UPCOMING EVENTS:

• Monday: UK/US
  Holidays, German IFO.
• Tuesday:
  Australia Retail Sales, Canada PPI, US Consumer Confidence.
• Wednesday:
  Australia Monthly CPI, Fed Beige Book.
• Thursday:
  Switzerland GDP, Eurozone Unemployment Rate, US GDP 2nd
  Estimate, US Jobless Claims.
• Friday: Tokyo
  CPI, Japan Retail Sales and Industrial Production, China PMIs, Switzerland
  Retail Sales, Switzerland Manufacturing PMI, Eurozone Flash CPI, Canada
  GDP, US PCE.

Tuesday

The US Consumer Confidence is expected to
tick lower in May to 95.9 vs. 97.0 in April. The last
report missed expectations by a big margin
reaching the lowest level since July 2022. The Chief Economists at The
Conference Board highlighted that “Confidence retreated further in April as
consumers became less positive about the current labour market situation, and more
concerned about future business conditions, job availability, and income”.

She further added that “despite April’s
dip in the overall index, since mid-2022, optimism about the present
situation continues to more than offset concerns about the future.“ The
Present Situation Index will be something to watch as that’s generally a leading indicator
for the unemployment rate.

Wednesday

The Australian Monthly CPI Y/Y is expected
at 3.4% vs. 3.5% prior.
The RBA focuses more on the quarterly CPI readings, but the monthly
indicator is timelier and can be a guide for the trend, especially at
turning points. The Core measures will be more important but this report is
unlikely to change much for the central bank at the moment, although another
hot report is likely to trigger a hawkish reaction in the market.

Thursday

The Eurozone Unemployment Rate is expected
to remain unchanged at 6.5% vs. 6.5% prior. The rate has been hovering at the
record low for a year denoting a tight labour market. Moreover, the recent Eurozone
Negotiated Wage Growth for Q1 2024 came in
higher than the prior quarter, which was kind of a setback for the ECB even
though they “dismissed” it as a one-off because of the delayed action to raise
wages against inflation in Germany. Nonetheless, it will give them less
confidence regarding the rate cuts path following the one in June.

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. This is because
disinflation to the Fed’s target is more likely with a weakening labour market.
A resilient
labour market though could make the achievement of the target more difficult.

Initial Claims keep on
hovering around cycle lows, while Continuing Claims remain firm around the
1800K level. This
week Initial Claims are expected at 218K vs. 215K prior, while there is no consensus at the
time of writing for Continuing Claims although the prior release showed an
increase to 1794K vs. 1794K expected and 1786K prior.

Friday

The Tokyo Core CPI Y/Y is
expected at 1.9% vs. 1.6% prior. The last report showed a big drop in the inflation
rate across all measures although it was attributed to a one-off factor as high school tuition in Tokyo was
effectively eliminated and took effect in April. Nonetheless, inflation in
Japan continues to ease and it doesn’t justify a rate hike from the BoJ
anytime soon.

The Chinese Manufacturing
PMI is expected at 50.5 vs. 50.4 prior, while the Services PMI is seen at 51.5
vs. 51.2 prior. We’ve got some disappointing data recently with industrial
output and retail sales missing expectations. This suggests that the economy is
still struggling to recover robustly amid weak domestic demand, lingering
deflation risk, and prolonged weakness in the property sector. If we
continue to see weakness, the PBoC will likely react by easing its policy further.

The Eurozone Headline CPI
Y/Y is expected at 2.5% vs. 2.4% prior, while the Core CPI Y/Y is seen at 2.7%
vs. 2.7% prior. This report is likely to influence the market’s expectations
for the rate cuts path beyond the June meeting. In fact, hot inflation data
after strong PMIs, wage growth and labour market reports will likely trigger a
hawkish repricing in interest rates expectations from the current 55 bps of
easing seen by year-end.

The US Headline PCE Y/Y is
expected at 2.6% vs. 2.7% prior, while the M/M measure is seen at 0.26% vs.
0.32% prior. The Core PCE Y/Y is expected at 2.75% vs. 2.8% prior, while the
M/M reading is seen at 0.24% vs. 0.32% prior. Forecasters can reliably estimate
the PCE once the CPI and PPI are out, so the market already knows what to
expect.

This report is unlikely
to change anything for the Fed as the central bank remains in a “wait and see” mode until September at
very least. In fact, despite calls of cuts in July or November, I’d say the Fed
will want to deliver the first cut on a meeting containing the SEP (barring a
quick deterioration in the labour market).

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Bank of Japan Governor Ueda and Japan finance minister Suzuki spoke over the weekend, at the conclusion of the G7 meeting in Italy.

Suzuki said he hadn’t had a one-on-one meeting with US Treasury Secretary Yellen. Which seems to indicate no discussion on co-ordinated yen intervention took place. Prior to the weekend Suzuki’s offsider, Vice MInister for International Affairs Masato Kanda (the official who will instruct the BOJ to intervene, when he judges it necessary) had basically said there was no need for a meeting.

Earlier this month Yellen was not encouraging of the idea:

• US support for Japan on intervention rightt now is only lukewarm

A few days later there was more cold shoulder from Yellen:

• Yellen didn’t sound unsupportive of Japan’s ‚rumoured‘ intervention, but she didn’t sound real keen either

Not to hammer this point too much but Yellen repeated the same just last week, that intervention should be rare and well-telegraphed in advance.

So, it was only a Suzuki and Ueda tag team show after the G7.

Suzuki:

• Reaffirmed the G-7 commitments on foreign exchange
• Said that many factors are making contributions to increase in yields
• Warned against maintaining rates above zero

And with rising rates in Japan he also

• called against maintaining rates above zero… „We must be acutely aware that the world of positive interest rates has come … we will make progress in restoring fiscal health with more sense of urgency than ever.”

Bank of Japan Governor Ueda seemed happy to let Suzuki handle the gnarly issues, shrugging it all off with:

• Long-term bond yields are determined by financial markets in principle
• Will monitor fixed interest markets

Ueda didn’t talk about the rate path ahead, nor did he specify much on the chances of trimming back on Japanese Government Bond bond purchases at the next policy meeting (this is in June).

Bank of Japan Governor Ueda and Finance Minister Suzuki.

—

G7 finance leaders met this Friday and Saturday in Stresa, Italy.

G7 member States are Canada, France, Germany, Italy, Japan, the UK, and the US. The EU participates in all discussions as a guest.

This article was written by Eamonn Sheridan at www.forexlive.com.

As Bank of Italy Governor, Fabio Panetta is also a member of the European Central Bank Governing Council. On Saturday he spoke at a news conference at the end of the G7 finance leaders meeting saying that he sees „a fairly general consensus has emerged on the possibility of a rate cut“.

We’ve certainly been getting a consensus out of ECB officials that a June cut is happening, these are from Friday:

• ECB’s Nagel: The probability of a June rate cut is increasingECB’s Nagel: The probability of a June rate cut is increasing
  • As Justin said on Nagel: For one of the more hawkish members, the headline comment is pretty much a concession that they will cut rates in two weeks‘ time.
• ECB’s Schnabel: A June rate cut is likely

ECB rates:

This article was written by Eamonn Sheridan at www.forexlive.com.