This week kicks-off with a raft of preliminary manufacturing and services PMIs for June. Key events include Fed Chair Powell’s testimonies (Tue and Wed), the “Summer Davos” (Tue-Thu) and China’s Standing Committee of the National People’s Congress meeting (Tue-Fri). Given the high level of uncertainty, markets will be looking for further clarity on the Israel-Iran-(US) conflict.
Today we have the EU foreign minister gathering, the EU-Canada summit, and we will hear from the Fed’s Bowman, Goolsbee, William’s and Kugler, and the ECB’s Nagel. Germany IFO business climate, and the US Conf. Board consumer confidence prints will garner market interest on Tuesday. Central bank guidance on Tuesday includes the Fed’s Williams, and Hammack (again on Thu), the ECB’s Lane, and the BoE’s Ramsden, Bailey and Breeden. US new home sales and building permits figures will draw market focus on Wednesday and the BoE’s Lombardelli will speak on “transforming monetary policy”. The third reading of US Q1’25 GDP and personal consumption, along with initial jobless claims are due on Thursday. The Fed’s Barkin and Barr speak. China’s industrial profits hit the screens on Friday, later we have eurozone confidence prints. In the US, core PCE, personal income and spending, and the final Uni. of Michigan sentiment, expectations, and inflation forecast will be scrutinised by markets.
Assets classes witnessed a mixed week amid a flair up in Israel-Iran tensions, the Fed’s hawkish hold and mixed US data. The yield on the 10-year UST closed slightly stronger on the week, at 4.38%, and the S&P Index fell 0.15%. The dollar, DXY Index, gained 0.53% last week, and Brent crude spiked 3.75% higher amid escalating geopolitical tensions, closing at $77.01pb.
A broadly weak set of data out of the US kicked-off with the much weaker-than-expected Empire manufacturing print, -16. Retail sales further dented sentiment, experiencing their sharpest decline this year, falling 0.9%in June, and marking the second consecutive monthly drop. Industrial production also unexpectedly fell in May, while housing starts massively missed expectations, coming in at -9.8% (exp -0.8%).
The Fed held rates, as was widely expected, warning US consumers to brace themselves for higher prices in the coming months, signalling that the cost of new US tariffs will inevitably be passed on. The latest economic projections from the Fed hinted at stagflation concerns. Forecasts for economic growth in 2025 were modestly downgraded to 1.4%, from 1.7%, while the unemployment rate is now expected to edge up slightly to 4.5% for this year and next. Core inflation, as measured by the Fed’s preferred gauge, is projected to rise to 3.1% this year, a notable increase from earlier estimates. Interestingly, on Friday, Waller said the Fed could cut rates as soon as July. Given the upside risks to inflation, we wonder whether the Fed may hold off until the outlook is less murky.
Other central bank action included a SNB, who in the face of entrenching deflation and strong currency, cut by 25bp to 0%. The Norges Bank also lowered rates by a quarter point to 4.25%. In contrast the BoE held rates at 4.25%, in a 6-3 vote, amid oil price and inflation concerns. The BoE stated a “gradual and careful” approach to easing is appropriate. This came ahead of very weak retail sales figures, which fell to 18-month lows. The BoJ also held rates, given trade uncertainty. The central bank stated it would slow its exit from the bond market, to maintain stability.
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