UPCOMING EVENTS:

• Tuesday: UK
  Labour Market report, US NFIB Small Business Optimism Index.
• Wednesday: Japan
  PPI, China CPI, UK GDP, US CPI, FOMC Policy Decision.
• Thursday:
  Australia Labour Market report, Swiss PPI, Eurozone Industrial Production,
  US PPI, US Jobless Claims.
• Friday: New
  Zealand Manufacturing PMI, BoJ Policy Decision, US University of Michigan
  Consumer Sentiment.

Tuesday

The UK unemployment rate is expected to hold
steady at 4.3%. The wage growth figures are also seen unchanged with the
average earnings including bonus at 5.7% and the average earnings excluding
bonus at 6.0%.

Last
month, the data showed another uptick in
the unemployment rate and job losses, but wages surprised to the upside. The
BoE is more focused on the inflation data at the moment, so barring big
surprises, the data is unlikely to change much for the central bank. The market
sees 30 bps of easing by year end.

Wednesday

The US CPI Y/Y is expected at 3.4% vs.
3.4% prior, while the M/M measure is seen at 0.2% vs. 0.3% prior. The Core CPI
Y/Y is expected at 3.5% vs. 3.6% prior, while the M/M figures is seen at 0.3%
vs. 0.3% prior.

This is going to be a big market
moving release since it comes on the same day of the FOMC decision, and it will
influence their views (they will get to see
the report a day earlier). It looks like this one is going to have a pretty
binary outcome with higher-than-expected figures triggering a hawkish reaction
and lower-than-expected readings leading to a more dovish repricing.

As a reminder, the market got a bit uneasy
last Friday as we got a hot NFP
report where the wage growth surprised to
the upside and the unemployment rate ticked higher to 4% (3.96% unrounded) setting
a new cycle high. The market’s pricing got back to expect just one rate cut by
the end of the year as we continue to jump between one and two.

The Fed is expected to keep interest rates
unchanged at 5.25-5.50% with minimal (if any) change to the statement. The
focus will be on the Summary of Economic Projections (SEP) and the Dot Plot. I
see the Fed projecting two rate cuts for this year to bring it in line with
market’s expectations.

This way it wouldn’t be seen neither
dovish nor hawkish. Of course, if we see a deviation from this baseline, the
market’s reaction will be dovish in case they project three cuts and hawkish in
case they pencil just one cut.

The focus will then move on to Powell’s
Press Conference where he will likely keep a neutral tone as the Fed continues
to see inflation moving back to target but at a slower pace than expected.

These views are based on the current
state of things and since we have the US CPI report on the same day of the FOMC
decision, they might change. In fact, if we get hot
CPI figures, the market’s pricing will likely change to show just one cut for
this year (or even none).

Therefore, the Dot Plot will have a
different impact on the market with two cuts being seen as more dovish and no
cuts as hawkish. A hot CPI report will likely have a greater impact compared to
a cold one.

Conversely, if we get cold or in line
figures, the original views should still hold although the market might react
before the Fed’s decision as the risk-on sentiment will likely return.

Thursday

The Australian Labour Market report is
expected to show 39K jobs added in May vs. 38.5K in April and the unemployment
rate to tick lower to 4.0% vs. 4.1% prior. The data is unlikely to change
anything for the RBA which is seen on hold well into 2025. We will need a huge
surprise to trigger a repricing in interest rate expectations, otherwise the
focus will remain on the inflation figures.

The US PPI Y/Y is expected at 2.2% vs.
2.2% prior, while the M/M measure is seen at 0.2% vs. 0.5% prior. The Core PPI
Y/Y is expected at 2.3% vs. 2.4% prior, while the M/M figures is seen at 0.2%
vs. 0.5% prior. I don’t expect this data to influence the
market much given that the sentiment will be set by the CPI and FOMC the day
before.

The US Jobless Claims
continue to be one of the most important releases to follow every week as it’s
a timelier indicator on the state of the labour market. Initial Claims keep on hovering around
cycle lows, while Continuing Claims remain firm around the 1800K level.

This has led to a weaker
and weaker market reaction as participants become used to these numbers. This
week Initial Claims are expected at 227K vs. 229K prior, while there’s no consensus at the
time of writing for Continuing Claims although the prior release showed an
increase to 1792K vs. 1790K previously.

Friday

The BoJ is expected to keep
interest rates unchanged at 0.00-0.10% and trim its government bond buying.
Speculations began last week as we got reports from “people familiar with the
matter” which were then confirmed by Governor Ueda’s comments.

This might have been the
primary cause of Yen strength although it’s mostly noise amid a pickup in
global growth and hawkish repricing in other DM interest rates expectations. In
fact, if this trend were to continue, we can expect the Yen to restart its
depreciation against the other major currencies.