Brexit developments will likely continue to dominate the coming week following the UK’s decision on Thursday to leave the European Union. However, upcoming data out of the US and Japan will be closely monitored as it could sway Fed and Bank of Japan policy.
Spanish elections could bring more shocks to the Eurozone
Hot on the heels of the UK’s leave vote, the EU could face more headache this weekend as Spain heads to the polls for the second time in as many months after December’s elections failed to produce a majority. The left-wing anti-austerity party, Podemos, came third in December and could finish second in Sunday’s vote. A new coalition made up of far-left parties could upset Spain’s austerity and reforms program, putting it on collision course with the rest of the Eurozone. Fresh political uncertainty would also add to the euro’s woes, which is already facing pressure from the UK leave vote.
In terms of data, the main indicators to watch out of the Eurozone are the economic sentiment survey and flash inflation readings. Economic sentiment across the euro area is expected to be little changed in June compared to May. The index is forecast to remain unchanged at 104.7 when the data is released on Wednesday. Flash inflation figures are out on Thursday and are expected to show that Eurozone prices were flat in June. CPI is forecast at 0%, up from -0.1% in May, while core CPI is expected to stay unchanged at 0.8%.
Busy week for Japanese data
The UK’s Brexit win has given the Bank of Japan plenty of reason to thrust ahead with extra stimulus but data coming out next week may be what pulls the trigger at the Bank’s July meeting. Preliminary industrial production figures out on Wednesday are expected to show output declining by 0.1% month-on-month in May after a 0.5% rise the prior month. Household spending out on Thursday is also expected to be weak and is forecast to have dropped by 0.2% month-on-month in May, reversing the previous month’s gain. Also out on Thursday are the latest inflation figures. Core CPI is expected to fall deeper into negative territory, at -0.4% year-on-year in May, versus -0.3% in April.
Finally on Thursday, the Bank of Japan’s quarterly Tankan survey will be watched as it provides a glimpse into Japanese business sentiment. The manufacturing and non-manufacturing indices are forecast to show that current and future business expectations were unchanged or deteriorated slightly in the second quarter. The only bright spot is expected to come from the capital expenditure index, which is forecast to have improved in the second quarter.
China manufacturing activity to hold steady
China’s closely watched manufacturing PMIs are due to come out on Friday but are not expected to show any signs of a recovery. However, they are likely to confirm that the manufacturing sector is stabilizing with both the official and Caixin manufacturing PMIs holding steady in June. The government’s manufacturing PMI measure is forecast to dip slightly from 50.1 to 50.0 in June, while the private Caixin manufacturing PMI is expected to stay unchanged at 49.2.
US data expected to be broadly positive
Positive data out of the US next week is unlikely to convince the Fed to increase interest rates in the coming months but may influence the decision on whether to raise rates later in the year. Starting with the final estimate of first quarter GDP out on Tuesday, US economic growth will likely be revised up from 0.8% to 1.0%. The consumer confidence index out the same day is forecast to improve from 92.6 in May to 93.7 in June. On Wednesday, the personal income and spending figures are due and are expected to show personal income and consumer spending growing at a steady pace. Personal income is forecast to rise by 0.3% month-on-month in May, slightly slower than the 0.4% rate of the previous month. Personal consumption expenditure, which jumped by 1% in April, is forecast to ease to 0.4% in May. The Fed’s closely watched inflation gauge, the core PCE price index, is expected to stay unchanged at 1.6% year-on-year in May.
Also to watch next week is the ISM manufacturing PMI out on Friday. The ISM manufacturing PMI had rebounded in recent months after falling below 50 in late 2015/early 2016. Moderate expansion in US manufacturing activity is expected to continue in June with the index rising to 51.5 from 51.3 in May.
Spanish elections could bring more shocks to the Eurozone
Hot on the heels of the UK’s leave vote, the EU could face more headache this weekend as Spain heads to the polls for the second time in as many months after December’s elections failed to produce a majority. The left-wing anti-austerity party, Podemos, came third in December and could finish second in Sunday’s vote. A new coalition made up of far-left parties could upset Spain’s austerity and reforms program, putting it on collision course with the rest of the Eurozone. Fresh political uncertainty would also add to the euro’s woes, which is already facing pressure from the UK leave vote.
In terms of data, the main indicators to watch out of the Eurozone are the economic sentiment survey and flash inflation readings. Economic sentiment across the euro area is expected to be little changed in June compared to May. The index is forecast to remain unchanged at 104.7 when the data is released on Wednesday. Flash inflation figures are out on Thursday and are expected to show that Eurozone prices were flat in June. CPI is forecast at 0%, up from -0.1% in May, while core CPI is expected to stay unchanged at 0.8%.
Busy week for Japanese data
The UK’s Brexit win has given the Bank of Japan plenty of reason to thrust ahead with extra stimulus but data coming out next week may be what pulls the trigger at the Bank’s July meeting. Preliminary industrial production figures out on Wednesday are expected to show output declining by 0.1% month-on-month in May after a 0.5% rise the prior month. Household spending out on Thursday is also expected to be weak and is forecast to have dropped by 0.2% month-on-month in May, reversing the previous month’s gain. Also out on Thursday are the latest inflation figures. Core CPI is expected to fall deeper into negative territory, at -0.4% year-on-year in May, versus -0.3% in April.
Finally on Thursday, the Bank of Japan’s quarterly Tankan survey will be watched as it provides a glimpse into Japanese business sentiment. The manufacturing and non-manufacturing indices are forecast to show that current and future business expectations were unchanged or deteriorated slightly in the second quarter. The only bright spot is expected to come from the capital expenditure index, which is forecast to have improved in the second quarter.
China manufacturing activity to hold steady
China’s closely watched manufacturing PMIs are due to come out on Friday but are not expected to show any signs of a recovery. However, they are likely to confirm that the manufacturing sector is stabilizing with both the official and Caixin manufacturing PMIs holding steady in June. The government’s manufacturing PMI measure is forecast to dip slightly from 50.1 to 50.0 in June, while the private Caixin manufacturing PMI is expected to stay unchanged at 49.2.
US data expected to be broadly positive
Positive data out of the US next week is unlikely to convince the Fed to increase interest rates in the coming months but may influence the decision on whether to raise rates later in the year. Starting with the final estimate of first quarter GDP out on Tuesday, US economic growth will likely be revised up from 0.8% to 1.0%. The consumer confidence index out the same day is forecast to improve from 92.6 in May to 93.7 in June. On Wednesday, the personal income and spending figures are due and are expected to show personal income and consumer spending growing at a steady pace. Personal income is forecast to rise by 0.3% month-on-month in May, slightly slower than the 0.4% rate of the previous month. Personal consumption expenditure, which jumped by 1% in April, is forecast to ease to 0.4% in May. The Fed’s closely watched inflation gauge, the core PCE price index, is expected to stay unchanged at 1.6% year-on-year in May.
Also to watch next week is the ISM manufacturing PMI out on Friday. The ISM manufacturing PMI had rebounded in recent months after falling below 50 in late 2015/early 2016. Moderate expansion in US manufacturing activity is expected to continue in June with the index rising to 51.5 from 51.3 in May.