Markets are starting the week trying to work out what to make of the volatile situation in Russia that saw a remarkable turn late Friday and into Saturday. As DB's Jim Reid speculates, the mutiny and then truce - all within 24-36 hours - means more political instability longer-term than shorter-term although for now there has been virtually no market impact. That said, at one point on Saturday when the Wagner group's Prigozhin had his troops march towards Moscow, it felt that there was a lot of potential global market event risk over the next few days. That has perhaps died down but this whole episode probably increases both the positive and negative tail risks a bit. It could increase the risk of escalation by Putin to reinstate an air of authority, or it could leave him vulnerable which could be seen as positive or negative for Europe, Ukraine and wider markets. It's just impossible to tell at this stage.
Looking forward now, the US PCE (Friday) and Eurozone CPI releases (Wednesday to Friday) are the obvious focal points this week. Also up there in order of importance, the ECB annual forum in Sintra (Mon-Weds) will feature plenty of speakers, including the heads of the Fed, the ECB, the BoJ and the BoE on a panel together on Wednesday.
Elsewhere German IFO (which disappointed earlier today), US new home sales and durable goods (tomorrow), results of US bank stress tests (Wednesday), US jobless claims (Thursday), China PMI (Friday), and Tokyo CPI (Friday) are also important with US claims possibly the one to watch most given the recent increase. This increase hasn’t filtered through into continuing claims yet so that is the current shield to worrying about a deteriorating US labour market.
Going through some of the top tier events in a little more detail, let’s start with US PCE on Friday which comes as part of the personal income and consumption report. DB expect the core PCE deflator to soften a tenth on both the monthly (0.3% MoM vs 0.4% last month) and YoY (4.6% YoY from 4.7% last month) readings. Economists point out that to meet the Fed’s forecast of 3.9% YoY core PCE this year we would need around 27bps of monthly prints into YE. DB actually expects 3.6%. All else equal, these prints could be the swing factor between 1-2 Fed hikes out to YE in their own dot plots.
Something that could be interesting is the results of the annual US bank stress tests on Wednesday. Those will be closely watched following the regional banking turmoil this spring that resulted in several bank failures as well as lingering concerns over risks to the banking system tied to deposit dynamics and interest rates. For the first time, the stress test will include an "exploratory market shock component", for the largest banks. The "severely adverse scenario" will focus on the effects of "a severe global recession" coupled with turmoil in real estate markets, both commercial and residential, and corporate debt markets. These stress tests are always a double edge sword. Too onerous and they can create their own turmoil, but too loose and they lack some credibility. So an interesting one to watch.
Later in the week, Italy will kick off European CPI releases on Wednesday, followed by Germany on Thursday with France and the Eurozone on Friday. DB's European economists' inflation chartbook looks at the latest trends and developments here. The team's forecast for the June Eurozone print due on Friday is 5.8% YoY for headline (vs 6.1% in May) and 5.7% for core (vs 5.3% in May). It will be the last set of inflation readings ahead of the July 27th ECB meeting. See the day-by-day calendar at the end as usual for the full week's docket.
Here is a day-by-day calendar of events
Monday June 26
- Data: US June Dallas Fed manufacturing activity, Japan May PPI services, Germany June ifo survey
- Central banks: BoJ June meeting summary of opinions, ECB forum on central banking in Sintra, ECB's Villeroy speaks, BoE's Dhingra speaks
- Earnings: Carnival
Tuesday June 27
- Data: US May new home sales, durable goods orders, June Conference Board consumer confidence index, Richmond Fed manufacturing index, business conditions, Dallas Fed services activity, April FHFA house price index, Italy June manufacturing confidence, economic sentiment, consumer confidence index, Canada May CPI
- Central banks: ECB's Lagarde speaks, BoE's Tenreyro speaks
- Earnings: Prosus, Walgreens Boots Alliance
Wednesday June 28
- Data: US May wholesale and retail inventories, advance goods trade balance, China May industrial profits, Italy June CPI, May PPI, April industrial sales, Germany July GfK consumer confidence, France June consumer confidence, Eurozone May M3
- Central banks: Fed's Powell, ECB's Lagarde, BoJ's Ueda and BoE's Bailey speak, ECB's Villeroy speaks, BoE's Pill speaks
- Earnings: Micron, General Mills
Thursday June 29
- Data: US May pending home sales, initial jobless claims, UK May mortgage approvals, net consumer credit, M4, Japan June consumer confidence index, May retail sales, Germany June CPI, Eurozone June services, industrial, economic confidence
- Central banks: Fed's Powell and Bostic speak, BoE's Tenreyro speaks
- Earnings: H&M, Nike
Friday June 30
- Data: US May personal spending, income, PCE deflator, June MNI Chicago PMI, UK June Lloyds business barometer, China June PMIs, Japan June Tokyo CPI, May job-to-applicant ratio, jobless rate, industrial production, housing starts, Italy May unemployment rate, Germany May import price index, retail sales, June unemployment claims rate, France June CPI, May PPI, consumer spending, Eurozone June CPI, May unemployment rate, Canada April GDP
- Central banks: BoC Q2 business outlook survey
- Earnings: Constellation Brands
* * *
Finally, focusing on just the US, the key economic data releases this week are the durable goods report on Tuesday and the Chicago PMI report on Friday. There are a few speaking engagements from Fed officials this week, including public appearances by Chair Powell on Wednesday and Thursday.
