Macroeconomics: The Day Ahead for 24 June

The week finishes with a reasonably busy schedule of statistics and another barrage of ECB, Fed and BoE speakers. There are the UK GfK Consumer Confidence and Retail Sales, along with Japan’s CPI and Services PPI to digest, while ahead lie Germany’s Ifo Business Climate, Brazil IPCA-15 inflation, and US New Home Sales (seen eking out a 0.2% m/m gain, but with risk to the downside). In terms of the run of central bank speakers, the panel with RBA’s Lowe, ECB’s de Guindos and Fed’ Bullard may be of most interest in terms of highlighting differing degrees of ‘aggressive’ monetary policy tightening in play at the current juncture, while EU concludes its two day leaders’ Summit. Next week brings and end to another tumultuous quarter, with some portfolio rebalancing dominating flows, even if the outlook for H2 appears to be a case of “wash, rinse, repeat” in terms of there still being little visibility on economic, monetary or geopolitical outlooks. The US dominates the data schedule via way of Consumer Confidence, Durable Goods, Personal Income/PCE, House Prices and Auto Sales, the Eurozone has provisional CPI readings, the UK looking to credit aggregates, BRC Shop and Nationwide House Prices, while Japan has CPI and BoJ Q2 Tankan, Canada April GDP and Australia Retail Sales, and the week ending with Manufacturing PMIs/ISM. It also sees the ECB’s annual Sintra forum, its equivalent to the Fed’s Jackson Hole event, with many G7 central bankers speaking at the event. The sharp drop in govt bond yields (but not credit spreads) over the week underlines that the pendulum has once again sharply back to growth fears, with markets now pricing in a peak in the US Fed Funds rate just over 3.50%, as against 4.05% just 10 days ago, and for the peak to be reached in December 2022 as against March 2023 10 days ago. Treasury yields also appear to have peaked in the short-term, though how much of this is attributable to the fluid views on rates, and how much reflects quarter end influences remains to be seen.

** U.K. – May Retail Sales / June GfK Consumer Confidence

– Following on from the new high in CPI, and deceptively better than expected PMIs, deceptive given a very sharp drop in business outlooks (largest fall since the start of Covid), the week ends with what was always going to offer a counter to those arguing for rather more aggressive BoE policy tightening. GfK Consumer Confidence slipped to a new low, with all sub-categories on Personal Finances, economic outlook and Willingness to Buy drifting lower, while Retail Sales fell -0.5% m/m slightly less than the expected -0.7%. The latter fall was paced by Food -1.6% m/m, doubtless reflecting inflation pressures, though offset by a 2.2% m/m rebound in Clothing & Footwear, while Household Goods fell 2.3% m/m, which left overall Non-Food store sales flat m/m. The headwinds to consumer spending are therefore obvious, and the BoE majority will probably still feel vindicated in not adopting a more aggressive policy stance.

** Germany – June Ifo Business Climate **

– Following on from the much sharper than expected falls in both PMIs, the ‘whisper’ on the Street will be a lot lower than the forecast of little change at 92.8 vs. May’s 93.0 on headline, which was predicated on a slip in Current Assessment and a slight pick-up in Expectations. While the survey response submission period will not have included yesterday’s move up on the Gas Emergency level to the second-highest ‘alarm’, most businesses will nevertheless have been aware of the increasing threat of a cessation of Russian gas supplies, and a concomitant move to ration supplies as a consequence.