Central banks in focus as BoE and Fed policymakers meet

  • Wednesday - The Federal Reserve will make its latest call on monetary policy. No change in rates is expected, but the market will be looking for an indication of whether such a move will be seen in July.
  • Thursday - How will the Bank of England (BoE) address rising UK inflationary pressures, combined with ongoing political uncertainty?
  • Friday - Will US manufacturing show a surprise contraction in June as the world’s largest economy feels the effects of slowing global trade?

Monday

Eurozone wage growth data is set to be released on Monday. Rising take-home salaries would increase disposable income, which should contribute to inflation growth. Expectations are for the Q1 reading to show a year-on-year uptick of 2.2%, down a shade from the 2.3% posted for the final period of 2018.  This factor paints a solid picture of people’s ability to spend; unfortunately, the rising geopolitical risk makes newly cashed-up citizens more likely to save instead.

The New York Empire State Manufacturing Index for June will be printed and could reveal fresh pressure on the US economy in the wake of the deteriorating global trade situation. The index has been moving higher since March, but a marked reversion is expected with forecasts as low as 7.0 down from the 17.8 seen in May. Although the market may be braced for disappointment here, such a move may add resolve to the Fed’s commitment over monetary policy at this week’s Federal Open Market Committee (FOMC) meeting.

Tuesday

The Federal Reserve’s two-day FOMC meeting gets underway.

The ZEW Economic Sentiment Indices for both Germany and the Eurozone will be released. Expectations are that these forward-looking indicators will show some improvement from May’s prints, with both numbers expected to return to positive territory. The German reading is set to come in at +1, up from -2.1, while the broader figure covering the currency bloc is forecast to make an even more dramatic jump into positive territory.

US Building Permits are a forward-looking indicator that show degrees of confidence in the future economy. Expectations for today’s release is a modest month-on-month expansion, resulting in 1.3 million permits filed since January. Demonstrating a robust construction sector backdrop will make it more difficult for Fed policymakers to justify a dovish stance at the next meeting.

Wednesday

UK Consumer Price Index (CPI) inflation data for May will be published. After last week’s upbeat employment and wage growth data, there’s certainly the potential for inflation to remain above the Bank of England’s 2.0% target. Expectations are for a minor increase on the April figure which contributes to a more stable inflation outlook, but political factors will outweigh traditional metrics when the direction of the country—and its leadership—is up in the air.

The Federal Reserve will announce its latest monetary policy verdict, followed by a press conference with Chief Jerome Powell. Although there’s little expectation of a rate change at this meeting - the market is pricing in a 20% chance of a rate cut—a move that appears increasingly likely in July. The wording of this upcoming meeting will be in greater focus than the policy statement as the market tries to forecast whether the Fed’s stance is moving closer to the increasingly dovish market outlook. The FOMC will also publish its quarterly economic projections, covering unemployment, inflation, and Gross Domestic Product (GDP) growth.

The Bank of England’s two-day Monetary Policy Committee (MPC) rate-setting meeting is scheduled to get underway today.

Thursday

UK Retail Sales for May will be published this morning. Forecasts are for a 0.3% month-on-month increase, following the zero-change in April. Despite mounting political and economic uncertainty, this uptick suggests consumers are spending at least some of those increased earnings so inflationary pressures will need to be addressed at some point.

The Bank of England will conclude its MPC meeting today. As long as the UK’s future in the European Union remains in question, the MPC has virtually committed to maintaining the 0.75% interest rate. With inflationary pressures creeping in, Mark Carney is likely to acknowledge that a rate hike may be necessary, although if this is accompanied by the Governor’s typical dark warnings over a no-deal Brexit, then any upside for the Pound may prove limited.

Friday

Eurozone Purchasing Managers’ Index (PMI) data from Markit will be published this morning. While wholesale improvements on May’s readings are anticipated, manufacturing is expected to remain in contraction. With an unresolved US-China trade dispute in high gear, it is no surprise that German manufacturing—the largest contributor to the bloc-wide decline—has taken a hit since its role of manufacturer of intermediate goods for China is widely known.

June’s Markit PMI data from the US will round off the week with both the services and manufacturing prints. Both readings are desperately clinging on to expansionary territory, which is a dramatically different picture than the underlying tight labour market would suggest. Last time the release highlighted softer global demand conditions and growing business uncertainty stemming from trade disputes. Attention should be paid to the release text for indications of improvement in this trend, rather than relying on the headline number.