Outlook for This Week’s Most Important Economic Events


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Key points to watch out for:

  • After the weakness of the US CPI, the focus turns to UK and Japanese inflation
  • PMI indicators will also receive attention with signs of recovery in Europe
  • The Federal Reserve will remain in focus with a series of speakers and minutes around the corner
  • No major surprises are expected in the RBNZ policy decision

Will the CPI report bring the Bank of Canada’s rate cut closer?

Inflation data will capture attention this week with the release of CPI figures in Canada, the UK, and Japan. Canada will lead this week with its CPI figures scheduled for release on May 21. The week will start quietly, with many markets closed on Monday, May 20.

Price pressures seem to be easing again in Canada, following the stabilization of various CPI indicators in the second half of 2023. This follows three consecutive months of declines in underlying indicators, through March. The overall index rose only slightly to 2.8%, which is not considered worrisome. Additionally, wage growth has moderated since the beginning of the year.

The Bank of Canada is scheduled to meet on June 5, and the likelihood of a 25 basis point rate cut is currently around 40%. If the April CPI report is softer than expected, those chances could increase to near 50%. However, even with continued progress in containing inflation, the Bank of Canada is more likely to implement a rate cut by July.

Weaker inflation data could potentially reverse the Canadian dollar’s one-month uptrend against the US dollar. However, in the larger environment, estimates of a Federal Reserve rate cut will carry more weight in deciding the Canadian dollar’s future. Investors will also be looking ahead to March retail sales figures due on Friday 24 May.

UK inflation falls as Bank of England hints at a rate cut

The UK will release its inflation-related statistics on Wednesday, May 22. Headline CPI fell to 3.2% in March, marking the lowest level since September 2021. Core CPI also experienced an encouraging decline in early 2024, and this trend is expected to continue through April. The headline rate is expected to fall to around the Bank of England’s 2% target, primarily due to the base effects following introductory changes to the UK’s energy price cap.

Policymakers are concerned about a potential rise in inflation once this effect dissipates; however, the Bank of England has hinted that it might begin cutting interest rates this summer. Recently, investors have begun to anticipate a rate cut in June, assigning it a probability of around 50%.

It is important to note that one more CPI report will be released before the Bank of England’s June meeting. Should these reports align with estimates, the Bank may opt to begin rate cuts earlier than August. Economic momentum is picking up faster than expected, which, coupled with strengthening consumer confidence as the cost of living crisis eases, may limit the scope for significant rate cuts. This is especially true as wage pressures have yet to show substantial easing.

Economic momentum is picking up faster than expected, which, coupled with strengthening consumer confidence as the cost of living crisis eases, may limit the scope for significant rate cuts. This is especially true as wage pressures have yet to show substantial easing.

These rosier estimates could sustain the current impact of the pound’s rebound against the dollar, even if inflation is said to be on the downside, as long as it is taken into account that the Federal Reserve will also cut rates in the coming months or before the end of the year.

Bank of Japan questions rate hike as inflation moderates

In Japan, the significance of the decline in inflation might not be fully appreciated when the report is released on Friday, May 24. Core CPI decreased from 2.8% to 2.6% in March and is projected to drop further to 2.2% in April.

An inflation figure close to 2.0%, coupled with GDP contraction, could prompt the Bank of Japan to raise interest rates soon. Investors anticipate that the BoJ will hike rates by about 20 basis points later this year, but not before September.

However, preliminary PMI indices due on Thursday, May 23, might reveal more positive economic signals. Although this may not necessarily convince investors of imminent rate hikes, the yen’s ability to extend its recent rebound will depend solely on the continued decline of the US dollar.

Fed hawks unwilling to budge

In the US, this week’s economic data will be somewhat overshadowed. However, existing home sales on Wednesday, May 22, new home sales on Thursday, May 23, and durable goods orders on Friday, May 24, are still expected to receive some attention. However, the PMI surveys due on Thursday, May 23, should not be overlooked, as they will be closely scrutinized for further signs of the US economy’s faltering momentum or that input costs are rising too slowly.

Although this week’s agenda is lighter, estimates for Fed rate cuts will remain a focal point. The minutes from the May policy meeting are scheduled for release on Wednesday, May 22, and FOMC officials will be available throughout the week to provide updated insights on the minutes.

Policymakers have largely maintained their hawkish stance following the CPI report. Should this hawkish rhetoric persist throughout the week, the US currency may recover some of its recent losses, and yields might rise again.

However, regarding equities, the lack of moderation in the Fed’s rhetoric could undermine Wall Street’s recent push for new record highs.

Reserve Bank of New Zealand pauses, but focuses on ideal timing

The Reserve Bank of New Zealand is the only central bank scheduled to make a policy determination this week. Although inflation in New Zealand has gradually decreased over the past year, the pace has not met policymakers’ expectations.

While the cooling labor market and significant drop in inflation are positive, the RBNZ is concerned about persistent inflation in non-tradable goods. Consequently, policymakers are not expected to open the door to a rate cut for summer or autumn by keeping the cash rate at 5.50%.

However, there is a small chance that the Reserve Bank of New Zealand will advance its first rate cut from Q2 2025 to Q1 2025 or earlier upon releasing the updated Monetary Policy Statement. This could be perceived negatively.

However, even if the New Zealand dollar is impacted by revised estimates suggesting an earlier rate cut, there is potential for future appreciation. This is because current market predictions are generally inaccurate, with investors anticipating a cut as early as October.

New Zealand dollar traders will also pay attention to quarterly retail sales figures due on Thursday 23 May.

Will the eurozone’s recovery put the brakes on ECB cuts?  

In Europe, the focus will be on the preliminary PMI indices due on Thursday, May 23. The preliminary forecast for May expects both services and manufacturing PMIs to show a slight increase, with the composite PMI remaining above 50.0.

The euro area emerged from a minor recession in the first quarter, and growth is expected to accelerate in the coming months. Although a rate cut in June appears imminent, there is a risk that higher-than-expected economic indicators could influence the ECB’s decisions later in the month, potentially benefiting the euro.

However, if the PMI numbers are weaker than expected, the euro’s recovery against the dollar could be jeopardized as investors may anticipate further rate cuts.

It will also be necessary to monitor these figures and understand the European Central Bank’s potential direction, especially with a possible interest rate cut in June looming.

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