Week Ahead - Debt Ceiling Drama, Turkish Rate Decision Pre-Presidential Run-off

Republished By Plato

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Wall Street will remain focused on debt ceiling drama, a plethora of Fed speak, flash PMIs, and bank stress. It will be a busy week filled with economic releases, with most of the attention falling on the first look at the May PMI readings, a second look at Q1 GDP/Core PCE, New Home Sales, and the FOMC meeting minutes.

Debt ceiling talks are getting close to finalizing a deal, but posturing for the best deal could drag talks out longer.

This week contains five Fed appearances, with Bullard, Bostic, and Barkin speaking on Monday. Logan gives welcoming remarks at a conference on Tuesday. Wednesday is the main event as the Minutes could provide some hints that some policymakers are ready to pause tightening. Any signs that the Fed is likely done with its aggressive tightening campaign may put an end to those wagers that are saying the June meeting is a live one.

Eurozone

In the absence of hard-hitting data, attention will be on the various ECB policymakers making appearances throughout the week including President Lagarde on Wednesday. There’s still a big element of uncertainty over the remainder of the tightening cycle in the eurozone with markets pricing in only one or two more hikes, which given how little progress we’ve seen on core inflation seems optimistic.

On the data front, we have eurozone, German, and French manufacturing and services PMIs on Tuesday followed by German business and consumer surveys on Wednesday and Thursday, respectively.

Next week is big for the UK as we get a selection of data that will give us our first real insight into how much progress is actually being made on inflation. BoE Governor Andrew Bailey has been very confident that this April CPI release will show the first big fall in price pressures, coming one year on from the Ukraine invasion and surge in energy prices. A disappointingly high read could quickly see the expected terminal rate jump back above 5% in the markets. Core inflation is expected to remain stubbornly high.

Also on the agenda is PMI surveys on Tuesday, retail sales on Friday, and appearances from BoE policymakers including Governor Bailey again on Wednesday, providing an immediate opportunity to respond to the inflation data earlier in the day.

Russia

Very little on the calendar next week with CBR officials due to speak at a banking conference on Thursday and PPI inflation being released on Wednesday. Perhaps we’ll get more insight on the next policy move from the central bank with Governor Elvira Nabiullina previously hinting that further cuts are not guaranteed.

South Africa

The SARB is expected to hike the repo rate by another 25 or 50 basis points next week in what may be one of if not the final increase in the tightening cycle. That will obviously depend on whether inflation is continuing to make progress in returning to target with the core CPI already comfortably back in the 3-6% range but the headline is still above. It is expected to slip a little closer though in April, with CPI data on Wednesday seen falling to 7%. PPI data on Thursday could also offer insight into whether further progress is expected over the months ahead.

Turkey

Erdogan outperformed expectations in the Presidential election but fell just short of the 50% required to prevent a run-off on 28 May. Markets didn’t react too favorably to the result as it likely means more years of unconventional policy action from the CBRT, high inflation, currency controls, and economic uncertainty.

The CBRT is not expected to cut the repo rate again when it meets on Thursday but would anyone really be surprised if we do see another cut just before the run-off? One final policy push to serve as a reminder to voters that Erdogan is a leader that delivers low-interest rates, whatever the cost.

Switzerland

A very quiet week with employment data on Friday the only release of note.

China

A rather quiet week in terms of economic data releases; we will have the PBoC decision on Monday on its key 1-year and 5-year loan prime rates that are used to benchmark corporate, consumer loans, and home mortgages respectively. The baseline expectation is no change for both the 1-year at 3.65% and the 5-year at 4.3% for the 9th consecutive month as it has left the 1-year medium-term lending facility (MLF) rate unchanged last week at 2.75%; the last cut on the 1-year MLF rate was implemented in August 2022.

India

No key data

Australia

A couple of key data to watch; the first up will be flash manufacturing and services PMIs for May out on Tuesday. Forecasts are expecting a slight dip in manufacturing activities to 47.6 from 48 in April. If the forecast turns out as expected, it will be the 3rd consecutive month of contraction amid a slowdown in global demand especially from China, one of Australia’s largest trading partners. In contrast, the services PMI is forecasted to remain resilient in May with a reading of 54.1 after it expanded the most in 12 months in April at 53.7.

Secondly, to round up the week, we will have flash retail sales data for April out on Friday where the forecast is expecting a decline of 0.6% month-on-month after a rise of 0.4% recorded in March.

This set of key data will be paramount to determining the health of Australia’s economy and the direction of interest rates after the RBA decided to resume its tightening cycle on 2 May following a pause on its previous April meeting.

Based on the data obtained from the ASX 30-day interbank cash rate futures as of 19 May, the implied expectation is no change in the RBA cash policy rate at 3.85% for the next meeting on 6 June due to recent downbeat employment data.

New Zealand

The key event to watch will be the RBNZ monetary policy decision on Wednesday where the consensus is expecting another 25 basis points point hike on its official cash rate to 5.50%, its 12th consecutive hike if it turns out as expected. The focus will be on the magnitude of the hike as RBNZ defied market expectations of a 25-bps hike and choose to increase by a larger 50-bps in April due to sticky elevated inflationary pressure.

