The Forex Week Ahead
The Forex Week Ahead: Personal spending, incomes, and inflation on watch this week: The Fed’s preferred inflation gauge (PCE deflator) will likely follow at least some of the already known weakness in CPI during May when it fell back three-tenths to 1.9% YoY. To keep total consumer spending growth in the black in May’s release next Friday, services spending will have to rise by enough to offset the already known 0.3% MoM drop in retail sales (both including and excluding autos) and the flat reading excluding autos and gasoline. The retail sales control group excludes autos, gas and building materials and it is used as the main input to estimating total spending but it too was flat in May. Durable goods orders: Monday’s report for May is expected to exhibit headline softness but greater resilience in core orders ex-transportation. Boeing, for example, registered just 13 plane orders in May versus 15 the month before. As usual, key will be orders ex-defence and ex-aircraft as a guide to broad underlying investment momentum. After a solid 1.3% rise in January, orders have been flat since. Consumer confidence: The Conference Board’s measure has fallen for the past two months but remains very elevated. Will it follow the already known decline in UofM sentiment? We end the week with Q1 GDP revision: Thursday’s third swing at the numbers introduces a more complete picture of services spending in Q1. It is expected to be little changed from the 1.2% second estimate that was up a touch from the 0.7% initial print.
The coming week brings another monthly test of ECB President Mario Draghi’s patience on the inflation front and further evidence of how European consumers are managing in a low inflation world. Ahead of next Friday’s update for June, recall that Eurozone core CPI had fallen back to under 1% YoY in May. It’s likely to remain under little pressure. A brief rise to 1.2% in April had sparked premature market talk of policy exits that ECB President Mario Draghi subsequently stamped out through dovish guidance. Incrementally more hawkish market sentiment never really made much sense at the time since the spike in April this year reflected the base effect of a spike down in April of last year that proved to be very fleeting.
UK markets will only have a Q1 GDP revision and a monthly services index for April to digest over the coming week and they will have to wait until Friday to get both of them. Data however, may take a back seat this week to any news on the Brexit or any comments on the outlook for U.K. monetary policy by BOE officials.
Japan releases May estimates for retail sales on Wednesday evening eastern time, and then the following night it updates national and Tokyo CPI, the jobless rate, industrial production, vehicle production and housing starts. While important, the data may once again take a backseat to broader moves in global financial markets and to the overall state of investor risk appetite.