Market movers ahead- This week's highlight is the much awaited Trump-Xi meeting at the G20 meeting on Friday - Saturday. Odds are rising for a ceasefire (again) in the trade war.
- It is a slow week for global data, with the most important figure being the euro inflation print on Friday.
- The change in central bank tunes will be the talk of the town in financial markets.
Weekly wrap-up
- Central banks in the euro area and the US sent a clear signal this week that they are getting ready to step on the gas to underpin growth and inflation.
- The Fed joined the dovish choir on Wednesday.
- On the US-China trade war we received the first positive news for a while.
- Tensions between the US and Iran continue to run high.
- In the UK it looks as if Boris Johnson will become the new leader of the Conservative Party and Prime Minister.
Market movers
Global
In the US, we have a quiet week next week in terms of data releases. We are curious whether the regional PMIs released during the week will paint the same picture as the very weak Empire PMI manufacturing released this week. Besides that the two highlights are the release of the preliminary core capex orders for May due out on Wednesday and the PCE core inflation print in May due out Friday.
We also have a string of FOMC speeches, which given this week’s dovish policy signal will also attract attention, see FOMC review, 20 June. We want to know who on the committee is in the dovish camp and who is in the neutral camp. We will also look for any indications whether the Fed will make a big 50bp cut instead of ‘just’ 25bp.
In the euro area, we get the flash HICP figures for June on Friday. In May, core and headline inflation disappointed markets and fell back to 0.8% and 1.2%, respectively. For the June print we expect euro inflation to continue its roller-coaster ride, as base effects remain in the driver's seat and we look for core inflation to jump back to 1.3% (see more in EUR inflation roller-coaster continues, 18 June).
In the UK, we find that the two final Conservative candidates are Boris Johnson and Jeremy Hunt. It is now up to the party members to vote on which candidate they prefer. Based on opinion polls, Boris Johnson is clearly favourite to win a landslide victory. While Boris Johnson is more pro-Brexit and does not rule out a no-deal Brexit, we stress that he inherits the same problems PM Theresa May faced, as there still seems to be a small majority in the House of Commons against a no-deal Brexit if it comes down to the wire. The result of the leadership vote is announced on 22 July.
In terms of economic data releases, it is a quiet week, with consumer confidence and Lloyds (LON:LLOY) Business Barometers the two most important.
In Japan, we have a quiet start to the week. Then on Thursday, we get May retail sales. They have been weak this year – y/y rate still above zero, though. With real wages currently declining, it is hard to see much of a pickup on the cards here. On Friday, May industrial production ticks in. Manufacturing PMIs suggest we are in for a fairly weak print.
Key focus in China will be the G20 meeting where the odds are rising that we could have a ceasefire (again) in the trade war after Trump had a phone conversation with Chinese President Xi Jinping this week. Trump apparently initiated the phone call, which to us is a sign that he would like to get the trade talks going again. And we doubt that China will say no to that. The two sides’ trade teams will apparently meet in Osaka on Tuesday to prepare for the meeting. The Xi-Trump meeting will likely take place on Saturday 29 June after the official G20 meeting is over, as was the case at the G20 meeting in Argentina in December.
We expect the Reserve Bank of New Zealand to keep policy rates unchanged at 1.5 % at its meeting next week. Weak economic data have recently indicated that another rate cut could be in the offing following the May cut, but we do not expect the next rate cut to come until later this year.
Scandi
There will be a series of data releases for the Danish economy in the coming week. Wednesday should see the release of Statistics Denmark’s May figures for retail sales, usually a good indicator for how private consumption is trending. Retail sales growth has been rather subdued of late despite growing real wages, low interest rates and rising house prices, so it will be interesting to see if the lacklustre tempo continues.
Business confidence is due on Thursday, presenting a snapshot of how things are going in corporate Denmark. Business confidence remains rather low, but has been on the rise in the past few months. Industrial production was up 0.5% in April – and that came on top of an already historically high level. The business confidence figures may give an indication of what we can expect going forward.
Friday is scheduled to bring new figures for how property prices developed in April and how unemployment trended in May. Apartment prices have stagnated in the past year as a result of tighter credit controls and rising supply, and our expectation is that they will fall a little further in the coming years given the prospect of rising property taxes in the more expensive areas. By contrast, we expect house prices will continue to rise at more or less the same tempo as in the past few months. Unemployment has been stable all year, and we are expecting no great change in the immediate future.
Swedish Retail sales growth has strengthened over the past few months, but looks a bit exaggerated in our view against the backdrop of retail confidence just above normal and consumer confidence well below. We look for a slowdown to 3.0 % y/y in May.
The May trade balance is likely to remain largely unchanged at a surplus of SEK1bn. Exports have been a bit stronger over the past couple of months.
In Norway, retail sales have been weak since spring last year but surprised to the upside in April after a tentative increase in March. It is still too early, however, to conclude that the underlying trend has turned as we have been predicting, with lower power prices boosting purchasing power. We reckon part of the increase in April was down to seasonal factors around Easter and therefore expect retail sales to fall again by 1.0% m/m in May, but that does not necessarily mean that they are not now picking up. The NAV’s unemployment measure surprised in May by climbing to a seasonally adjusted 2.3%. All leading indicators, for both the labour market and the wider economy, point to growth holding up and to further strong demand for labour. We therefore expect registered unemployment to drop back to 2.2% in June. Growing shortages of skilled labour nevertheless spell a risk that unemployment will not fall much further. The week also brings the LFS jobless rate, which we expect will be unchanged at 3.5% in April (March-May).
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