Fresh CPI data will be the key focal point for markets this week after the recent slew of central bank meetings. It seems like policymakers have entered the next, new phase of tightening to stamp on inflationary pressures once and for all. Even though we have seen the top in prices in most countries and sectors, it is proving more difficult to push core inflation closer to most banker’s targets around 2%.

No real slowdown is forecast in the Fed’s favoured measure of inflation, the core personal expenditure deflator. That means bets for a July hike by the FOMC may strengthen a touch, especially as we get more Fedspeak on the wires. Markets currently price in only around a 72% chance of a 25bp hike next month, taking rates to between 5.5-5.75%. This stands in contrast to the FOMC’s recent new dot plot which forecast two more rate hikes.

The dollar rebounded last week but the longer run risks for USD still appear tilted to the downside, with the peak in the Fed cycle close and the global rate cycle showing signs of maturing. This could help support risky assets even though some of the recent gains were given up late last week. The gold breakdown last week will for a softer greenback driven by a pull back in yields.

Eurozone markets will be closely followed with the release of individual country inflation data before we get the region’s June CPI flash estimate on Friday. The market eyes another drop in the headline while within the core, services inflation will grab the spotlight again due to some upside risks for the months ahead. Markets have tempered ECB expectations due to flagging recent data like Friday’s disappointing PMIs, but policy makers are still keen on delivering more rate hikes in July at least. Weaker growth may eventually break core inflation pressures and weigh on the euro though the 50-day simple moving average at 1.0875 acted as support on Friday.

Midweek, central bank heads gather for the annual pow-wow in Sintra, Portugal organised by the ECB. This could be an opportunity for them to spell out their current reaction function and has historically seen some big announcements, by the ECB President at least. Most policymakers profess to be data dependent now so any hints on how much more work has to be done will drive price action as we head into the summer months.

Major risk events of the week

26 June 2023, Monday

–IFO German Business Survey: Consensus expects another decline to 90.5 from 91.7. Sentiment deteriorated in May after surging for six straight months mainly due to a sharp drop in future expectations. Manufacturing posted the biggest decrease since March 2022 and export expectations have fallen as interest rates appear to dampen demand.

27 June 2023, Tuesday

–US Durable Goods: The market median is for a fall to -1.0% from April’s 1.1%. Higher interest rates are raising costs for businesses making the outlook for spending on equipment uncertain. Weaker sentiment and the tightening of credit by banks is also likely to make it harder to undertake capex projects.

28 June 2023, Wednesday

–ECB Forum, Sintra This year’s theme is “Macroeconomic stabilisation in a volatile environment”. Key highlights include ECB President Lagarde’s speech on Tuesday and Wednesday’s policy panel featuring Fed Chair Powell, BoE Governor Bailey, and BoJ Governor Ueda. The introductory speech has previously seen significant policy announcements. But this seems unlikely as Lagarde recently insisted the ECB is data dependent.

-Canada CPI: Expectations are for annual inflation to fall to 3.4%y/y from 4.4% in April and 0.5% m/m from 0.7%. A seasonal increase in food and upward pressure on mortgage costs underpin inflationary pressures. The small moderation is not likely to prevent another 25bps rate hike by the Bank of Canada in July.

30 June 2023, Friday

-Eurozone CPI: Analysts forecast the June headline falling to 5.6% from 6.1% in May. The core is seen unchanged at 5.3%. Lower energy prices and base effects will push the headline print down. Services inflation due to the tourism boom will keep the core elevated.

-US Core PCE: The deflator is the Fed’s favoured measure of inflation. The headline rate is predicted to fall, but consensus sees both the monthly and annual core prints remaining unchanged at 0.4% and 4.7%. Stickier core readings could further validate the Fed’s hawkish “two more hikes” stance. Markets are not on board yet so this would bolster the dollar and push gold lower.

-Canada GDP: Growth is forecast to rise by 0.2% m/m and 1.9% y/y. These prints are both two-tenths higher than the prior readings. HSBC says the main contributors are mining and oil and gas extraction. Home sales also rose 11.3% m/m in April. The BoC is expected to hike rates next month. USD/CAD fell to nine-month lows last week and the underlying bear trend momentum still looks to be in play. Strong resistance sits at the early February low at 1.3262.