Interest rates, inflation, and labour data in focus

Tuesday - How is political uncertainty and Brexit disarray impacting UK employment?

Wednesday - Will US inflation data add to calls for a quick rate cut from the Federal Reserve?

Friday - Italian manufacturing data could raise concerns that Rome needs to find fresh ways to stimulate its economy without incurring the wrath of the European Commission.

Monday

US Consumer Inflation Expectations will be released and is anticipated to remain unchanged from April at 2.6%. However, the recent dovish turn by the Federal Open Market Committee (FOMC) will be harder to maintain if inflationary pressure is evident. 

Tuesday

UK Employment Change, Unemployment Rate, and Average Weekly Earnings data for April will be published this morning. There’s an expectation that both readings will be largely unchanged from the March print, with a jobless rate of around 3.8% and wages up 3.3% on the year. When other major central banks are moving towards rate cuts, these robust employment statistics don’t argue for similar easing action and may leave the Bank of England (BoE) out of step. Political uncertainty, however, has the potential to keep Sterling gains in check.

Wednesday

The US Consumer Price Index (CPI) for May is set to be published, and there is some concern that this could dip below the 2.0% target level. Although the Federal Reserve uses the Personal Consumption and Expenditure print as its preferred measure of inflation, the expected declining readings feed into the recent dovish Fed stance and have the potential to weaken the Dollar.

Thursday

German Consumer Price Inflation data for May is expected to hold steady at an unimpressive 0.2%. Last week, European Central Bank (ECB) Chief Mario Draghi laid out plans for policy easing, although ironically at higher-than-expected interest rates. In the event this reading disappoints, the opinion may be that the ECB Chief was too hawkish, and the Euro may be squeezed.

Following disappointing readings in March, posting a month-on-month 0.3% increase, Eurozone Industrial Production is forecast to moderate slightly to -0.2%. The market acknowledged that economic weakness is building in the Eurozone, but a further deterioration still carries downside risk for the common currency.

Friday

Italian Industrial Orders and Sales data for April will be published this morning. The Italian manufacturing sector had been languishing after the country’s economy dipped into recession earlier this year. The rebound in March, which registered a 2.2% month-on-month increase, may be fragile, and easily upset by the EU budgetary dispute. Expectations are for a print as low as -0.7%, which will heap pressure onto the government in Rome to organise an effective stimulus package with Brussels which doesn’t breach spending limits.

Inflation is a point of debate among the Fed policy circle, which forecast inflation appears likely to break either way.  The May US Retail Sales figure is likely to play an important role in this debate. After dipping into negative territory in April with a print of -0.2%, modest expansion of around 0.6% is forecast. This would push the annualised rate to something comfortably above 3.0% and could remove some of the urgency for the Federal Reserve to jump in with a rate cut.