Ahead of the game: 17 June 2024

The S&P 500 and the Nasdaq surged this week as the buying frenzy in tech stocks intensified. While cooler-than-expected US CPI and PPI readings raised prospects of multiple Fed rates before year-end.

The ASX 200 struggled to regain its feet, following a nasty two-day sell-off to start the holiday-shortened week. Weighed on by losses in the heavy-weight Materials and Financial sectors.

• In the US, headline inflation rose by 0% in May, allowing the annual rate to ease to 3.3% from 3.4% prior
• US core inflation increased by 0.2% in May, allowing the annual core inflation rate to ease to a three-year low of 3.4%, below market estimates of 3.5%
• The FOMC left the target range for the Feds Funds unchanged at 5.25%—5.5%, as widely expected. Providing a hawkish surprise, the median dot for 2024 was revised up from the March projections, to reflect just 25bp cuts in 2024 vs. 75bp previously
• Headline producer prices (PPI) in the US fell -0.2% in May, compared with market expectations looking for a 0.1% increase. Core PPI was flat in May, below market expectations, looking for a rise of 0.3%
• In the UK, the unemployment rate rose to 4.4% in April, the highest since September 2021
• UK GDP was flat in April 2024 as wet weather hit retailers and construction firms
• In China, inflation fell -0.1% in May from +0.1% prior. The year-on-year (YoY) rate increased by 0.3% vs 0.4% expected
• The Australian economy added 39,700 jobs in May, marginally stronger than the 30,000 gain the market expected. The unemployment rate eased to 4.0% from 4.1% prior
• Crude oil gained 2.99% this week to $77.79 per barrel
• Gold gained 0.41% this week to $2303
• Wall Street's gauge of fear, the Volatility Index (VIX), fell to 11.95 from 12.21 prior.

• AU: RBA interest rate meeting (Tuesday, 18 June at 2.30pm AEST)
• NZ: Current Account (Wednesday, 19 June at 8.45am AEST)
• NZ: Q1 2024 GDP (Thursday, 20 June at 8.45am AEST)

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• CH: Industrial Production, Retail Sales, Fixed Asset Investment (Monday, 17 June at 12.00pm AEST)
• JP: Inflation Rate (Friday, 21 June at 9.30am AEST)

• US: Retail Sales (Wednesday, 18 June at 10.30pm AEST)
• US: S&P Flash PMIs (Friday, 21 June at 11.45pm AEST)

• GE: ZEW (Tuesday, 18 June at 7.00pm AEST)
• UK: Inflation Rate (Wednesday, 19 June at 4.00pm AEST)
• UK: Bank of England Interest Rate Decision (Thursday, 20 June at 9.00pm AEST)
• GE: HCOB Manufacturing Flash PMI (Friday, 21 June at 5.30pm AEST)

• CN

IP, retail sales, fixed asset investment

Date: Monday, 17 June at 12.00pm AEST

The recent flow in economic data out of China has been more mixed than reassuring. While a stronger recovery is presented in external demand, the latest inflation data suggests that domestic consumption is still trying to regain its footing.

A series of economic data will be on watch ahead to provide clarity on whether China’s economic recovery can find more momentum. Expectations are for industrial production (IP) to edge lower to 6.4% YoY from the 6.7% prior. Having underperformed in April, retail sales are expected to improve to 3.0% from 2.3% prior, while fixed asset investment is expected to remain unchanged at 4.2%.

Market participants will be watching for any signs of stabilisation to reflect some degree of success in the series of accommodative polices thus far. However, a set of lower-than-expected readings may send a warning sign for its growth. Thus, raise calls for quicker policy support to better achieve its growth target of around 5%.

China's IP, retail sales & fixed asset investment chart

• AU

RBA interest rate meeting

Date: Tuesday, 18 June at 2.30pm AEST

As widely expected, the Reserve Bank of Australia (RBA) kept its official cash rate on hold at 4.35% for a fourth straight meeting at its last Board meeting in May. The decision came despite data showing that core inflation exceeded expectations in the first quarter of the year.

In the accompanying statement, the RBA sounded neutral. Noting that while the Board had discussed the possibility of an interest rate hike, higher interest rates were working to establish a more sustainable balance between demand and supply.

The RBA's forward guidance was identical to that offered in the March meeting: “The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain, and the Board is not ruling anything in or out."

In the lead-up to next week's Board meeting, retail sales and GDP readings have been weaker-than-expected, while labour market and inflation data have been firm. All of this suggests the RBA will keep rates on hold at 4.35% for a fifth consecutive meeting as it continues to focus on bringing sticky inflation back to target. The tone of the meeting is expected to remain neutral.

Ahead of the meeting, the rates market is pricing in a ~45% chance of a 25bp RBA rate cut in December, with a full rate cut priced by April.

RBA official cash rate chart

• UK

Bank of England interest rate decison

Date: Thursday, 20 June at 9.00pm AEST

In May, the Bank of England (BoE) kept rates on hold with a 7-2 vote as Ramsden and Dhingra dissented in favour of a 25bp cut. Combined with downward revisions to CPI forecasts and some adjustments to the statement, it was considered a dovish statement that potentially opened the door for a rate cut in June. Dependant on upcoming, “data releases and how these inform the assessment that the risks from inflation persistence are receding.”

Unfortunately, since the May meeting, a drop smaller-than-expected in April's inflation data saw the market reduce the chances of a BoE rate cut in June to almost zero. Unless next Wednesday's inflation report for May is significantly weaker-than-expected, the BoE will likely keep rates on hold next week at 5.25%. To ensure that the risk of inflation becoming embedded above 2% dissipates. The rates market is currently 80% price for a first 25bp BoE rate cut in September.

BoE official bank rate chart

• JP

Inflation rate

Date: Friday, 21 June at 9.30am AEST

The Bank of Japan (BoJ) indicated that they will open the door for further rate increases if trend inflation heads towards 2%. The factors being evaluated for underlying inflation are services prices, corporate wages, and price-setting behaviour.

With a higher-than-expected 2.1% growth in Japan’s nominal wages for April, the virtuous wage-price spiral seems to be more apparent. Which will appease the central bank. Upcoming focus will be on whether higher wage growth will feed into inflation, alongside the level at which pricing pressures may stabilise.

For now, headline and core inflation have eased to 2.5% and 2.2% respectively for April. Regardless, more clues on whether price growth will hold durably around the 2% target level still need to be sought.

Japan's inflation rate chart