The week ahead is set to be a significant one for monetary policy as May inflation figures are published for the US, UK, Eurozone and Canada. Central bank decisions for Switzerland, the US and Japan will be closely watched, especially the Fed’s June meeting.
The US will start the week with industrial production figures out on Monday. They are expected to show industrial production expanded by a monthly 0.2% in May, versus -0.3% in April, while the Empire State Manufacturing index should provide some insight for June production. Tuesday will see the release of housing starts and building permits, which are estimated to show a decline in May after both figures rose in April. The Federal Open Market Committee is scheduled to meet on Wednesday for its latest monetary policy meeting. No change is expected by the FOMC despite high expectations earlier in the year that the June meeting would be when the Fed would begin raising interest rates. Expectations have since shifted to September, or possibly later to December as economic growth has been disappointing thus far and core inflation has only recently started to accelerate. CPI figures out on Thursday are forecast to show annual CPI rising to 0% in May from -0.2% in April, while core CPI, excluding food and energy, is estimated to stay unchanged at 1.8%. The weekly initial jobless claims are also out on Thursday, followed by the Philadelphia Fed Manufacturing index, which is expected to show improved outlook for June.
A busy week is also in store for the UK with inflation data dominating Tuesday. Annual CPI is expected to rise to 0.1% in May after falling to deflation in April for the first time since 1960. Core CPI is forecast to rise to 1% year-on-year after a 0.8% rate in April. Producer prices are also published the same day. Wednesday will be another key day as the Bank of England will release the minutes of its June meeting, which may unsettle the pound if some committee members express more dovish views than expected. Unemployment figures could also upset the markets if they come in stronger-than-expected. The unemployment rate is estimated to stay unchanged at 5.5% in April but wages showed signs of strengthening in March. Average weekly earnings rose to 1.9% annually in March and are forecast to rise further to 2.1% in April. On Thursday, retail sales figures are out, with monthly growth estimated to have stalled in May after a sharp rise in April, giving a year-on-year rise of 4.8%. Less significant will be Friday’s public sector net borrowing requirement for May.
The Eurozone will see a quieter week with the final CPI data for Germany and the Eurozone on Tuesday and Wednesday respectively, being the main data. German final CPI is forecast to stay unrevised at 0.7% annually in May and no change is expected either for Eurozone final CPI at 0.3%. The ZEW Economic sentiment for Germany could be of more interest on Tuesday, which is expected to show worsening sentiment in June. But a speech by ECB President Mario Draghi on Monday at the EU Parliament may prove significant on the back of the deteriorating relationship between Greece and its creditors.
The aussie will likely come into focus next week as two RBA assistant governors are due to speak at separate events. The RBA will also be publishing the minutes of its latest meeting, which investors will be hoping will provide more clarity on future rate outlook as recent strong economic data has contradicted the RBA’s talk about potential further monetary easing. Meanwhile, first quarter GDP data is released for New Zealand on Thursday, which is estimated to come in at 0.6% quarter-on-quarter. If it comes below forecasts, it will put additional pressure on the kiwi following its recent sharp decline, as it will add to expectations that the RBNZ will cut rates again at its next meeting.
More rate decisions are due from the Swiss National Bank and the Bank of Japan, which meet for their latest monetary policy decision on Thursday and Friday respectively. No change is expected from either central banks with rates in Switzerland already at a record low of -0.75% and robust first quarter GDP data for Japan lessening the need for more easing. Lastly, Canada will see May inflation figures and April retail sales data published on Friday. The Bank of Canada has so far resisted calls of further rate cuts despite GDP contracting in the first quarter and inflation running below target. Investors will be hoping that weak figures on Friday would increase the case for another cut.