The Week Ahead
This week kicked-off with China's May economic data, which showed a mixed picture with retail sales beating expectations at 3.7%yoy growth, driven by stronger urban and rural consumption, while industrial output and fixed asset investment missed forecasts, dragged down by a steeper real estate investment decline. The PBoC also held the one-year medium term lending facility at 2.5%, against some expectations for a cut, possibly to maintain currency stability.
Later today we have the US Empire manufacturing print. Eurozone CPI and US retail sales, business inventories and industrial production figures are due on Tuesday. UK CPI will attract attention on Wednesday, and the US is shut for the Juneteenth holiday. The BoE is expected to hold rates on Thursday. The prelim, June S&P Global PMIs could be of interest on Friday and then we have the US Conf. Board leading index.
Central bank chatter includes the ECB’s Lane and Klaas, and the Fed’s Harker discusses economic outlook today. The ECB’s Cipollone, Guindos, Villeroy de Galhau speak on Tuesday, and we’ll hear from the Fed’s Barkin, Logan, Kugler, Musalem, and Goolsbee at separate events. The Fed’s Barkin discusses the economic outlook on Friday.
There was quite a bit for markets to digest last week, with the softer-than-expected US CPI and PPI prints. Although the dis-inflation trend appears to have resumed, Fed policymakers stressed the need for more evidence of downward momentum before commencing their easing cycle, as such the Fed held rates. The central banks’ quarterly growth and inflation projections were marginally unchanged. The dot plot, however, showed a median forecast on one rate cut this year (from three in March) and four next year (up from three). While leaving the door open to an earlier cut if inflation keeps declining, the Fed appears willing to move cautiously given the uncertain inflation outlook and resilient economic conditions. The week ended with the prelim. US consumer sentiment reading which unexpectedly fell to a seven-month low, while the measure of buying conditions fell to its lowest level since December 2022, with consumer expectations also tumbling to the lowest reading this year. The 1-year inflation forecast stuck at 3.3%, while the 5-10 year inflation projection ticked-up to 3.1% in June.
A positive week across US markets saw stocks strengthen, the S&P charged to new all-time highs, rising 1.58% last week. Meanwhile, USTs enjoyed a rally, the 10-year benchmark fell 21bps to 4.22%. Dollar suffered a wobble following the miss on the CPI prints, however, charged to fresh month highs at the end of the week; the DXY Index gained 0.63%. Oil was underpinned by geopolitical tensions; Brent closed the week 3.77% higher at $82.62pb.
Elsewhere, political developments in France saw the nation’s markets come under pressure last week. The ECB stated it sees no cause for alarm despite some contagion of market turbulence, for example in Italy; we’ll be keeping a close eye this week. Regional sentiment was further dented when MSCI announced it will not, currently, add European Union bonds to its government bond indexes, denting EU efforts to attract a broader investor base for its debt. Despite some investors backing the inclusion of EU securities in sovereign indexes, which the bloc argues would lower its borrowing costs relative to individual member states, MSCI cited a "bifurcation of opinion" among investors on the matter. The index provider said it will re-evaluate the eligibility criteria for adding EU debt in the second quarter of 2025, leaving open the possibility of future reclassification from its current supranational issuer status, though the concept of treating the EU as a sovereign remains controversial given debates around joint debt issuance.
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