Will Fed Speakers Hint at June Dots?
- By Macro Hive
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Key Events
G10
In the US, the main data releases are:
- PCE, personal income and spending – Friday. We see core PCE at +0.25% MoM vs +0.30% consensus. So a downside surprise is possible from rounding down. We expect the household savings rate stays around historical lows of 3.5%. A very low rate is a key driver of our positive growth and inflation views.
- Q1 GDP – Thursday. Consensus expects consumption growth revised down to 2.1% from 2.5%. This appears inconsistent with Walmart’s strong results and guidance. That said, 2.1% is still above trend.
In the Eurozone and UK, the main events will be:
- EZ Preliminary CPIs – Wednesday-Friday. Our bottom-up EZ inflation model forecasts a beat in headline (+2.6% vs +2.5%) but a miss in core (+2.6% v +2.8%). Both outturns would be 0.1pp above ECB forecasts and back Schnabel’s caution against moving too fast on rates.
Elsewhere in G10:
- ANZ Business Survey – Wednesday. Business costs increased, and services inflation expectations stalled in the last reading. The RBNZ will want this to discontinue.
- Australia CPI – Wednesday. The quarter’s first CPI reading will focus on goods. Asymmetry here is on beats. Markets will ignore misses and turn to the next month’s release, which is more services focused.
- KOF Indicator and GDP – Thursday. The KOF Indicator remains above 100 (representing expansion) and suggests strong Q1 GDP. Consensus expects the economy to have expanded +0.3% through the quarter.
EM
- South Africa general election – Wednesday. This should be the highlight in EM next week. Polls project the ANC will lose its majority for the first time since the end of apartheid, creating scope for tricky and lengthy coalition dynamics. Voter turnout will also matter (low turnout benefits ANC). Results are due from Thursday.
- China PMIs – Friday. We expect a stable read on Mfg PMI (upside risk on exports) and a holiday-driven boost to services PMI.
- Poland inflation to accelerate – Friday. Ongoing passthrough from the April hike in VAT on food alongside higher fuel prices and an unhelpful base effect will mean YoY CPI continues to rise in May, coming in near 3%.
- Brazil CPI – Tuesday. Headline could be a high print (we est. +0.5% MoM). Since BCB is concerned about underlying measures in last statement, we watch core services more closely. The sell-off in Brazil rates looks overdone.
- Mexico Quarterly Inflation – Wednesday. The report and press conference provide insight on detailed analysis of the monetary policy outlook. We expect inflation forecast to remain unchanged from the May meeting (4.6% in 2Q, and falling steadily to 4.0% in 4Q and 3.0% in 4Q25).
Central Banks in Action
- Pre-blackout Fedspeak – All Week. Of the seven speakers, watch Williams on Thursday. He might discuss R*, a concept Chair Powell finds irrelevant to real-time policymaking. If speakers hint at June dots, we expect a lean towards one 2024 cut. The Beige book is due – expect a very ‘beige’ economic picture, as usual.
- Bank of Israel on hold – Monday. Higher-than-expected April CPI at 2.8% YoY alongside heightened geopolitical tensions will mean rates remain firmly on hold at 4.5%. Policy easing is coming via fiscal rather than monetary policy.
- SARB on hold – Thursday. Near term, the election outcome is unlikely to affect SARB. Rand strength and lower inflation could soften the SARB’s hawkishness, but looser policy remains distant.
Markets to Watch
- Remain bearish AUD/NZD. The pair has moved in our favour since inception and now must challenge levels at 1.08. Upcoming labour market data, alongside the RBA, could help break the level.
- EUR/USD is nearing attractive levels to short as we think it remains rangebound with risk sentiment to turn soon. Moreover, we remain hawkish on the Fed.
- EUR/CHF is due a reprieve having registered a right-tail appreciation over the past several months. Parity is likely the ceiling.
- Watch for breakout in the rand! USD/ZAR briefly touched the bottom of its 1-yr trading range (18.0-19.5) on optimism that the worst-case coalition scenarios will be avoided. If ANC retains a majority, or enters coalition talks with DA, USD/ZAR could fall below this longstanding trading range.
(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.)