Macroeconomics: The Day Ahead for 21 June

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.