Macroeconomics: The Day Ahead for 27 June

As many Islamic countries start to close for the Eid Al-Adha holidays, there is a much busier agenda of both data and events, the latter above all dominated by an array of G7 central bank speakers at the ECB’s Sintra Forum on Central Banking. Statistically there is the UK BRC Shop Price Index to digest (easing again somewhat, but still very high), while ahead lie Italy’s Manufacturing & Consumer Confidence, Brazil’s IPCA-15 Inflation and Canadian CPI, which accompany a slew of US indicators: Durable Goods Orders, CS CoreLogic & FHFA House Prices, New Home Sales, as well as Consumer Confidence, Richmond and Dallas Fed surveys. A busy day for govt debt supply has Italian 2-yr & I-L 16-yr, Dutch 31-yr, UK I-L 10-yr and US 5-yr. There will also be rather more attention given to the level of participation at today’s ECB Main Refinancing Operation, which is typically less than EUR 1.0 Bln, but rises to a 1.0-2.0 Bln range at TLTRO repayments, given that tomorrow sees the expiry (repayment) of around EUR 500 Bln of TLTRO borrowing.

** Canada – May CPI **

As with so much of this week’s inflation data, headline CPI is expected to post a sharp fall to 3.4% from 4.4% y/y, but core measures are expected to remain rather ‘sticky’, though both Median and Trimmed Mean are forecast to fall to 4.0% from 4.2% y/y. Those core readings would probably still have the BoC reiterating the concerns seen in the June minutes: “All members felt that a broad range of indicators had increased their concern that the disinflationary momentum needed to bring inflation back to the 2% target could be waning”. Markets continue to discount one further 25 bps rate hike to 5.0% in September, and core CPI will need to undershoot this month, and fall further in July to stay the BoC’s hand.

** U.S.A. – Durable Goods Orders, Consumer Confidence, House Prices & New Home Sales **

It is debatable whether any of today’s data will materially change the outlook for the US economy or Fed policy, but they are expected to suggest that while the economy does not have a lot of momentum, there is not no immediate threat of recession. Thus while defence aircraft orders are seen weighing on headline Durable Goods with a 0.9% m/m fall, core orders are seen up 0.2% m/m, and this follows a much stronger than expected 1.3% ex-Transport in April and 0.5% on the core CapEx Proxy. Likewise, Consumer Confidence is seen edging back up to 103.7 from April’s 102.3, very much range bound in recent months, though a close eye needs to be kept on the Labour Differential (Jobs Plentiful minus Hard to Get), which slid to a 2-yr low of 31.0 in May, but this would still be not far off the pre-pandemic peak (see chart). Both FHFA & CS CoreLogic House Prices are seen rising in m/m terms (0.5% and 0.35% respectively), though with base effects remaining strong, this would see y/y rates continuing to fall. Last but not least, New Home Sales are forecast to fall 3.0% m/m, but this would amount to no more than a correction to two consecutive m/m gains of 4.0% plus. Supply remains plentiful at 7.6 months, but substantially lower than November’s 9.4 months, and clearly seeing some benefit from low Existing Home Inventories.