Following last week’s General Election in Britain, the macro focus shifts to central banks in the coming days as the Federal Reserve, Bank of England and Bank of Japan are all in action.

Federal_Reserve

FOMC meeting

 

Investors have had their eyes fixed on the Fed’s June meeting as the next likely time for policymakers to raise rates. Minutes from the previous meeting show members of the Federal Open Market Committee (FOMC) expect to increase the target fed funds rate by 25 basis points on Wednesday. Markets currently price in the probability of such an increase – the second this year and the fourth occasion since the financial crisis – at around 90%.

However, some doubts have been cast over the Fed’s capacity and willingness to tighten as a raft of softer economic data, lacklustre and declining bond yields weakens the argument for higher rates.

The yield on the 10-year US Treasury note has slipped to levels not seen since before Donald Trump’s election win, while the dollar has also edged to seven-month lows. Financial conditions have, if anything, become easier despite the Fed’s plans to hike at least once more this year, and probably twice.

Inflation remains below the Fed’s 2% target, the last couple of nonfarm payrolls reports have indicated a slight slackening in the pace of job creation and policymakers like James Bullard have questioned whether the Fed ought to tighten again in June. Q1 growth was decidedly soggy but officials are happy to see the weaker data as “transitory”.

Is the market just not listening? Declining bond yields and a flattening of the yield curve indicate that the bond market does not see rates climbing quickly. If the Fed hikes it would be doing so against the market, even if it’s in line with its own guidance. The potential for turmoil in the markets is therefore increased if the Fed wants to tighten more beyond June.

 

Bank of England

 

The Bank of England meets this month hot on the heels of the general election and that result will be firmly in the minds of policymakers, although unlikely to result in a change in tack. The focus now is Brexit and its potential impact on growth.

Ahead of the interest rate decision on Thursday, key CPI inflation figures are due out on Tuesday. These are unlikely to materially influence policymakers but they could create some short-term volatility in sterling crosses.

Indeed policymakers appear increasingly comfortable that an inflation overshoot will be temporary and will not warrant premature tightening. Inflation is rising and has started to outpace wages, which is likely to dampen aggregate demand in the economy. However the recent upsurge in the pound off its 30-year lows has cooled the pace of price growth, while a weaker oil price is  also softening the blow.

Bank of Japan

 

The Bank of Japan rounds off a busy week for central banks amid what looks like a turnaround for the country’s economy. PMI readings show Japan’s services sector expanded at its fastest pace in two years in May, while the index for new business jumped to a four-year peak last month. Capital expenditure is also rebounding, rising 4.5% in the first quarter.

Rising optimism in Japan has lifted the yen, which has added around 6% against the US dollar this year as fading hopes of the great Trump reflation trade has weighed on the greenback.

Economic Calendar

(All times BST)

Monday, 12 June

00:50 – Japan core machinery orders, PPI inflation

07:00 – Japan preliminary machine tool orders

09:00 – Italy industrial production

09:30 – RBA assistant governor Debelle to speak

Tuesday, 13 June

02:30 – Australia NAB business confidence

09:30 – UK CPI, PPI, RPI inflation

10:00 – German ZEW economic sentiment

13:30 – US PPI inflation

23:45 – New Zealand current account

Wednesday, 14 June

03:00 – China industrial production, fixed asset investment

07:00 – German final CPI inflation

09:30 – UK average earnings, unemployment claims

10:00 – Eurozone employment change, industrial production

13:30 – US CPI inflation, retail sales

15:30 – US weekly crude oil inventories

19:00 – Federal Reserve interest rate decision, followed by press conference with Janet Yellen

Thursday, 15 June

All Day – Eurogroup meetings

02:30 – Australia unemployment rate, employment change

05:30 – Swiss National Bank financial stability report

07:45 – French final CPI inflation

08:30 – Swiss Libor rate, SNB monetary policy assessment, press conference

09:30 – UK retail sales

12:00 – Bank of England interest rate decision

13:30 – Canada manufacturing sales

13:30 – US weekly unemployment claims, Empire State manufacturing index, Philly Fed manufacturing index, import prices

14:15 – US capacity utilization rate, industrial production

Friday, 16 June

04:50 – Bank of Japan policy rate, monetary policy statement

07:30 – BoJ press conference

10:00 – Eurozone final CPI

13:30 – Canada retail sales

13:30 – US building permits

15:00 – Preliminary University of Michigan consumer sentiment

Corporate Calendar

 

Monday, 12 June

Mitie Group (MTO) – Y/2017, EPS estimate 0.108

Tuesday, 13 June

Ashtead Group (AHT) – Y/2017, EPS estimate 1.044

Thursday, 15 June

Majestic Wine (WINE) – Y/2017, EPS estimate 0.120

WS Atkins (ATK) – Y/2017, EPS estimate 1.189

Friday, 16 June

Tesco (TSCO) - AGM

Source: Bloomberg


 

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