Macroeconomics: The Day Ahead for 27 June

As quarter end looms, there is a busy run of data and events. Statistically there are Japan’s Retail Sales, China’s Industrial Profits and Australian Consumer Inflation Expectations to digest ahead of Eurozone and Italian confidence surveys, Eurozone M3, and in the US: Durable Goods, final Q1 GDP, Goods Trade Balance, weekly jobless claims and KC Fed Manufacturing. There are rate decisions in Czechia, Mexico, Sweden and Turkey, a smattering of central bank speakers, the BoE’s Financial Stability Report and minutes of its latest FPC meeting, and an EU leaders’ summit that stands under the cloud of the French election, but which will likely see von der Leyen confirmed for a second term as EC president. The French election has scuppered plans to discuss joint EU bond issuance to bolster defence spending at this summit, these had been typically and stubbornly resisted by Germany. Given the rising concerns about US federal debt levels, there will also be interest in the IMF press conference following the conclusion of its Article IV consultation on US economy, and tonight also brings the first Biden Trump televised Presidential debate. Nike and Walgreens Boots Alliance head the run of corporate earnings, there are auctions in Italy (5 & 10-yr) and the US (7-yr).

** Central bank rate decisions **

– Sweden’s Riksbank is expected to hold rates at 3.75%, erring on the side of caution, in part predicated by a ‘high for longer’ Fed and ECB caution on its rate trajectory, as well as higher than expected core CPIF ex-energy (May 3.0% y/y vs. expected 2.6%). It will likely keep its rate trajectory unchanged, signalling two further 25 bps rate cuts this year, and anticipate that CPIF is set to head down to and remain at or target in H2 2024. Turkey’s TCMB is seen on hold at 50.0%, with May’s expected peak in CPI at 75.45% y/y proving to be a little higher than anticipated, even if core CPI slipped to 75.0% y/y from 75.8%, but it will be concerned that USD strength on the back of the Fed’s hawkish stance may hamper the anticipated sharp fall in inflation in H2. It will nevertheless continue to use other instruments to tighten policy (reserve requirements, credit growth and de-dollarization measures). Banco de Mexico is seen holding rates at 11.0% for a second month, with the tumble in the MXN, uncertainty about constitutional reforms following the elections and inflation still well above its target of 3.0% (plus/minus 1.0%) at 4.6% y/y, but some emergent weakness in activity indicators make for a challenging outlook, though it will likely stick with a cautious easing bias, contingent on incoming data.

** U.S.A. – Durable Goods, Trade Balance, Q1 final GDP **

– GDP is seen revised fractionally higher to 1.4% from 1.3%, but this is now very historical and clearly not material to the Fed rate outlook. Durable Goods Orders are forecast to edge down -0.2% m/m, predicated on a slip in Boeing Orders, while core measures are expected to post marginal gains of 0.2% m/m ex-transport and 0.1% m/m on Non-defence Capital Goods ex-Aircraft, with perhaps some downside risks given the very weak ISM Orders (45.4 vs. 49.1. The Goods Trade deficit is expected to narrow slightly to $-96.0 Bln from April’s $97.95 Bln, but remains on course to be a sizeable drag on Q2 GDP. Meanwhile weekly jobless claims are expected to ease very fractionally to 235K, and as such confirm that the loosening of labour market conditions is still proceeding at a very slow pace, and per se not offering the sort of counter to the Fed’s inflation concerns that would have them put more focus on their employment mandate.