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by Charalambos Pissouros

Weekly Outlook: June 22 – June 26: RBNZ Decision and Preliminary PMIs

Following a very busy week, with four central bank monetary policy decisions, the calendar becomes much lighter this week. We have only one central bank on the agenda, and this is the RBNZ. Although no action is expected, we will dig into the statement and the minutes for clues as to how willing officials are to push interest rates lower in the foreseeable future. We also get the preliminary PMIs for June from the Eurozone, the UK and the US.

Monday appears to be a relatively light day, with the only release worth mentioning being the US existing home sales for May. Expectations are for sales to have declined, but at a slower pace than in April. Namely, they are expected to have slid 3.0% mom after falling 17.8%.

Tuesday is a PMI day! During the European day, we get the preliminary prints for June from several Eurozone members and the bloc as a whole. Both the Euro-area manufacturing and services indices are forecast to have risen further, but to have remained within the below-50 territory. Specifically, the manufacturing index is expected to have risen to 44.0 from 39.4, while the services one is forecast to have inched up to 40.5 from 30.5. This would drive the composite PMI up to 41.0 from 31.9.

Eurozone PMIs

At its latest meeting, the ECB decided to increase its pandemic emergency purchase program (PEPP) by EUR 600bn to a total of EUR 1350bn, extending the horizon of the purchases to “at least the end of June 2021.” Officials also repeated that they remain ready to adjust all of their instruments as appropriate, to ensure that inflation moves towards their aim in a sustained manner. With the headline CPI rate at +0.1% yoy and the core one at +0.9% yoy, another month of contraction in both the manufacturing and services sectors – despite at a slower pace – may keep the door for further easing by the ECB in the foreseeable future wide open.

We get preliminary PMIs from the UK and the US as well. No forecast is currently available for the UK indices, while with regards to the US ones, both the manufacturing and the services indices are expected to have increased to 47.8 and 46.0 from 39.8 and 37.5 respectively. Having said that though, as we noted several times in the past, market participants tend to pay more attention to the ISM indices which are due to be released on July 1st and 6th. The US new home sales for May are also coming out and the forecast points to an acceleration to +3.5% mom from +0.6%.

On Wednesday, during the Asian morning, the RBNZ announces its monetary policy decision. At their latest gathering, policymakers of this Bank decided to keep interest rates unchanged, but nearly doubled their QE purchases from NZD 33bn to NZD 60bn, adding that they could still go higher. In the minutes accompanying the decision, it was noted that that negative interest rates will become an option in the future and that discussions about preparing for negative rates are ongoing.

RBNZ interest rates

Since then, the only top-tier indicator we got was the GDP for Q1, which showed that the economy contracted 1.6% qoq after expanding 0.5%. This pushed the yoy rate into the negative territory, to -0.2% from 1.8%. That said, this was above the Bank’s own projection for the quarter, which in May was at -2.4% qoq, and thus, this may allow policymakers to stay sidelined at this meeting. They may prefer to wait for more data before they start considering further rate cuts, or not. However, we will still dig into the statement and the meeting minutes for clues as to how willing officials are to push interest rates into the negative territory if upcoming data comes on the soft side. Another round of dovish signals may bring the Kiwi under selling interest.

However, its overall path may remain dependent on changes in the broader market sentiment. If governments around the globe continue to ease their lockdown measures, this may revive some market optimism, which could benefit the currency. The risk to this view is a new wave of fast-spreading infections and thereby the re-introduction of lockdown measures, especially after the new flare-up in China.

The Summary of Opinions from last week’s BoJ gathering will also be released. At that meeting, officials kept their main policy tools untouched, but noted that they are likely to increase the size of money pumped out via market operations and lending facilities from the current JPY 75trln to JPY 110 trln. We will scan the summary to see how willing officials are to act again, but we don’t expect this release to impact the yen. The Japanese currency has been wearing its safe-haven suit in recent months, reacting mainly to developments affecting the broader market sentiment.

Later in the day, we get the German Ifo Survey for June. Expectations are for both the current assessment and expectations indices to have risen to 84.0 and 86.0 from 78.9 and 80.1 respectively, something that will drive the business climate index up to 85.0 from 79.5. That said, bearing in mind that both the current conditions and economic sentiment indices of the ZEW survey increased by more than the estimates suggested, we would consider the risks surrounding the Ifo forecasts as tilted somewhat to the upside.

German Ifo vs ZEW survey

On Thursday, during the Asian trading, we get New Zealand’s trade balance for May, but no forecast is currently available.

Later in the day, the final US GDP for Q1 is coming out, and it is expected to confirm its second estimate, namely that the US economy contracted 5.0% qoq SAAR. Even if we get a small revision, we expect this release to pass unnoticed as we already have models suggesting how the economy has been performing during Q2. The Atlanta Fed GDPNow model suggests that in the second quarter, the economy slumped 45.5%, while the New York Nowcast points to a –19.0% rate.


At its latest gathering, the FOMC kept interest rates unchanged and noted that they will continue to increase purchases of bonds and mortgage-backed securities “at least at the current pace”, something suggesting that purchases can accelerate again if deemed necessary. What’s more, last week, they announced tweaks to their bond purchases, widening the range of eligible assets to include all US corporate bonds. Thus, such growth rates may increase the chances for the Fed to do more. After all, when testifying before Congress, Fed Chair Powell himself said that there is “a reasonable probability” that more policy support would be needed. 

Durable goods orders for May are also coming out and expectations are for a 10.6% mom rebound after a 17.7% slide in April. The core rate is also expected to have returned into the positive territory. Specifically, it is expected to have risen to 2.1% mom from -7.7%.

Finally, on Friday, during the Asian morning, the Tokyo CPIs for June are due to be released. No forecast is currently available for the headline rate, while the core one is anticipated to have stayed unchanged at +0.2% yoy.

Later in the day, we have the US personal income and spending data for May, alongside the core PCE index for the month. Personal income is forecast to have slid 6.0% mom after increasing 10.5%, while spending is expected to have risen 9.0% mom after tumbling 13.6%. The case for declining income is supported by the average hourly earnings monthly rate which fell to -1.0% mom from +4.7%, while the strong rebound in retail sales for the month supports the notion for a rebound in spending. As for the core PCE rate, the Fed’s favorite inflation gauge, it is expected to have slowed to +0.9% yoy from +1.0%. The case for that is supported by the core CPI rate, which slid to +1.2% yoy from +1.4%. The final UoM consumer sentiment index for June is also coming out and the forecast is for a confirmation of the initial estimate, which is at 78.9.

US CPIs vs core PCE


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