Key Events: Will the Fed Keep Its Easing Bias?

Key Events

G10

In the US, the key data is:

1. CPI – Wednesday. Consensus is 0.3% MoM for core, unchanged from April. To gain confidence disinflation will restart soon, the Fed needs a lower trend in OER and supercore inflation, with lower median price and trimmed mean inflation (better indicators of trend than core). I expect none of these.
2. U Mich consumer survey – Friday. The Fed is closely watching survey- and market-based measures of inflation expectations. U Mich short- and long-term inflation expectations have been rising. A further rise this month would reduce the likelihood of 2024 rate cuts.

In the Eurozone and UK, the main events will be:

1. UK wage growth, unemployment – Tuesday. Wage growth will reveal the effect of minimum wage rises. There is suggestion of front-loading, which could lessen the April effect. Watch the pay rise details to see which sectors are leading or lagging, as the BoE will be most focused on consumer-facing services sectors.
2. Final EZ national inflation prints – Wednesday onwards. The preliminary May outturns showed services momentum remained strong. The composition of this rise is important, especially if it is the more wage-intensive services sectors such as catering/accommodation.

Elsewhere in G10:

1. Australia Labour Force Survey – Thursday. Consensus expects unemployment to decline 0.1pp to 4.0% after a summer-unwind-associated rise to 4.1% in April. We think this is fair as May tends to unwind some of the April weakness.

EM

1. China Aggregate Financing Data (date unknown), inflation Tuesday. Total Financing should pick up on payback for last month weakness and seasonality.
2. Hungary CPI moving higher – Monday. A difficult base and still-sticky services means CPI is heading back over 4% this month.
3. Czechia inflation to ease – Tuesday. The overshoot on April CPI leaves upside risks for May. Base effects are more helpful, but inflation will remain above target.
4. India CPI and trade – Wednesday. We use the trade data as an input into our high-frequency proxy for basic balance, which is currently tracking for a small surplus in Q2. CPI likely to hold steady around 4.8% YoY with food the main driver. Core disinflation has probably peaked.

Central Banks in Action

1. Fed – Wednesday. I expect the Fed to keep its easing bias but the dots to show only one 2024 cut, against three 2024 cuts in the March dot plot.
2. Bank of Thailand – Wednesday. BoT is likely to stay on hold at 2.5%. CPI is set to return to the 1-3% target as the impact of fuel-price cuts fades.
3. Bank of Japan – Friday. We expect the BoJ to stay on hold. Their narrative remains broadly unchanged, but watch for a reduction in JGB purchases to 5tr yen per month.

Markets to Watch

• EUR/CHF downside risks remain despite a bullish underlying regime.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)