Snapshot of the week ahead: Highlights include PMI, BoE and US durable goods
MON: PBoC LPR Announcement
MAR: United States (June);
SEA: PMI Markit Flash from EZ, UK and US (June); Canadian (April); CNB and Thailand Policy Decisions, SNB Quarterly Bulletin (T2)
GAME: Policy decision; German (June); US (May) and final PCE prices (Q1); New Zealand (May); Policy decisions, CBRT minutes (June), Canadian provincial holiday (Saint-Jean-Baptiste), European Council meeting (1/2)
FRI: United States (May); Final (June); BoE Bulletin Q2, Meeting of the European Council (2/2)
NOTE: Previews are listed in the agenda
LPR PBOC OVERVIEW (LUN): The PBoC is expected to maintain its benchmark lending rates for a 14th consecutive month, with the prime rate on 1-year loans to be maintained at 3.85% and the prime rate on 5-year loans at 4.65%. Expectations that the central bank would keep rates unchanged were supported by the latest data from China which, despite missing expectations, showed solid year-on-year growth with industrial production for the last month at 8.8% vs. Exp. . 9.0%, Retail sales at 12.4% vs. Exp. 13.6% and Exports at 27.9% vs Exp. 32.1%, driven by strong external demand and persistent base effects, suggesting that a rate adjustment is currently unjustified. PBoC actions also indicate that the central bank is comfortable with the current status quo, as it has kept daily reverse repo operations at a meager CNY 10 billion since March, which is considered the bank central taking a cautious stance, while maintaining the 1-rate on the medium-term lending facility earlier this week, further suggesting the improbability of any change in its benchmark rate given that the central bank had already lowered the MLF rate before the last three occasions when it reduced the loan prime rate.
EZ FLASH MARKIT PMI (MER) Expectations are that the eurozone-wide impression will drop from 63.1 to 62.5, with the metric dropping from 55.2 to 57.5, leaving the composite reading at 58.9 from 57.1 previously. . The May report was characterized by a notable increase in the services PMI as countries in the region rolled back lockdowns. This time around, further easing of the lockdown is expected to support the services print, albeit to a lesser extent than last month. On the manufacturing front, activity is expected to remain strong despite some of the bottlenecks facing global supply chains. The next report will be judged on how it reflects the dynamics of the eurozone economy as it continues to reopen. From a political perspective, however, this is unlikely to have too much influence on the events in Frankfurt, as policymakers are more concerned with inflationary pressures in the region. Currently, the 2.0% year-on-year headline CPI is “on target” for the ECB, however, this has been largely attributed to transient factors. With this in mind, more attention will be paid next week to the fallout from the ECB’s downturn, which will see policymakers debate the findings of its strategic review, a key aspect of which will be any changes to the Bank’s current mandate in terms of inflation.
FLASH MARKIT PMI UNITED KINGDOM (SEA): Expectations expect the metric to rise to 63.0 from 62.9, to slide to 64.0 from 65.6, leaving the value at 63.0 from 62.9 previously. Ahead of the publication, analysts at Oxford Economics note that “high-frequency indicators of credit and debit card use and spending improved in late May and early June, which bodes well for the flash services PMI.” However, the consulting firm warns that given the importance of sentiment to the report, it is possible that some of the optimism about reading the services was tempered by the plans’ four-week delay. reopening of the United Kingdom on June 21. That said, readings are likely to remain high given that the bulk of the government’s reopening agenda has already passed. Note that the post may step back further than it would otherwise, given that the BoE’s policy announcement is the next day.
RETAIL SALES IN CANADA (SEA): Currently there is no consensus for the April reading next Wednesday although StatsCan’s flash estimate looks for -5.1% M / M which would see a complete removal of the March hike of 3 , 6%; ex-autos rose 4.3% in March. Analysts at Canadian bank RBC also expect a drop of a similar magnitude and expect StatsCan’s estimate for May to show another drop between -3% and -4% M / M in the middle lower sales indications due to the extended foreclosure restrictions in May. However, in the run-up to the June print, the bureau suggests there should be a sharp economic rebound for Canada amid reopening thanks to a strong vaccination process that has seen over 70% of the population. 12 years of age and over receive at least one dose.
BOE POLICY ANNOUNCEMENT (GAME): After making a technical adjustment to the parameters of its quantitative easing program which saw weekly bond purchases slow to a pace of £ 3.441bn from £ 4.44bn, policy settings should remain unchanged at the next meeting. As such, the base rate is expected to be kept at 0.1% and the APF at £ 895 billion. The decision on the latter could be subject to hawkish dissent again from Chief Economist Haldane, however, given that he is leaving the Bank at the end of the month, it will be of little consequence to the markets. unless he is joined by other members of the MPC; something that is unlikely. Since the previous meeting, the overall Y / Y CPI has exceeded the target at 2.1%; a result which was telegraphed by the Bank at the previous meeting and attributed to transitory factors. April’s 2.3% M / M GDP marked the fastest monthly growth rate since July 2020 with the reopening of the UK economy. More recent survey data for May saw the composite reading at 62.0, which was the fastest rate of expansion since the record began in 1998. In the labor market, the unemployment rate sits at 4.7% with employment growth of 197,000 in May, according to flash estimates. As such, the UK economy is on solid footing as foreclosure measures have been reduced. On this front, policymakers will likely recognize the four-week delay to June 21 “Freedom Day,” however, the impact on the economy will likely be insignificant. The MPC’s rhetoric has been the most frank of those who have left the bank with Haldane suggesting that the BoE should be ready to cut stimulus and Vlieghe noting that if the transition to the leave exit occurs more smoothly, a a bit earlier rate hike would be appropriate. In recent testimony, Governor Bailey said he was happy with the current political parameters and as such the next meeting would likely go without fanfare. Longer term, Rabobank expects the pace of gilt buying to slow down again at the August meeting as the MPC “tracks its course and tries to create a soft landing at the end of the year” .
AMERICAN SUSTAINABLE GOODS (THU.): The overall figure is expected to rise 2.1% for May, more than offsetting the 1.3% drop seen in April (the first in 11 months), with current forecasts ranging between 0.5% and 3.0% , according to Refinitiv. The ex-transport is expected to slow to 0.5% from 1.0% in April, with analysts’ forecasts ranging between 0.1% and 0.7%. Analysts at Credit Suisse (SIX 🙂 point out that Boeing (NYSE 🙂 posted a decent recovery in orders for May, from 25 to 72, while auto production saw a sizable gain of 6.6% after recent declines, and the office writes that these two factors should contribute to both strong orders and shipments. Credit Suisse also points out that new orders from manufacturing surveys remain near cycle highs and that manufacturers are optimistic about demand. The bureau writes “Despite continued supply bottlenecks and an expected slowdown in demand for goods, a reopening of the service economy and demand for business investment should help support spending on goods. ‘equipment”.
BANXICO POLICY ANNOUNCEMENT (GAME): There is currently no consensus in the media on what the Mexican Central Bank might choose to do, although some bureaus have looked at an unchanged key rate. At the previous meeting, the Bank maintained the overnight rate at 4.00%, as expected. In its latest quarterly report on the inflation outlook, the central bank expressed concern about the pressures on prices and added that “in a very uncertain environment, the risks to inflation, economic activity and financial conditions pose challenges to monetary policy. However, analysts at Credit Suisse expect the key rate to be maintained over the next few quarters as Banxico’s forecasts point to a data-dependent approach.