Macroeconomics: The Day Ahead for 16 June

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EVENTS PREVIEW

Central banks are again to the fore on today’s agenda following on from the Fed’s 75 bps hike and the unexpected and aggressive Swiss National Bank 50 bps hike to -0.25% bps rate, with the RBA’s SOMP (Statement on Monetary Policy) to digest ahead of the BoE rate decision today and BoJ tonight, while there is a further array of ECB speakers, after yesterday’s ’emergency’ ECB meeting communique proving very underwhelming. The ECB committed to use PEPP reinvestment ‘flexibly’ without specifying how far it would stray from the strictures of the ‘capital key’, which could trigger a German constitutional challenge. It also tasked its committee to devise a ‘new’ anti-fragmentation key, though this could well take some time. The fact is all of this could have been announced at last week’s meeting, per se it hardly enhances the ECB’s credibility, even if was sufficient to prompt a short-covering rally in peripheral spreads, which looked to be a case of some position squaring and lightening of positions ahead of the FOMC. Statistically there are Japan’s Trade, Australian Unemployment and China House Prices to digest, while ahead lies US Housing Starts, Philly Fed Manufacturing survey and weekly Jobless Claims, but the run of data is likely to be roadkill following the SNB and Fed moves.

 

** U.K. – BoE MPC rate decision **

– The Bank of England is expected to stick to its less aggressive rate path, with a 25 bps rate hike to 1.25%. As this is a non-Monetary Policy Report meeting, the focus will initially be on the degree of dissent on the vote (consensus looks for 6-3, with Haskel, Mann & Saunders voting for 50 bps), along with the statement and minutes. The MPC faces an unenviable task, with inflation skyrocketing, inflation expectations jumping, forecasters predicting the economy will at best stagnate in 2023 if not fall into recession, and its public approval rating falling into negative territory for the first time since it gained independence in 1997 (not to mention a chaotic and beleaguered government). It is likely to stick to its very loose guidance on rates, i.e. that further rate hikes ‘may be necessary’ in coming months. The key question for this meeting is whether it sees the latest fiscal measures as easing the pressure on household spending, and by extension mitigating some of the recession risks.

 

** Japan – BoJ rate decision **

– Tomorrow morning brings an expected no change Bank of Japan rate decision, and it is seen on hold for the next year. While inflation is finally just above 2.0%, the BoJ does not believe that this will prove to be durable, and is thus sticking resolutely to it current ultra-accommodative policy settings. This in turn has kept the JPY under considerable pressure, even if the relatively low level of inflation as compared with its G7 peers actually means that it has the highest (though negative) real interest rates. Japanese authorities have collectively been jawboning about JPY weakness being excessive, but as yet only threatened, rather than taken action. For the time being the BoJ is rather more pre-occupied with ensuring that the upper bound of the 10 yr JGB target range at 0.25%, and it is assumed it will underline its commitment to this at tomorrow. Given no change in policy or hint thereof going forward, the focus will be on its economic assessment, which is likely to see growth expectations lowered (despite the strong orders and upbeat monthly Tankan reported earlier this week). It will also likely stress that inflation pressures are due to currency pressures on import costs, and definitely not being paced by domestic demand.

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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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