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by Charalambos Pissouros

Weekly Outlook: Jun 18 – June 22; BoE, SNB and Norges Bank Decide on Monetary Policy. EZ Flash PMIs and OPEC Meeting Under the Microscope

Calendar 01

On Monday, the calendar appears very light in terms of economic indicators. That said, the fifth annual “ECB Forum on Central Banking” begins, and it will last until Wednesday. The subject is “Price and wage-setting in advanced economies”. The highlight is likely to be on Wednesday, when ECB President Mario Draghi, BoJ Governor Haruhiko Kuroda and Fed Chair Jerome Powell will participate in a panel discussion.

On Tuesday, during the Asian morning we have the minutes from the latest RBA policy meeting. The latest meetings of this Bank were proven non-events, and the last one was no exception. At that meeting, policymakers decided to keep interest rates unchanged and made very little changes to the accompanying statement. Once again, the key take-away was that policymakers are unlikely to turn their eyes on the hiking button in the foreseeable future. Thus, we doubt that the minutes will paint a different picture. According to the Bank’s latest quarterly Statement on Monetary policy, the cash rate is expected to increase around the middle of next year.

During the European day, we get Eurozone’s current account balance for April, while later in the day, the US building permits and housing starts, both for May, are due to be released.

On Wednesday, Asian trading, we get the BoJ meeting minutes. However, these are the minutes from the April meeting and not the latest one. Thus, we don’t expect any major market reaction resulting from this release, as the market may treat it as outdated.

From New Zealand, we get the current account balance for Q1. Expectations are for the nation’s current account deficit of NZD 2.77bn to have turned into a surplus of NZD 0.05bn.

Later in the day, we get current account data for Q1 from the US as well. Expectations are for the US current account deficit to have widened somewhat, to USD 129.0bn from USD 128.2bn. Existing home sales for May are also due to be released.

On Thursday, we have three central banks deciding on monetary policy: the BoE, the SNB, and the Norges Bank.

Kicking off with the BoE, expectations are for the Bank to keep interest rates unchanged. This is one of the smaller meetings, which is not accompanied by a press conference and updated economic projections and thus, if indeed the Bank decides to keep rates untouched, investors will quickly turn their gaze to the votes, the accompanying statement and the meeting minutes in order to assess how likely a near-term rate hike – perhaps as early as August – is. The votes for the decision are expected to be 7-2 in favor of keeping rates on hold, with the ultra-hawks Ian McCafferty and Michael Saunders being the most likely candidates for dissenting once again.

BoE rates 180618

Moving to the SNB, at its latest meeting, this Bank decided to keep interest rates on hold, and revised down its inflation forecasts. According to these projections, the Bank expects inflation to be a tick below 2% even in 2020. Most importantly, the forecasts are based on the assumption that interest rates will remain at current levels for the entire forecast horizon. Latest CPI data showed that Swiss inflation accelerated to +1.0% yoy in May from +0.8% yoy in April, but this is still well below the SNB’s inflation goal. This, combined with the latest strength of the Swiss Franc, especially against the euro, due to the recent global uncertainties, supports the case for the SNB to keep its interest rates and policy stance unchanged.

Swiss CPIs 180618

Finally, the Norges Bank is expected to remain on hold as well. At its latest policy meeting, Norwegian policymakers maintained the view that interest rates are likely to be raised after summer 2018. Back then, the headline and core CPI rates were at +2.2% yoy and +1.2% yoy respectively, while now they stand at similar levels, +2.3% and +1.2%. Thus, we doubt that officials will alter their view at this gathering.

As for Thursday’s economic indicators, during the Asian morning, we get New Zealand’s GDP data for Q1. Expectations are for the quarterly rate to have ticked down to +0.5% qoq from +0.6%, which is likely to drive the yearly rate down to +2.7% yoy from +2.9%.

Later in the day, from the US we get the Philly Fed manufacturing index for June, and from Canada wholesale sales for April.

Finally, on Friday, during the Asian morning, we have Japan’s National CPIs for May. No forecast is currently available for the headline rate, while the core one is anticipated to have stayed unchanged at +0.7% yoy. Both the headline and core Tokyo CPIs for the month continued to slow, to +0.4% yoy and +0.5% yoy from +0.5% and +0.6% respectively, which suggests that both the National rates may follow suit.

Japan CPIs 180618

Last Friday, the BoJ kept policy unchanged, but downgraded its language on inflation. The overall message we got from the meeting was once again that the Bank remains far away from starting to think about a stimulus exit and another slowdown in the National CPIs is likely to confirm just that.

During the European day, we get the preliminary manufacturing and services PMIs for June from several European nations and the Eurozone as a whole. Expectations are for both the Euro area manufacturing and services PMIs to have continued to slide, to 55.0 and 53.7 from 55.5 and 53.8 respectively. This is likely to drive the composite index down to 53.9 from 54.1.

EZ PMIs 180618

At last week’s ECB policy meeting, officials signaled a QE-tapering after September and a clear end to the program in December, but the decision was subject to incoming data. What’s more, they noted that interest rates are expected to stay untouched “at least through the summer of 2019 and in any case for as long as necessary”, which came as a disappointment to those expecting a hike in mid-2019.

Thus, further declines in the PMIs would suggest that the economic slowdown observed since the start of the year still continues, which could prompt investors to push further back their rate-hike expectations.

We get preliminary June Markit manufacturing and services PMIs from the US as well. Expectations are for the manufacturing index to have ticked down to 56.3 from 56.4, while the services one is anticipated to have stayed unchanged at 56.8. That said, the market usually pays more attention to the ISM indices, due out on the 2nd and 5th of July respectively.

In Canada, CPIs for May and retail sales for April will be closely watched by investors in order to assess how likely a July hike by the BoC is. Expectations are for the headline CPI rate to have risen to +2.6% yoy from +2.2%, but the core rate is forecast to have ticked down to +1.4% yoy from 1.5% yoy. As for retail sales, headline sales are anticipated to have slowed to +0.1% mom in April from +0.6% in March, while core sales are expected to have risen 0.5% mom after sliding 0.2%.

Canada CPIs 180618

When they last met, BoC policymakers laid the ground for a July hike and hinted at faster rate increases thereafter. However, immediately the following day, the US decided to end a two-month exemption and impose steel and aluminum tariffs on imports from Canada (Mexico and the EU as well), with the nation hitting back. What’s more, following the G7 summit, tensions between US President Trump and Canada’s PM Trudeau escalated, raising more concerns over the global trade front, and especially the future of NAFTA. Thus, even if officials decide to push the hiking button in July, without any signs of ease in the global trade arena, they may decide to delay any forthcoming rate increases.

As for the energy market, the main event is likely to be the gathering between OPEC and major non-OPEC oil ministers in Vienna. Back in late 2016, OPEC, Russia, and several other non-OPEC producers agreed to cut output by 1.8 million bpd starting from January 2017, in an effort to support oil prices, which have fallen notably due to global oversupply and increasing US shale production. At their latest gathering, in November, members have agreed to extend the cuts until the end of 2018, but recent headlines suggest that Saudi Arabia and Russia are in favor of loosening the cuts now in order to deal with supply shortfalls from Venezuela and the effect of the renewed sanctions imposed by the US to Iran. Iran, Iraq and Venezuela are against such a decision.

Oil prices have recently been in a sliding mode on speculation that the meeting could end up with a deal of loosening the previously agreed cuts and thus, if this is the case, the aftermath market response may depend on the amount members will decide to return back into the market. Now, in case other producers decide to stand pat and stick to their November accord, it will be interesting to see whether Saudi Arabia and Russia will proceed with increasing their output without wider backing.



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