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    Week Ahead – Central bank policy to drive the markets as Fed, BoJ, BoE and SNB meet

    Key data releases next week out of China, the UK and the US will likely struggle to get much attention as monetary policy takes center stage. The US Federal Reserve will hold its highly anticipated FOMC meeting but the Bank of Japan’s meeting may be the one to watch out for, while the Bank of England and the Swiss National Bank are unlikely to produce any surprises.

    Main China indicators to hold steady in May

    Data out of China is not expected to bring any change to the country’s economic landscape as industrial production, retail sales and fixed-asset investment are forecast to be little changed in May when released on Sunday. Industrial output is expected to grow by 5.9% year-on-year in May, slightly down from 6.0% in April, while fixed asset investment should hold steady at 10.5%. Retail sales growth is also forecast to stay unchanged at 10.1% in May. Also to watch from China next week are lending figures. New yuan loans issued by Chinese financial institutions are forecast to rise to 750 billion yuan. Last month’s drop from 1.37 trillion to 555.6 billion yuan raised fears of a deepening slowdown in economic growth as authorities tightened lending over concerns of a debt fuelled recovery.

    Eurozone industrial output to bounce back

    Industrial output will be the main data to come out of the Eurozone next week along with final CPI readings. Industrial production in the euro area fell by 0.8% month-on-month in March but is forecast to rebound by 0.7% in April when released on Tuesday in a positive start to the second quarter. Annual inflation is expected to be confirmed at -0.1% in May when the final reading is published on Thursday. The data is not likely to have a major impact on the euro as monetary policy decisions in the US and Japan act as a bigger driver for the single currency.

    Fed to stand pat for now

    The Federal Reserve will be the first of the four major central banks to hold its policy meeting next week. The FOMC will conclude its two-day meeting on Wednesday and will publish its latest economic projections, including the dot plot guidance on the fed funds rate. Expectations of a June rate hike fell drastically after May’s disappointing jobs numbers, while Britain’s EU referendum is another risk factor that will likely force the Fed to keep rates unchanged for now. However, it will be interesting to watch Fed Chair Janet Yellen’s press conference where she may set the tone for a July or September rate hike. A not-so-dovish statement by Yellen may refuel the dollar’s paused rally.

    Retail sales figures out on Tuesday could influence the Fed’s tone next week. Retail sales are forecast to slow from the 1.3% month-on-month rate seen in April to 0.3% in May, though this is still a healthy pace. The other major data out of the US next week is inflation on Thursday. Annual CPI is expected to rise by 1.1% in May, unchanged from the previous month. Core inflation is also forecast to hold steady at 2.1%. Also to watch for the US are producer prices and industrial production on Wednesday, and housing starts and building permits on Friday.

    Bank of Japan may follow US with no move in June

    The Bank of Japan will announce its latest monetary policy decision within hours of the Fed’s announcement.  The majority of economists are forecasting that the BoJ will keep policy unchanged on Thursday, although the Bank has a tendency to surprise. Like the Fed, the BoJ is more likely to act in July once the Brexit vote is out of the way and there is more data to assess. The yen continues to trade near highs last seen in October 2014 but even if the BoJ is planning a July move, it is unlikely to provide any clear signals on Thursday, keeping the yen at uncomfortably high levels for now.

    SNB to keep rates on hold

    The Swiss National Bank hasn’t had much success in pushing the franc lower despite cutting interest rates to record low negative territory. The Swiss central bank is expected to keep the interest rate on sight deposits at -0.75% but will publish new growth and inflation forecasts. With GDP growth in the first quarter falling short of expectations and the franc coming back in favour in recent months due to safe-haven flows, the SNB may signal further easing.

    Busy week for the UK

    The UK will have a busy calendar next week, including the Bank of England’s monetary policy meeting. With just a week to go until the EU referendum, the Bank of England is forecast to keep rates on hold on Thursday and is not expected to deviate much from its quarterly assessment last month.

    However, recent upbeat data suggests the first quarter soft patch was only temporary and key indicators next week should shed more light on how the UK economy is currently performing. Inflation data out on Tuesday is expected to show annual CPI to edge up from 0.3% in April to 0.4% in May. Core inflation is also forecast to tick up, from 1.2% to 1.3%. Unemployment data will follow on Wednesday with the jobless rate expected to stay unchanged at 5.1% in the three months to April. Average weekly earnings are forecast to moderate though, slowing from 2% year-on-year in March, to 1.7% in April. Also expected to slow slightly are retail sales. The monthly growth in British retail sales is forecast to ease to 0.3% in May, following the surprise 1.3% surge seen in the previous month. Pound traders will likely ignore the data as Brexit opinion polls will get ever more closely scrutinized ahead of the EU referendum on June 23.

    Aussie and kiwi vulnerable to data next week

    The Australian and New Zealand dollars were both one of the best performing currencies this week as the RBA and RBNZ sounded less dovish than usual after their June policy meetings. The aussie may see some reaction to jobs data out on Thursday. Employment in Australia is forecast to rise by 15k in May, slightly stronger than the 10.8k rate in April, keeping the jobless rate at 5.7%. The kiwi on the other hand will come in focus as New Zealand publishes its first quarter GDP growth figures on Wednesday.

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