After all the excitement and volatility from announcements last week, the calendar is looking far more sedate in the coming days. There is very little tier one US data to speak of, so the attention will come later in the week with a series of flash PMI data for major economies. Elsewhere the focus will also be on inflation for major economies with CPI data for Canada, Japan and the UK. In Lat Am, the question is whether the Mexican Central Bank hikes again.
- North America – US flash PMIs plus housing data, along with Canadian inflation
- Europe & Asia – Inflation for the UK and Japan, with flash PMIs across the board
- LatAm – Interest rates in Mexico, with mid-month inflation for Mexico and Brazil
North American data:
The first significant data comes from the Canadian CPI inflation for May. This is just over a week after the upside surprise in the US CPI data and Canadian inflation is expected to continue to also tick higher. This will only add pressure on the Bank of Canada to tighten further after the 50 basis points hike at the beginning of June.
It is a fairly quiet week for US data, with the main focus being on Thursday’s US flash PMIs. There have been signs of slowing economic activity in the US and negative surprises in the data for May. The flash PMIs will indicate whether the position can improve moving into June. Consensus is looking for more of the same with a slight deterioration to the Composite data, driven by declines in both manufacturing and services surveys. This is already showing in the negative surprises in the regional Fed surveys for June and will likely induce slight downward revisions to Q2 growth forecasts.
- CAD will strengthen on any upside surprise to Canadian inflation
- US flash PMIs will drive sentiment on Thursday, with USD positive on any upside surprise.
Europe & Asia:
The Bank of England expects headline UK CPI to hit 11% in October. The data for May is expected to continue the upside trend towards this level. Consensus is only looking for a small increase, but given the upside surprise in headline US inflation, there is an upside risk to this forecast. UK Core is expected to jump far more, to 6.7%. Japanese core CPI inflation has risen sharply in the past few months but is expected to stabilize at 2.1%, easing pressure on the Bank of Japan to do anything out of the ordinary.
The UK Composite PMI fell alarmingly to 53.1 in May and the June surveys are expected to show continued deterioration in economic activity trends. The Bank of England now expects a contraction of -0.3% in Q2 and the PMI deterioration is unlikely to shift a positive revision to this. However, looking at the forecasts, it is interesting to see that the rate of deterioration is easing for the composite PMIs of most major economies in June. If this comes through in the actuals it may begin to ease some of the selling pressure on major forex versus the USD.
- It will be an active week for GBP positions, with inflation, PMIs and retail sales. With such a big sell-off turning higher since the Bank of England, reaction to negative surprises in the data could be an indication of whether an oversold rally can decisively take hold.
- AUD and EUR will be reactive to flash PMIs.
It is all about inflation and interest rates in Lat Am this week. Mid-month inflation is an indicator of the direction of travel. Inflation in Mexico seems to be beginning to calm its steep trajectory, whilst in Brazil, it looks like it is about to get another lurch higher. The rate hikes of the Mexican Central Bank have not been as aggressive as elsewhere in the region, however, another +50 basis points are expected to take the rate to 7.50% this month. The bank is broadly tracking inflation with the levels of interest rates, so a reduction in the first half month inflation would be welcome.
- BRL and MXN will move on inflation surprises, with MXN traders looking at the forward guidance message from the central bank.
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