headline YoY over 4.3% as food price base effects leave the calculation. Watch non-regulated tradables, which have led disinflation and will be most sensitive to recent depreciation of BRL.
- Czechia disinflation to continue – Wednesday. June CPI is expected to ease closer to the CNB’s target with softer fuel prices helping.
- China trade data – Friday. Export growth should improve. Container throughput at Chinese ports reached record high in June.
Central Banks in Action
- Fed – Tuesday/Wednesday. Powell will deliver the Humphrey Hawkins testimony to Congress. I expect him to acknowledge the recent progress on disinflation and stress the Fed needs a macro context supportive of disinflation before cutting.
- Fed – Thursday. St Louis Fed president Musalem is speaking. Musalem is fast emerging as one of the deeper economic thinkers on the FOMC. We will pay close attention to his testimony.
- BoE – Monday, Wednesday. After the election blackout, hawkish external members Haskel, Mann and Chief Econ. Pill speak. With the August meeting fast approaching, strong indications of stance are possible. If wage-intensive services inflation kept normalising in July, we think they can cut in August. If so, Pill could lay the groundwork.
- RBNZ – We still see RBNZ cuts as overpriced. This meeting should see them in watch-and-wait mode as they await better inflation data. Expect them to address dovish survey data, but pin that back with their hawkish inflation take.
- MAS – Thursday. The MAS will likely keep band/slope/width unchanged. However, with core inflation tracking MAS forecasts, risk grows of MAS reducing the slope at the October meeting. Next week’s statement will see no explicit guidance, but benign commentary on inflation momentum would give us a clue.
- BoK – Thursday. The BoK will likely stay on hold at 3.5%, but market focus is on cuts in Q4, possibly as early as the 22 August meeting. BoK is becoming more confident about the inflation outlook (forecast unchanged at May meeting despite upgrade to growth) and the June CPI was a sizable miss. Concern about weak KRW may keep BoK on hold for longer, but we think on balance the risks are 60/40 for a cut in August.
- BNM – Thursday. BNM is likely to hold rates at 3%. BNM is likely to look through the uptick in inflation as it is due to subsidies being cut, and the ringgit has been trading in line with regional peers.
Markets to Watch
- EGBs – we took profit on our short OAT trades immediately following the first round of the French election. But we remain bearish French bonds and watch for opportunities for spread widening.
- GBP/CAD – The pound has strengthened following Labour’s landslide victory. However, we do not see it lasting and give five reasons to trade our bearish GBP/CAD bias.