Following the UK elections, the focus next week will continue to be on Britain as the outcome of the vote could have important ramifications for Brexit negotiations. Key events in the coming week revolve around central banks as the Bank of England, Federal Reserve and Bank of Japan all have policy meetings next week.
Bank of England
The Bank of England is widely expected to leave interest rates at 0.25% and it is considered unlikely that the Bank will cut rates further in response to the result of the vote as they did after the Brexit result last June. But if the UK economy suffers as a result of uncertainty from the new coalition Government then rates are set to stay low for the foreseeable future. Meanwhile, employment data will provide a key indication of the health of the labour market, while the May retail sales report is also due and are expected to drop 0.8% from April’s 2.7% increase, the biggest gain since January 2016. Inflation data will be closely watched as well next week. CPI jumped to 2.7% in April from 2.3% in March, the highest since mid-2013. However, wage growth lagged inflation for first time since mid-2014. BoE policy makers attribute almost all of the inflationary upsurge to drop in the value of the pound since the Brexit vote.
Federal Reserve policy meeting
All eyes will be on the FOMC meeting, with high expectations for an interest rate hike of at least 25 basis points to bring the Fed funds rate to between 1.00-1.25%. The Fed’s quarterly economic projections and Chair Janet Yellen’s speech will be closely scrutinized. The data flow recently has been disappointing and this has reduced the odds of aggressive rate hikes after June. Aside from the weaker data, political controversies surrounding US President Donald Trump have led to growing doubts about the Trump administration’s ability to pass tax and healthcare reforms through Congress. A slew of US economic data due next week includes CPI, PPI, retail sales, unemployment claims, industrial production, building permits, the preliminary University of Michigan consumer sentiment report and the Empire State manufacturing index.
Bank of Japan
Japan’s central bank is not expected to make any changes to monetary settings as the Japanese economy is still a long way from meeting the BOJ’s 2% inflation goal. Data that might be worth watching will be machinery orders for April. They are forecast to fall 1.3% month-on-month from a prior 1.4% gain.
China IP
Other key data highlights include China’s data releases on industrial production and foreign direct investment and retail sales.
Australia and New Zealand
Jobs data are due from Australia, as well as the NAB business confidence survey. New Zealand releases GDP numbers.
Eurozone
The week also sees data out of the Eurozone, including industrial production and CPI as well as the German ZEW report.