Monday, June 26
- 10:30 AM Dallas Fed manufacturing index, June (consensus -20.0, last -29.1)
Tuesday, June 27
- 08:30 AM Durable goods orders, May preliminary (GS -1.0%, consensus -0.9%, last +1.1%); Durable goods orders ex-transportation, May preliminary (GS flat, consensus flat, last -0.3%); Core capital goods orders, May preliminary (GS +0.2%, consensus +0.2%, last +1.3%); Core capital goods shipments, May preliminary (GS +0.2%, consensus +0.2%, last +0.5%): We estimate that durable goods orders fell 1.0% in the preliminary May report, reflecting a pullback in defense orders and mixed commercial aircraft orders. We forecast a small gain in core capital goods orders (+0.2%) and shipments (+0.2%), reflecting a modest pickup in global industrial activity and a continued drag from tighter credit.
- 09:00 AM FHFA house price index, April (consensus +0.5%, last +0.6%)
- 09:00 AM S&P Case-Shiller 20-city home price index, April (GS +0.4%, consensus +0.35%, last +0.45%)
- 10:00 AM Richmond Fed manufacturing index, June (consensus -12, last -15)
- 10:00 AM New home sales, May (GS -0.5%, consensus -1.2%, last +4.1%)
- 10:00 AM Conference Board consumer confidence, June (GS 104.5, consensus 104.0, last 102.3); We estimate that the Conference Board consumer confidence index increased to 104.5 in June.
Wednesday, June 28
- 08:30 AM Advance goods trade balance, May (GS -$94.0bn, consensus -$93.4bn, last -$96.8bn): We estimate that the goods trade deficit narrowed by $2.8bn to $94.0bn in May compared to the final April report.
- 08:30 AM Wholesale inventories, May preliminary (consensus -0.1%, last -0.1%)
- 09:30 AM Fed Chair Powell speaks: Fed Chair Jerome Powell will take part in a panel discussion with Bank of England Governor Andrew Bailey, ECB Governor Christine Lagarde, and Bank of Japan Governor Kazuo Ueda in Sintra, Portugal. In his testimony before the House Financial Services Committee on June 21st, Chair Powell echoed the message sent by the FOMC at its June meeting, noting that “given how far [the FOMC has] come [in raising interest rates], it may make sense to move rates higher but to do so at a more moderate pace.” Chair Powell also said that “the process of getting inflation back down to 2% has a long way to go,” and emphasized that while “we have been seeing the effects of our policy tightening on demand in the most interest-rate-sensitive sectors of the economy, it will take some time … for the full effects of monetary restraint to be realized, especially on inflation.”
Thursday, June 29
- 02:30 AM Fed Chair Powell speaks: Fed Chair Jerome Powell will take part in a discussion hosted by the Bank of Spain in Madrid. Moderated Q&A is expected.
- 06:00 AM Atlanta Fed President Bostic (FOMC non-voter) speaks: Atlanta Fed President Raphael Bostic will deliver a speech on the US economic outlook at the Irish Association of Investment Managers’ Annual Dinner. Q&A with reporters is expected. On June 23rd, President Bostic noted that he would be “comfortable, with the information I have today, staying right where we are [on the federal funds rate] and just staying here through the rest of this year and long into next year.”
- 08:30 AM GDP (third), Q1 (GS +1.3%, consensus +1.4%, last +1.3%): Personal consumption, Q1 (GS +3.8%, consensus +3.8%, last +3.8%): We estimate no revision on net in the third vintage of the Q1 GDP report (previously reported at +1.3% qoq ar).
- 08:30 AM Initial jobless claims, week ended June 24 (GS 260k, consensus 265k, last 264k); Continuing jobless claims, week ended June 17 (consensus 1,779k, last 1,759k)
- 10:00 AM Pending home sales, May (GS -0.5%, consensus -0.5%, last flat)
Friday, June 30
- 08:30 AM Personal income, May (GS +0.5%, consensus +0.4%, last +0.4%); Personal spending, May (GS +0.2%, consensus +0.2%, last +0.8%); PCE price index, May (GS +0.13%, consensus +0.1%, last +0.4%); Core PCE price index, May (GS +0.32%, consensus +0.4%, last +0.4%): Based on details in the PPI, CPI, and import price reports, we forecast that the core PCE price index rose by 0.32% month-over-month in May, corresponding to a 4.64% increase from a year earlier. Additionally, we expect that the headline PCE price index increased by 0.13% in May, corresponding to a 3.87% increase from a year earlier. We expect that personal income increased by 0.5% and personal spending increased by 0.2% in May.
- 09:45 AM Chicago PMI, June (GS 42.4, consensus 44.0, last 40.4): We estimate that the Chicago PMI rebounded by 2pt to 42.4 in June, reflecting the lackluster rebound in global manufacturing activity.
- 10:00 AM University of Michigan consumer sentiment, June final (GS 64.5, consensus 63.9, last 63.9); University of Michigan 5–10-year inflation expectations, June preliminary (GS 3.0%, consensus NA, last 3.0%): We expect the University of Michigan consumer sentiment index to increase by 0.6pt to 64.5 in the final June reading. We expect the report's measure of inflation expectations to remain unchanged at 3.0%.
Source: Deutsche Bank, Goldman, BofA
