Macroeconomics: The Day Ahead for 10 June

Inflation data dominates the data schedule, with US CPI front and centre, accompanied by Norwegian (much lower than expected, casting some doubt on timing of first rate hike) and Swedish CPI, UK RICS House Price Balance (surging once again ahead of stamp duty cut end), South Africa’s Current Account and Mining Production, and US weekly jobless claims and Treasury Budget. The events schedule has the ECB policy meeting as its focal point and a speech by BoC’s Lane, in what will also be a very busy day for Agricultural and Energy S&D reports: China CASDE, US WASDE and Brazil Conab Grains and Soybeans, OPEC Oil Market and Malaysia Palm Oil Board. Talks to try and revive the Iran nuclear JCPOA agreement also resume. The govt bond auction schedule sees 3, 10 & 20-yr in Italy and US 30-yr. The other talking point will inevitably be a perhaps stretched interpretation of the US and China trade negotiator statement underlining that they will continue their dialogue to resolve differences, without obviously offering any signals on resolutions, given that Biden’s withdrawal of the Trump attempts to block downloads of TikTok and WeChat will be taken as a positive, despite the fact that there will be a fresh review of both.

** Eurozone – ECB council meeting **

– The ECB will doubtless stick to a resolutely dovish line, even if elements of their policy narratives continue to be contradictory due to the divisions between hawk and doves. A fresh set of quarterly forecasts is likely to see some modest upgrades to growth and unemployment forecasts, with CPI projected to be still some way off its ‘just below 2.0%’ target on a 3-yr time horizon, per se offering justification for their stance. But with hawks and doves again rather far apart, the question is whether it takes a leaf out of the BoE’s playbook, with a ‘technical’ move to ‘slightly’ or ‘modestly’ reduce its monthly PEPP purchase volumes modestly, predicated on lower summer issuance. But overall they will seek to reassure markets that they have no intention of withdrawing stimulus anytime soon, effectively echoing the Fed.

** U.S.A. – May CPI; Weekly Jobless Claims **

– CPI will need to be no worse than the expected 0.4% m/m on headline and 0.5% m/m on core, which would bump y/y rates up to 4.7% headline and 3.5% core. It will be the details that matter with Used Auto Prices likely to ease if the Manheim Index is any guide (4.6% m/m vs. April 8.3%, also see y/y chart), with other re-opening pressures likely to be evident in car rentals, airfares, hotels – all of which are assumed to be very much transitory phenomena. But it will be the Shelter component which rose 0.4% m/m in April which a careful eye will be kept on, and there should also be some offset to re-opening pressures from a seasonally adjusted fall in gasoline prices, while any impact from either the Colonial pipeline or JBS ransomware attacks are more likely to be seen in the June CPI report. The range of forecasts is quite large (headline 0.2%-1.0% m/m, core 0.2%-1.2% m/m), implying considerable scope for another sizeable outlier. That said a quick look at the attached charts of US 5yr breakeven rates and core CPI and indeed the downtrend in US 10-yr nominal yields does suggest that markets are giving the Fed the benefit of the doubt on its inflation narrative, even if both are being distorted by collateral shortages in US money markets. As for weekly jobless claims a modest 15k fall to 370K will extend the run of drops, which have averaged 31K over the past month and suggesting scope for another better than expected outturn, particularly as the termination of extended benefits and the huge volume of Job Openings should help to improve the trend this week and over coming months. That said last week’s unexpected 169k jump in Continued Claims to 3.771 Mln leaves some doubt, even if the rise has been put down to adverse seasonal adjustment, and is expected to be largely reversed with a drop to 3.650 Mln.