Market Outlook for the Week of 17 – 21 June

On Monday, the focus in the U.S. will be on the Empire State Manufacturing Index. Tuesday brings the monetary policy announcement from Australia. In the U.S., we will receive the retail sales m/m data and industrial production m/m.

Wednesday’s key event is the release of the CPI data for the U.K. On Thursday, Switzerland will release the SNB Financial Stability Report, followed by the SNB’s monetary policy announcement. Additionally, the BoE will also make its monetary policy announcement.

Friday concludes the week with the release of flash manufacturing PMI and flash services PMI for the euro area, the U.K. and the U.S.

At this week’s RBA meeting, it is widely expected that the Bank will keep its monetary policy unchanged, maintaining the rate at the current level of 4.35%. Inflation remains a significant concern in Australia, and until there is sufficient evidence that it is moving toward the bank’s desired target, a rate cut is unlikely.

Although economic growth has been modest recently, the bank’s primary focus will be on the development of inflation, especially after it surprised to the upside in April. The market anticipates a first rate cut in November, but some analysts believe it won’t occur until 2025. Interest rates have likely peaked, and we may not see another rate hike unless inflation continues to exceed expectations, which seems unlikely at this moment.

The consensus for the U.S. retail sales m/m is 0.3% compared to the prior 0.0%, and for the core retail sales m/m it is 0.2% vs 0.2% prior.

In April, retail sales printed below expectations, suggesting that consumer spending is showing signs of softness. This trend is likely to continue, with one of the main reasons being the fact that the personal saving rate has lowered and consumer credit has also stalled. Additionally, growth in real disposable income has faded as the labor market has moderated.

The consensus for the U.S. industrial production m/m is 0.3% vs 0.0% prior. Industrial production was stagnant in April, hindered by limited capital expenditures, particularly on equipment. However, an increase in hours worked by production workers and warmer-than-usual temperatures boosting utility demand suggest a modest rebound in May, Wells Fargo analysts said.

Inflation in the U.K. is likely to slow down, with headline inflation expected to fall below 2% and remain there for a while. However, services inflation surprised to the upside last month and is likely to drop more slowly. Analysts from ING argue that the hot print last month was due to annual price hikes at the start of the financial year, which will not be the case for May.

The consensus for this week’s SNB meeting is to keep rates on hold, but some analysts believe the Bank will deliver a rate cut. As a reminder, Swiss inflation is low compared with other developed countries and the SNB’s rate hikes have not been as aggressive. This means the bank is not under pressure to rush rate cuts.

The BoE is expected to keep rates on hold at 5.25% and to provide an update on its monetary policy stance. Traders will also be looking for any clues about the timing of the first rate cut with the market currently expecting a 25 bps decrease at the August meeting.

Overall, inflation in the U.K. has started to drop, but services inflation remains elevated and represents a cause for concern for the BoE. Combined with the latest wage data, which showed persistent wage pressure, this will likely lead the Bank to hold rates at their current level this week.

The Eurozone flash manufacturing PMI is expected to slightly rise from 47.3 to 48 while the services PMI is anticipated to print 53.6 vs 53.2 prior. Analysts will watch the figures for Germany and France in particular since they showed significant differences in May, with Germany’s index reaching a one-year high and France’s falling into contraction territory.

Wish you a profitable trading week.

This article was written by Gina Constantin at www.forexlive.com.