May NFP, Q1 GDP from Australia and Switzerland, inflation data from the Eurozone and Switzerland as well as employment data from Canada and ISM PMIs from the US will highlight the week ahead of us.
USD
US – Iran deal negotiations are progressing but Strait of Hormuz remains closed. Additionally, there were some skirmishes with US reporting that they were acting in self-defence. Iranian representatives ask for a release of all their funds that are currently held frozen by the US. Later in the week we got reports that countries are agreeing to another 60-day ceasefire.
PCE data came in line with expectations. Headline showed prices growing 3.8% y/y while core showed prices rising 3.3% y/y. There were small misses on the monthly readings as headline came in at 0.2% and core at 0.4%, both lower than expected. The report shows prices rising, but increases are not getting out of control. Second estimate of Q1 GDP was revised down to 1.6% from 2% annualized in advanced reading. Positive contribution from personal consumption and business investment was revised down, same as for the negative contribution from net exports while contribution of government spending was unchanged.
The yield on a 10y Treasury started the week at 4.49%, rose to 4.54% and finished the week at around 4.47%. The yield on 2y Treasury started the week at 4.05%, rose to 4.09% and finished the week at around 4.07%. Spread between 2y and 10y Treasuries started the week at 43bp and finished the week at 43bp. The yield on a 30y Treasury stayed above 5% during the week and finished at around 5.05% FedWatchTool sees the probability of a 25bp rate cut at June meeting at around 1% while probability of no change is at around 99%. WTI prices have declined and finished the week around $90 as investors feel that deal between warring countries is imminent. S&P and NASDAQ reached new ATHs.
This week we will have ISM PMI data as well as NFP on Friday. Headline number is expected at around 102k while the unemployment rate is expected to tick up to 4.4%.
Important news for USD:
Monday:
ISM Manufacturing PMI
Wednesday:
ISM Services PMI
Friday:
NFP
Unemployment Rate
EUR
Member of ECB Execute Board Isabel Schnabel stated that there are increasing signs that inflation shock is spilling into other parts of the economy which pushes ECB to act in June and deliver a rate hike. She warned that impact of higher oil prices on growth will be stronger than anticipated and that currently economy faces upward pressures to inflation and downward pressures to growth. ECB Chief Economist Lane stated that US – Iran war increased uncertainties surrounding macroeconomic outlook and added that markets do not need forward guidance from them thus effectively confirming June hike. He reiterated that after June meeting bank will continue to be data-dependent. Lane also warned that inflation could linger for much longer after the war ends as second-round effects from high energy prices spread throughout the economy.
German preliminary inflation reading for the month of May saw headline number decline to 2.6% y/y from 2.9% y/y in April due to the decline in energy prices, as inflation declined 0.2% m/m, but core reading rose to 2.5% y/y from 2.3% y/y the previous month. French reading rose to 2.4% y/y from 2.2% y/y in April as inflation rose 0.1% m/m. Spanish print followed German as prices rose 3.2% y/y compared to 3.4% y/y increase the previous month. Italian inflation rose to 3.3% y/y from 2.7% y/y in April with core moving higher to 1.8% y/y from 1.6% y/y the previous month. Additionally, French Q1 final GDP reading saw it revised down to show economy shrank by 0.1%.
This week we will have preliminary May inflation data.
Important news for EUR:
Tuesday:
CPI
GBP
BoE Governor Bailey stated that they are closely monitoring situation in Middle East and effects it is producing adding that it will be vital for future rate path. He added that by removing rate cuts from the table they have effectively tightened monetary conditions and that due to the uncertainties caused by US – Iran war it will be appropriate to temporary tolerate above target inflation. Of course, appetite for tolerating above target inflation will quickly diminish if it leads to second-round effects.
AUD
April inflation reading saw headline number ease to 4.2% from 4.6% and print lower than 4.4% as expected. The main reason for decline were government subsidies, mainly reduction on fuel excises. That reduction will expiry in July so we can expect to see higher inflation prints from there. However, core reading ticked up to 3.4% as expected from 3.3%. The data came in broadly in line with RBA projections which reaffirms that they will be pausing in June. Q1 CAPEX spending surged 6.5% q/q, smashing expectations of 1% q/q, led by investments in data centers.
This week we will have Q1 GDP data.
Important news for AUD:
Wednesday:
GDP
NZD
RBNZ has left the Official Cash Rate (OCR) unchanged at 2.25% as was widely expected. The statement was oozing with hawkishness. First of all the vote was 3-3 with Governor Breman casting the decisive vote for hold. All six members agreed that “OCR increases at upcoming meetings would likely be necessary to ensure that higher near-term inflation does not feed through to higher medium-term inflation.” One member, Hansen, even stated that hike now will allow them to hike again in July. Conflict in the Middle East is causing upward pressures on inflation and downward pressures on growth. New projections see inflation peaking at 4.3% in Q3 and then declining to 2% by mid-2027. OCR path has been revised up and the rate is now seen at 2.51% in September of 2026, up from 2.28% in February, 3.07% from 2.62% for June of 2027 and the September 2027 forecast was revised up to 3.11% from 2.71%. The terminal rate is now projected at 3.28% in June 2029.
RBNZ Governor Breman clarified at the press conference that all members agree on need to hike rates, but their views differ on timing of those cuts. She added that conflict in Middle East is the main reason for hold, due to it causing very high uncertainty. Breman stated that even if US – Iran war got resolved immediately, inflation effects will persist. Business confidence rebounded in May as it printed 10 after -10.6 print in April. Export intentions and profit expectations surged while cost and pricing expectations 3 month out eased. Inflation expectations one year out declined to 3.63% from 3.81% the previous month.
CAD
Q1 GDP came in at -0.1% annualized vs 1.5% as expected and q/q print was flat after a -0.2% q/q print in Q4. The economy barely avoided dropping into technical recession with two negative quarterly prints but the situation is dire. The report shows that household consumption and inventories contributed to growth while gross fixed capital formation and especially imports deducted from the reading. CAD was hit hard on the print.
This week we will have employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
Prime Minister Takaichi confirmed that new budget will be passed aimed to curb household utility and gas bills. New budget will be funded with additional bond issuance. Government expects this to not have any impact on bond market as the new debt will be covered by higher tax revenues. However, increasing supply of bonds makes it a dangerous thing as it raises questions about fiscal path and could lead to lowering their prices and pushing yields higher.
May Tokyo area CPI saw headline number at 1.4% y/y, down from 1.5% y/y in March. Core measures also showed slower growth with ex fresh food category at 1.3% y/y and ex fresh food, energy at 1.6% y/y, down from 1.5% y/y and 1.9% y/y respectively. Government subsidies intended to lower utility bills caused prices to go down. BoJ remains on path to hike rates in June, but with all three measures coming lower than expected it could give some dovish members more conviction to preach for hold on rates and more careful approach.
Ministry of Finance showed that FX intervention figures for the period of 28 April to 27 May totalled JPY11.735tr which is around $74bn thus making it the largest quarterly FX intervention since 2004.
CHF
SNB total sight deposits for the week ending May 22 came in at CHF468.9bn vs CHF471.1bn the previous week. Just a small pull back towards the previous range as SNB lets market dictate Swissy’s strength.
This week we will have Q1 GDP and inflation data.
Important news for CHF:
Monday:
GDP
Thursday:
CPI