Japan

Several key data to monitor. On Tuesday, both the flash manufacturing and services PMIs are expected to show improvement in May; manufacturing is forecasted to expand to 50.2 from 49.2 printed in April and the services sector is forecasted to show growth for the 9th consecutive month to 55.9 from 55.4 in April.

On Friday, consensus for the leading Tokyo core inflation data (excluding fresh food) for May is expected to slip slightly to 3.3% year-on-year from 3.5% in April. Meanwhile, the core-core inflation for Tokyo is forecasted at 2.3% year-on-year in May, its highest level since July 1992.

If the Tokyo inflation data for May continues to be elevated coupled with upbeat PMIs, it may give the impetus for the BoJ to bring forward the long overdue normalization of its decade-plus of ultra-easy accommodating monetary policy early in the second half of 2023.

Singapore

The key focus will be on inflation data for April out on Tuesday where the consensus is expecting a slight dip in core inflation to 4.7% year-on-year from 5% in March. If it turns out as expected, it will be the second consecutive month of an inflationary growth slowdown. As for the headline inflation rate, where the expectation is a dip to 5.3% year-on-year in April from 5.5% in March.

Industrial production will be up next on Friday where the consensus is expecting a slight improvement in contraction to -3.9% year-on-year in April from -4.2% in March. If it turns out as expected, it will be the 7th consecutive month of contraction due to sluggish external demand.

Economic Calendar

Sunday, May 21

Economic Events

National Elections in Greece
US President Biden returns from G-7 summit in Japan.

Monday, May 22

Economic Data/Events

China loan prime rates

Eurozone consumer confidence

Hong Kong CPI

Japan machinery orders

Singapore GDP

Canada observes Victoria Day

ECB’s Holzmann speaks at the Austrian Central Bank conference in Vienna

ECB’s Villeroy de Galhau speaks at conference in Paris

ECB’s Vujcic participates in panel in Zagreb on Safeguarding Financial Stability in the Euro Area, organized by Croatian Finance Ministry and European Stability Mechanism

Fed’s Bullard speaks in fireside chat at American Gas Association’s Financial Forum

Fedi’s Bostic and Richmond Fed President Thomas Barkin discuss technology-enabled disruption during a conference on the subject hosted by the Richmond Fed

Tuesday, May 23

Economic Data/Events

US flash PMI, new home sales

European Flash PMIs: Eurozone, Germany, France, and the UK

Mexico international reserves

Singapore CPI

The Qatar Economic Forum

Russian PM Mishustin will lead government delegation to China to attend business forum along with sanctioned tycoons

ECB’s de Guindos gives keynote address at AFME/OMFIF’s 3rd Annual European Financial Integration Conference in Frankfurt

ECB’s Muller Muller speaks at Bank of Estonia/IMF news conference in Tallinn

ECB’s Villeroy de Galhau speaks at AFME/OMFIF’s 3rd Annual European Financial Integration Conference in Frankfurt

Bundesbank President Nagel participates in panel discussion in Berlin

Fed’s Logan makes welcoming remarks on day two of a conference on technology-enabled disruption hosted by the Richmond Fed

Riksbank Governor Thedeen speaks on monetary policy and financial stability

BOE’s Haskel speaks as a panelist at the Federal Reserve Bank of Richmond technology-enabled disruption conference on the “Uncertainty and prospects for disruptive investments “Market uncertainties and technology investment: The role of intangibles”

Wednesday, May 24

Economic Data/Events

US FOMC Minutes

Germany IFO business climate

South Africa CPI

UK CPI

RBNZ interest rate decision: Expected to raise the cash rate by 25 basis points to 5.5%

RBA’s Jacobs, head of domestic markets, speaks at the Australian Government Fixed Income Forum in Tokyo

ECB non-policy meeting in Frankfurt

BOE Gov Bailey delivers a keynote speech at Mansion House Net Zero Delivery Summit

BOE Gov Bailey speaks at a Wall Street Journal event

Thursday, May 25

Economic Data/Events

US initial jobless claims, GDP

Germany GDP

Mexico trade

Turkey’s central bank (CBRT) rate decision: Expected to keep the one-week repo rate unchanged at 8.50%

South Africa’s central bank (SARB) rate decision: Expected to raise rates by 50bps to 8.25%

Bundesbank President Nagel speaks on the future of Europe in Obbürgen, Switzerland

ECB’s Villeroy de Galhau speaks at the ICMA conference in Paris

BOE’s Haskel delivers a speech at Peterson Institute for International Economics in Washington

Friday, May 26

Economic Data/Events

US consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment

Australia retail sales

Japan Tokyo CPI

Malaysia CPI

Mexico GDP

Singapore industrial production

ECB’s Vujcic Speaks at 29th Dubrovnik Economic Conference in Croatia. Through May 27

Sovereign Rating Updates

Spain (Fitch)

Czech Republic (Moody’s)

Poland (DBRS)

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Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.