Macroeconomics: The Day Ahead for 21 June

  • Subdued start to a modest week for data and events, digesting Korea Trade and UK House Prices, awaiting gaggle of Fed speakers and Chicago Fed National Activity Index; EU MARS crop bulletin

  • Week Ahead: data light week to find its focus in Fed speak and busy run of business and consumer surveys in US and Europe: US Durables, Home Sales and PCE deflators, Tokyo CPI and Canada Retail Sales; BoE meeting; light week for govt bond supply outside US, few corporate earnings

  • Week Ahead: forecasts for surveys as ever agnostic and consensual, some risks from nature of diffusion indices and well documented supply disruptions

  • Week Ahead: Fed “shift” a surprise, but question is whether it prompts stop hunting and unwinding of positional skews, far from signalling end of financial repression

EVENTS PREVIEW

What is an overall quiet week for data gets off to a very subdued start, with only UK Rightmove House Prices and South Korea’s June 1-20 Trade data to digest, and only the usually non-market moving US Chicago Fed National Activity Index ahead. As markets remain totally focussed on when the Fed might move to start tapering, and indeed opt for a first rate hike, it will be the first of a busy run of Fed speakers this week, which will top the events agenda, with known hawks Bullard and Kaplan accompanied by the generally dovish NY Fed’s Williams. By contrast the ECB looks to be some distance away from offering any hints that it is considering tapering QE policy, let alone any thoughts about raising interest rates, as Madame Lagarde will likely re-confirm in regular testimony to the European Parliament today. The prospective divergence between the Fed and ECB policy settings should continue to underpin a widening 10-yr Treasury/Bund yield spread, and in turn support the USD. Ultimately the key question is whether the Fed’s perceived policy shift, the resulting curve shifts, and the technical moves to ease tensions in US money markets force any significant position liquidations, above all given ongoing skews and the underlying lack of depth in many cash markets. In the commodities space, the EU publishes its monthly MARS crop bulletin.

 

As noted, it is a light week for data with business and consumer surveys likely to be the most likely market movers via way of the array of G7 flash PMIs, Germany’s Ifo and GfK, UK CBI and French business surveys. The consensus forecasts for these are typically agnostic (i.e. assuming little change), though European Services are unsurprisingly seen improving as lockdown measures are unwound. The key short-term risks for these surveys is a) that there is some loss of momentum simply because these are diffusion indices, i.e. there is only so long that companies will report business conditions being better than the previous month, and thus see them still reporting solid levels of output, but unchanged vs. prior months, thus weighing on indices. b) The continued and widespread supply chain disruptions appear unlikely to resolve themselves until well in the first half of 2022, and may temper optimism. Otherwise the US has Durable goods Orders, New and Existing Home Sales, Advance Goods Trade Balance and Personal Income/PCE, the latter will obviously be closely watched for the deflators, though the divergence with the already reported CPI readings will likely be minimal. Elsewhere there are Japan’s Tokyo CPI, UK PSNB Bugdet data and Canadian Retail Sales. On the central bank front, there are numerous ECB speakers to accompany the deluge of Fed speakers, while the BoE’s policy meeting is expected to see rates and QE monthly purchase pace left unchanged, though the departing chief economist Haldane will doubtless vote again for some QE rollback given his strongly worded concerns that the BoE MPC is underestimating potential inflationary pressures due to the strenght of the recovery. But it will be how governor Bailey pitches the balance of risk, mostly likely two sided, given the latest spike in infection rates. Govt bond supply sees 2, 5 & 7-yr sales in the US, with a light schedule in the UK and Eurozone, while it will also be another light week for corporate earnings.

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Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

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