Week Ahead

June 17th - June 21st

US Retail Sales (Tue):

Headline retail sales are expected to rise +0.3% M/M in May (prev. +0.0%); the ex-autos measure is seen rising 0.2% M/M (prev. 0.2%). Bank of America's monthly consumer checkpoint data for the month noted that consumer spending momentum continues to appear soft but stable; according to its internal data, total card spending per household was up 0.7% Y/Y in May following the 1.0% Y/Y increase in April. The report adds the gap between older and younger generations' spending growth has narrowed which could reflect the fading impact of the 2023 cost-of-living adjustment (COLA) on social security benefits, alongside strong after-tax wage growth for younger cohorts. Further still, BofA adds "Gen Z and younger Millennials' share of spending on discretionary items is declining potentially due to increasing spending commitments as they get older. However, higher costs in non-discretionary services is also a headwind". On the flipside, to counter these pressures BofA finds some evidence that the younger generations are 'trading down' in grocery shopping and restaurant decisions. Nonetheless, while the strength in the younger generations' labour market, such as wages and salary growth, has allowed a majority to navigate these challenges, there are signs of increased financial pressures for some.

UK Inflation (Wed):

Expectations are for CPI Y/Y to print at 2.0% (prev. 2.3%) for May, which if correct would be just above the MPC's forecast of 1.9%. As a reminder, the prior release saw headline inflation slip to 2.3% from 3.2% (driven lower by declining gas and electricity prices), core decline to 3.9% from 4.2% and services tick lower to 5.9% from 6.0% with the latter being a disappointment relative to the MPC's forecast of 5.5%. For the upcoming release, economists at Pantheon Macroeconomics expect headline inflation to hit the BoE's 2% mandate with most of the decline attributable to "core goods and services, as large base effects reduce annual inflation". For services inflation specifically, the consultancy estimates that "half of the April services inflation surprise was a one-off" that will drop out in May and lead to a decline to 5.5% from 5.9%. PM adds that "inflation is proving persistent, but it isn't as strong as the April figures in isolation suggest". That being said, services inflation will likely remain sticky in the coming months. From a policy perspective, a June rate cut is priced at just 10% with the first-rate reduction not fully priced until November (Sep at -22bp) and a total of 41bps of easing seen by year-end. Given the sheer volume of data due between now and September, the upcoming release may have little sway on market pricing, particularly with the BoE (see below for a preview of the event) set to come to market the following day with its latest policy statement and minutes which will offer clues over the future policy path.

New Zealand GDP (Wed):

There are no expectations currently for the GDP. Westpac forecasts a 0.2% Q/Q decline in New Zealand's GDP for Q1 2024, marking the fifth decline in the last six quarters, contrary to the RBNZ's expectation of a 0.2% rise. "Considering how overheated the economy had become in previous years, it's likely that we're only just moving into 'cool' territory", the analysts said. The desk highlights that key sectors show mixed performance: manufacturing (excluding food) has declined for two years, with significant drops in chemicals and machinery, while construction activity also fell as previous project pipelines dwindled. Conversely, agriculture and food manufacturing improved due to increased milk production and recovery from Cyclone Gabrielle, and tourism-related sectors like transport and hospitality benefited from higher overseas visitor numbers. GDP per person has decreased by 4% from its 2022 peak, with the unemployment rate rising to 4.3%, indicating a cooling labour market. Indicators such as the PMI and PSI surveys show a slight uptick in early 2024, but sustained sub-par activity is needed for confidence in inflation control. "A weaker result would support an earlier start date for OCR cuts, though it may be tempered by uncertainty around the economy's growth potential", Westpac says.

Japanese CPI (Fri):

There are currently no expectations. Ahead of the release, the Tokyo CPI metric is typically used as a precursor. Tokyo CPI rose to 2.2% Y/Y in May (prev. 1.8% in April), aligning with the market consensus of 2.2%. Core inflation, excluding fresh food, increased to 1.9% Y/Y (prev. 1.6%), also met the market expectation. Utility prices were a significant factor in the increase in higher utility fees, which rose 4.7% in May compared to a decrease of 3.0% in April. Goods prices saw a moderate rise in the prices of various goods. Conversely, prices in the services sector, including transportation, education, and entertainment, saw moderated growth. Given that Tokyo inflation trends often precede national CPI results, consumer prices are expected to increase to nearly 3% Y/Y in the coming months from the 2.5% Y/Y rise in April, according to the desk at ING, who added that the weak JPY and anticipated large wage increases are expected to further intensify inflationary pressures.

UK Retail Sales (Fri):

Expectations are for a M/M rebound to 0.7% (prev. -2.3%) as the prior period was hit by poor weather. However, the BRC report showed only a modest rebound in May's retail sales, though KPMG says the influence of a falling CPI rate "which means volumes are not declining as quickly, may help to soften the blow for hard-working retailers.". Ahead, BRC wrote that retailers "remain optimistic that major events such as the Euros and the Olympics will bolster consumer confidence this summer.". Barclaycard's spending monitor has similar points, highlighting that falling inflation and energy bills (after the Ofgem cap reduction) have eased pressure on households, however, this comes against increasing rental & mortgage expenditures; overall, writing that signs of optimism are emerging. Note, the release is likely to have little sway on market pricing surrounding the BoE given that we will hear from the bank during the prior session and with the MPC focused primarily on services inflation and real wage growth.

UK Flash PMI (Fri):

UK PMIs will be released the day after the BoE and thus will not have a bearing on next week's confab, but nonetheless will be eyed for anecdotal commentary on the economy. UK Services PMI is seen ticking slightly higher to 53.0 from 52.9, while the Manufacturing and Composite have no expectations at the time of writing. In terms of the prior release, S&P Global in the Final May release suggested "It is worth noting however that the PMI's gauge of UK services inflation is still sitting well above its pre-pandemic trend, which may give more weight to those suggesting the Bank of England hold out until August to loosen policy".

EZ Flash PMI (Fri):

EZ Flash Manufacturing PMI is forecast to rise to 48.0 from 47.3, and Services is expected at 53.6 (prev. 53.2), bringing the Composite to 52.5 (prev. 52.2). As usual, desks will also dig into the release for anecdotal commentary on sentiment, growth, inflation and wages. Analysts at Oxford Economics suggest the June flash PMI for the EZ is "expected to show improvement in growth momentum as the services sector is likely to maintain healthy activity rises while manufacturing bottoms out. Beyond the headline and sector-level performance, we will scrutinize the figures for Germany and France following opposite signals in May. The German composite PMI rose to a one-year high in May, while the French index fell back into contraction."

US Flash PMIS (Fri): There are no expectations for the US Flash PMIs, but the metrics have a tendency to move broader markets – particularly in the absence of the US ISM PMIs straight after. In terms of the priors, Manufacturing was at 51.3, Services at 54.8 and Composite at 54.5. Traders will be dissecting the release for anecdotal commentary on growth, inflation, wages and overall sentiment among respondents, particularly after the soft price-related outturns in the sessions around the FOMC.