Markets will have to wait for the latter part of this week for key data prints including the US GDP and PCE core (Thursday), and the PCE deflator prints (Friday). We have a fair amount of central bank chatter to digest ahead of that. Today we have the ECB’s Schnabel, Villeroy de Galhau (and again on Friday), and the Fed’s Daly. On Tuesday we’ll hear from the Fed’s Cook and Bowman and the ECB’s Stournaras. The BoE releases its financial stability report on Thursday, and then on Friday the Fed’s Barkin delivers a keynote speech.
The US Conf. Board consumer confidence prints on Tuesday will garner market attention given the recent weakness in consumer data. US home sales are due on Wednesday. Thursday’s data includes China’s industrial profits, eurozone confidence and US durable goods, initial jobless claims, GDP and core PCE prints. On Friday we have UK GDP, US PCE, spending and income, and the Uni. of Michigan consumer sentiment readings.
Last week we had further mixed US data, by way of weaker-than-expected retail sales in May, coupled with previous downward revisions. Housing starts and building permits also disappointed, falling in May, against expectations for a marginal rise. Sentiment improved at the end of the week, as the S&P Global PMI prints for May surprised to the upside. The stronger PMIs, coupled with broadly hawkish Fed speak underpinned the dollar (DXY Index +0.23%), while US Treasuries pared earlier gains; the 10-year benchmark rose 4bps to 4.26%. Meanwhile, the S&P Index rose 0.61%, and Brent crude rose to $85.24pb, 3.17% higher on the week.
Elsewhere, the People’s Bank of China (PBoC) plans to gradually incorporate secondary market transactions of government bonds into its monetary policy toolkit, as announced by Governor Pan Gongsheng. This move reflects the increasing scale and depth of China’s bond market, enabling the central bank to manage liquidity through buying and selling government bonds. Pan emphasised that this approach is not quantitative easing, but rather a tool for liquidity management and base money injection. China kept its benchmark lending rates unchanged, with the one-year loan prime rate (LPR) at 3.45% and the five-year LPR at 3.95%. This decision comes amid signs of economic weakness, including falling new home prices and lower-than-expected bank lending, highlighting the challenges in balancing monetary easing with concerns over interest rate margins and currency stability,
Closer to home, the BoE held pat on rates despite earlier inflation reaching target. The BoE’s primary concern, mirroring its US counterpart, is persistent service inflation, which only marginally decreased to 5.7% from 5.9% in April. The central bank attributed part of these increases to regulated prices and volatile components, rather than underlying inflationary pressures. The BoE raised its Q2 2024 GDP growth forecast to 0.5%, indicating economic recovery. However, concerns persist about potential inflation risks from wage growth and energy prices. Markets now estimate a 66% chance of a rate cut in August, up from 30% before the BoE’s announcement, suggesting the central bank might begin easing in August barring unexpected developments in June’s inflation data. Over in Europe, markets whipsawed through the week amid the political turmoil in France. The ECB warned that eurozone countries face significant fiscal challenges due to ageing populations, increased defence spending, and climate change. Countries will need to reduce budget deficits by an average 5% of GDP, requiring EUR 720bn in savings or revenue. The ECB urged immediate action, especially from high-debt nations, to meet the EU’s 60% debt-to-GDP target by 2070. This comes as seven countries, including France, were reprimanded for breaching EU fiscal rules. While the required adjustments are substantial, the ECB notes they’re not unprecedented, emphasising that delaying action will only increase future costs.
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