Markets often move on themes and these increase or decrease in importance over time. Inflation is a longstanding one, with welcome disinflation rearing its head again, though the pace of falling prices – that last mile to get to most central bank’s target – has been bumpy. There is now hope that US CPI is on a downtrend, while the Fed’s favoured inflation gauge, core PCE, may print with a one handle (+0.1) after the recent PPI data surprised to the downside.

It was interesting to us that the cooler CPI data initially trumped the more hawkish dot plot change by the FOMC last week. Overall, the updated projections continue to signal nine cuts by the end of 2026, unchanged from the March update, albeit cuts that have been postponed. No doubt, the latter we think can change if the data becomes a trend.

Perhaps more important in the coming week will be the European political scene with uncertainty on the rise in France and Germany. This hit European stocks and the euro last week with equities suffering their biggest weekly loss of the year. The single currency saw its largest Friday-to-Friday drop versus the dollar in two months. In the short term, we will be watching this theme. Politics is sometimes tough to trade, but the potential chaos may vie with softer US data and yields when trading EUR/USD. We will also be watching EUR/CHF which is the usual FX pair for hedging European political risk.

Two central bank meetings will keep rates steady, and they could highlight the possible re-emerging theme of divergent central banks. The RBA is likely to remain vigilant on inflation, with a rate hike not out of the question in the coming months. The Bank of England requires more confidence on services inflation being less sticky before it contemplates any policy easing.

In Brief: major data releases of the week

Monday,17 June 2024

– China Activity Data: Consensus expects retail sales to print at 3.0% while industrial production and   fixed asset investment are seen at 6.3% and 4.2% respectively. Weak sentiment persists though favourable base effects should help.

Tuesday, 18 June 2024

–  RBA Meeting: Rates are widely expected to be left on hold at 4.35%. Inflation has risen in a broad-based fashion recently and the latest jobs data suggested the labour market remains relatively tight. But wage growth may have peaked, and GDP has slowed. 

–  US Retail Sales: The headline print is predicted to rise +0.3% m/m in May, helped by high-income households who continue to spend. But higher borrowing costs may cause more cautious discretionary spending going forward.

Wednesday, 19 June 2024

–  UK CPI: Headline inflation is expected to hit the Bank of England’s mandate of 2% from 2.3% in April. The core reading previously printed at 3.9% from 4.2%, while services inflation, which is a key measure for the BoE, remained sticky at 5.9%. This is likely to stay relatively elevated.

Thursday, 20 June 2024

– Bank of England: There is only around a 10% chance of the MPC cutting rates at this meeting. The vote could be interesting, after the 7-2 split last time as Ramsden joined Dhingra in voting for a 25pbs move. Services inflation is the focus for the MPC, while wages remain sticky. GBP/USD traded close to recent lows on Friday where sterling has found support since late May. A daily close below 1.2675 looks bearish.

Friday, 14 June 2024

– Japan CPI: Inflation is forecast to rebound to 3% from 2.5% in April. The weaker yen will help, plus there was a utility fee hike recently.

– Eurozone PMIs: The composite PMI has been above 50 for three straight months. This is predicted to continue as manufacturing continues to bottom out and services momentum continues. The German composite rose to a one-year high in May. EUR/USD dipped sharply below 1.07 before paring losses on Friday. Retracement support sits at 1.0675, with 1.06 under this.

– UK Retail Sales: Activity is predicted to bounce back after the weather-hit figures in April. Falling energy bills contrast with higher mortgage payments. It is hoped the Euros and Olympics will boost confidence.

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