Deutsche – Next Week: FXWW

From the FXWW Chatroom: There’s a plethora of potentially pivotal and market sensitive events worth keeping an eye on next week. The ECB, Fed and BoJ will all hold monetary policy meetings, while the unprecedented summit between President Trump and North Korean Leader Kim Jong Un is also on the cards. Data releases include US CPI and retail sales as well as final CPI reports throughout Europe and China, while Brexit developments shouldn’t be too far from the spotlight.

The ECB might well be the most potentially interesting of the central bank meetings next week on Thursday after the coordinated signals sent by ECB speakers this week that the meeting is a live one for debating the end of QE. Indeed the general feeling now is that we’ll get an announcement but whether its this meeting or next, our economists continue to expect QE to end in December 2018 following a Q4 taper. It’s worth noting that next week’s meeting will also contain new economic projections from ECB officials so that’ll be worth watching.

Warming up the ECB will be the Fed on Wednesday. The overwhelming consensus is for another 25bp hike, a view shared by our US economists. As a reminder this is a meeting which includes a Powell press conference and also an updated summary of economic projections. The minutes to the last meeting didn’t necessarily indicate whether the one additional vote needed to move the median dot from three to four rate hikes this year would be forthcoming at next week’s meeting although data since then, and especially pricing pressure, has been slightly stronger than expected at the margin. Our economists expect 4 hikes this year while the market is assigning a 43% probability of that happening, albeit the highest probability that has been this year.

The final central bank meeting next week is the BoJ on Friday. No surprises are expected with policy expected to stay unchanged although some mixed comments on the state of the economy from Governor Kuroda in recent weeks could be a focus.

Away from central banks, the watershed moment for politics next week is the planned meeting between President Trump and North Korean leader Kim Jong Un on Tuesday in Singapore. It’s almost impossible to predict what may or may not happen in terms of a deal being struck, and balancing sanctions relief versus denuclearization, but its almost certain to be a highly sensitive event for markets either way. The first meeting kicks off at 9am local time (2am BST, 9pm EST).

Outside of central bank meetings and the Trump-Kim Jong Un showdown, the US CPI report on Tuesday for May is the big data highlight next week. As has been the case for the 31 months before this one (but of which only 17 have been correct), the consensus is for a +0.2% mom core print which would lift the annual rate one-tenth to +2.2% and the highest since February last year. The headline is expected to also come in at +0.2% mom which would push the annual rate up two-tenths to +2.7%.

In terms of other US data next week worth keeping an eye on, one day after the CPI report and just hours before the Fed decision we’ll get the May PPI report on Wednesday where current expectations are for a +0.3% mom headline reading and +0.2% mom core reading. On Thursday we’ll then get the May retail sales report with the consensus currently pegged at +0.4% mom for the headline, and +0.3% mom for the control group (which as a reminder goes into the GDP accounts). Finally on Friday, the May industrial production print will be closely watched (+0.3% mom expected) as well as the preliminary June University of Michigan consumer sentiment report.

Closer to home, in Europe outside of the obvious ECB meeting, the rest of the week will also be about inflation data. Final May CPI revisions are due to be made in Germany and France on Thursday and the Eurozone on Friday. The latter is not expected to show any change from the +1.1% yoy flash reading for the core. It’s worth noting that the rise in May resulted in our European economists revising up their 2018-year end forecast by one-tenth to +1.4% yoy. Meanwhile, the UK CPI/PPI/RPI report will also be out on Wednesday (our economists expect RPI to rise to +3.5% yoy and headline CPI to hold at +2.4% yoy) while CPI prints in Spain and Italy are due on Wednesday and Friday, respectively. Outside of that the June ZEW survey is due in Germany on Tuesday and May UK retail sales on Thursday.

As for China, continuing the theme of it being a big week for inflation, tomorrow we’ll get the May CPI and PPI prints in China. In terms of expectations, CPI is expected to hold at +1.8% yoy but PPI is expected to rise half a percent to +3.9% yoy. That’s not all in China as later in the week on Thursday we’ll get the May monthly data dump including retail sales (+9.6% yoy expected from +9.4%), industrial production (+7.0% yoy expected – unchanged) and fixed asset investment (+7.0% yoy expected – unchanged).

Elsewhere, it’ll be difficult to keep Brexit headlines out of the spotlight next week too with UK Brexit Secretary David Davis due to meet EU Chief Negotiator Michal Barnier in Brussels on Monday, and then the UK Parliament is due to hold a 12-hour session on Brexit legislation including the various amendments proposed, on Tuesday.

Finally, a few other events to keep an eye on next week include the conclusion of the G7 meeting tomorrow in Quebec, the first round mayoral elections in Italy on Sunday which should test the new populist government support, German Finance Minister Olaf Scholz discussing EU reform in a panel interview on Monday, and EU Trade Chief Cecilia Malmstrom speaking on Friday in Brussels.

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