We have a heavy week ahead of us with three central bank meetings on the agenda. The FOMC, the RBA, and the Norges Bank are all expected to remain on hold and thus, attention is likely to fall on the accompanying statements. On Thursday, Eurozone’s CPIs could affect expectations with regards to the ECB’s future plans, while on Friday, investors may closely monitor the US jobs data in order to better assess the likelihood of a 4th hike by year end.
On Monday, Germany’s preliminary CPI data for April are coming out. Expectations are for the data to show that the nation’s inflation rate remained unchanged at +1.6% yoy. Something like that would increase the likelihood for Eurozone’s headline CPI rate, due out on Thursday, to stay unmoved as well.
In the US, we have personal income and spending data for March, alongside the yearly core PCE rate for the month. Kicking off with income and spending, personal income is expected to have risen at the same pace as in February (+0.4% mom), while spending is anticipated to have accelerated to +0.4% mom from +0.2% previously. That said, the acceleration in the monthly earnings print suggests that the risks to the income rate are tilted to the upside, while the spending forecast is supported by the rebound in retail sales for the month.
As for the yearly core PCE rate, the Fed’s preferred inflation measure, it is anticipated to have risen to +1.9% yoy from +1.6% in February, just shy of the Fed’s 2% objective. The case is supported by the core CPI rate for the month, which also rose (to +2.1% yoy from +1.8%). With both the headline and core CPI rates above the Fed’s inflation objective of 2%, a move of the PCE rate closer to that target could increase speculation that the Fed will eventually consider a 4th rate increase for 2018.
On Tuesday, during the Asian morning, the RBA will decide on monetary policy. Expectations are for the Bank to keep interest rates unchanged once again. Lately, the meetings of this Bank have been non-events and we believe that this one will not be an exception.
Latest inflation data showed that the headline CPI rate remained unchanged at +1.9% yoy in Q1, missing expectations of ticking up to +2.0%, while the trimmed mean CPI accelerated to +1.9% yoy, instead of staying unchanged at +1.8%. In our view, these prints are unlikely to have changed the thinking of the RBA. Both rates are still below the lower bound of the RBA’s 2-3% target range. What’s more, the headline CPI stands a tick below the Bank’s 2% projection for the first half of the year, while the trimmed mean rate is slightly above the 1.75% forecast for underlying inflation.
Read the full financial markets weekly outlook on JFD Research.