• MON: UK GDP Estimate (Apr).
• TUE: UK Jobs Data (Apr/May); Swedish CPI (May); German ZEW Survey (Jun); US PPI (May); OPEC MOMR.
• WED: FOMC Announcement; BCB Announcement; Chinese Industrial Production and Retail Sales (May), French CPI (May), US Retail Sales (May), New Zealand GDP (Q1); IEA OMR.
• THU: BoE Announcement; SNB Announcement; Australian Labour Market Report (May).
• FRI: Quad Witching; BoJ Announcement; EZ CPI Final (May).

NOTE: Previews are listed in day-order

UK GDP Estimate (Mon):

Expectations are for April’s GDP data to show an expansion of 0.2% M/M vs the 0.1% contraction observed in March. Ahead of the release, Pantheon Macroeconomics (which looks for growth of just 0.1%) said that the recovery in April’s retail sales appears to have come at the expense of spending on consumer services. Furthermore, “the contribution of Covid-related government expenditure to the level of GDP dropped by 0.4pp to 0.7pp in April” and “unlike in some prior months, this drag on healthcare output does not appear to have been offset by a pick-up in non-Covid activities”. The consultancy notes that “broadly unchanged GDP would put it on course in Q2 to undershoot the MPC forecast for growth of 0.1% q/q, given that output will fall sharply in June, due to the extra bank holiday”.

UK Jobs Report (Tue):

Expectations are for the unemployment rate in the three months to April to hold steady at 3.7%. There is no formal consensus at the time of writing for the earnings components, however, Investec expects headline 3M/YY earnings to show growth of 7.5% vs previous 7.0%, with the ex-bonus metric seen remaining at 4.2%. Ahead of the release, Investec expects the upcoming report to follow suit with those seen in recent months, and indicate an extremely tight labour market. Analysts also note that “although reported employment growth, measured on the headline ILO basis, may have accelerated, the fall in unemployment could have slowed as participation crept up.” Looking further ahead, Investec sees “the margin squeeze on firms, not least as a result of rate rises, to cool the demand for labour at the same time as participation recovers. Unemployment should therefore rise.” From a policy perspective, such an outturn would be manageable, however, the risk of too aggressive a response to inflation and a subsequent sharp increase in unemployment cannot be ruled out.

FOMC Announcement (Wed):

Fed officials have heavily guided towards a +50bps rate rise at its June 15th FOMC, a move which is fully priced by money markets; the Committee is also expected to lift rates by the same magnitude at its July 27th confab. If the Fed next week raises rates in line with consensus expectations, focus will fall onto its updated economic projections. Since the Fed has pledged that it will ‘expeditiously’ be lifting rates towards neutral, traders will take note of the updated Staff Economic Projections for guidance on where the Fed sees the eventual terminal rate of the cycle and the longer-run neutral interest rate. The now-stale March forecasts envisaged rates rising to 1.75-2.00% by the end of this year (money markets are pricing rates at 2.75-3.00% by year-end), before peaking at 2.75-3.00% in 2023 (money markets see 3.25-3.50% by mid-2023); money market pricing, remarks from officials and analysts suggests these so-called ‘dots’ will be lifted. Meanwhile, the Fed’s assessment of the longer-run neutral rate, which was cut in March to 2.4% from 2.5%, may see another revision lower in the June forecasts; when taking out the extremes, the general run of Fed commentary going into the June meeting has put the rate of neutral at around 2.25% among the Governors, though the regional Presidents seem to have a higher assessment than that. “If the two new Fed governors join their colleagues in their estimate of the neutral rate, the central tendency estimate will decline again in June,” Moody’s has explained, “at 2.25%, the Fed’s estimate would still be higher than the most referenced model for estimating neutral fed funds, which puts it closer to 2%.” Finally, updated economic projections, in addition to revising up the foreseen trajectory of rates, it is likely that the profile of inflation will be raised in the near-term, and growth expectations will be lowered, as has been seen in the OECD’s recently updated economic projections. At Chair Powell’s post meeting press conference, traders will be looking towards any commentary that gives clues on what the Fed will do after it has raised rates by 50bps increments in June and July; while some had envisaged that the central bank would pause and assess the situation, remarks from some officials, like the influential Governor Brainard, suggest that falling back to smaller increments of rate rises are the base case, dependent on the progress of inflation. Chair Powell will also likely emphasise that tackling soaring prices remains the priority of the Committee. Additionally, many market participants are now of the view that the Fed will need to hike rates more aggressively to manage price pressures, and after the hot May CPI data–where the annual rate of inflation rose to 40yr highs, while core measures of inflation continued to rise in the month–Powell will be asked about how prepared the Fed is to raise rates above the neutral level, which would place activity into restrictive territory, potentially triggering a US recession. Fed officials in the passed have suggested that they stand ready to do exactly that if the data requires.

BCB Announcement (Wed):

Brazil’s May IPCA-15 data showed inflation rising by +0.6% M/M (exp. 0.5%), while the annual rate rose to +12.2% Y/Y (exp. 12.0%, prev. 12.0%). Pantheon Macroeconomics noted that Brazil’s inflation dynamics continues to deteriorate. “Upside risks persist due mostly to worsening supply chains, high commodity prices, particularly fuel, and a relatively resilient domestic recovery, following the Omicron wave,” but adds “that said, upside pressures in some key components are no longer increasing.” PM expects inflation will ease in the months ahead, to around 8.5% Y/Y by the end of 2022 on the back of favourable base effects. “We think that the headline rate will hover around its current level over the next few months, but that a gradual headline inflation downtrend will emerge over Q3,” it says, “the COPOM probably will hike by 50bps to bring expectations down, but will recognise that further rate increases will put the economy under severe strain.”

China Activity Data (Wed): May data in China will be impacted by the tight COVID restrictions seen in Beijing and Shanghai. Industrial Production Y/Y is expected at 6.0% (vs prev. 6.8%) whilst Retail Sales is expected to have contracted 7.3% in the month (vs prev. -11.1%). Although desks are likely to overlook this data amid the ever-developing nature of the situation, analysts at S&P global suggest “a slower deterioration of conditions had been seen for mainland China in May’s PMI surveys which, if supported by the official data, could see investor focus shift more positively towards China, and also anticipate some easing of global supply constraints.” (more…)