Monday: Japan’s “top currency diplomat” Kanda commented on the recent weakening of the yen and said he would react to excessive FX moves. In fact, he added that it was the pace of the moves that they focused on rather than the levels. Later, Japanese Finance Minister Suzuki confirmed that they would react appropriately in case of excessive movements. Worth noting is the 145.00-150.00 area in USD/JPY where we started to see interventions last year.

We’ve also got a summary of the BoJ’s views from the June meeting, with two specific key points that hint at a possible change in policy coming at the 27-28 meeting. July:

• There is a good chance that consumer inflation will moderate but not slow back below 2% by the middle of the current fiscal year.
• One member called for an early review of the YCC policy. The member said that while the BOJ should maintain its current monetary stimulus for the time being, because the cost of waiting to achieve sustainable 2% inflation is low for the BOJ’s overall easing program. However, the use of yield curve control is costly in terms of improving market functioning, communicating with investors and preventing sharp movements in interest rates when the BOJ abandons current monetary easing, the member added.

The German IFO Business Climate Index came to 88.4 vs. 90.7 expected and the expectations index fell to 83.6 vs. expected 88.0. After last week’s PMI, this report strengthens the chances of a recession coming in the second half of the year.

The Fed’s Williams (a hawk) said “restoring price stability is paramount.”

The ECB’s Simkus (a hawk) said “at least one more rate hike is necessary”. We’ve heard a lot from ECB spokespeople that a rate hike in July is essentially a done deal with more uncertainty around a September event.

Tuesday: The ECB’s Kazaks (hawk) said market bets on a rate cut in 2024 are poor as the softness in the economy is unlikely to deal with inflation. He expects rate hikes to pass around July because inflation remains too high and is unlikely to be comfortable enough to stop in July.

ECB president Lagarde (a hawk) said they were committed to hitting the inflation target no matter what and that they could not declare victory yet. She added that they must move rates into sufficiently restrictive territory and stay there as long as necessary. He acknowledges that they have yet to see the full impact of the rate hike since July last year.

BoE Dhingra (dove) said that UK wages are responding to inflation with a lag and that the sharp drop in PPI is promising as CPI follows PPI with a lag of around one to two quarters. She added that food prices are where inflation remains the toughest.

The ECB’s Simkus (hawk) added to his previous comments that they cannot rule out a September hike and that they must keep rates restrictive to reach the 2% target.

The ECB’s Wunsch (the hawk) acknowledged that their ability to fix inflation at exactly 2% is limited and that if inflation were at 2.3% and the economy was weak, he would not tighten monetary policy. He added that they would need clear signs of core inflation slowing to stop, and more action would be needed if core did not ease.

Canada CPI Y/Y came in as expected at 3.4% vs. 4.4% earlier, while the M/M reading was at 0.4% vs. 0.5% expected and 0.7% earlier. Core CPI Y/Y missed expectations at 3.7% vs. 3.9% expected and 4.1% earlier, while the M/M reading fell to 0.4% vs. 0.5% before. The Canadian dollar weakened after the release.

US durable goods orders for May were much better than expected at 1.7% versus expectations of -1.0%. Core durable goods orders beat expectations as did printing by 0.6% versus -0.1% expected. This is a volatile news and revised frequently, which is why we didn’t see much movement in the markets after the release.

The US Conference Board Consumer Confidence report surprised with much stronger readings than expected at 109.7 vs. 104.0 expected and 102.3 earlier. The current situation index, which correlates with the labor market, jumped to 155.3 vs. 146.8 earlier. The expectations index also improved to 79.3 vs. 71.5 earlier. Stocks and earnings jumped after the release.

Wednesday: Australian headline CPI Y/Y printed at 5.6% vs. 6.1% expected and 6.8% previously, with the M/M reading coming in at 0.0% vs. 0.3% before. However, core CPI slowed to just 6.4% year-on-year from 6.5% earlier. The Australian dollar weakened after the release.

The ECB’s De Guindos (dov) said a rate hike in July is set as there are more reasons to cover rates. This is a strong commitment and shows that the real question in the September hike and that weak data this month may just lead to less chance of a move in September than in July.

The ECB’s Centeno (dove) said inflation is easing as fast as it has been rising and that too much tightening is not acceptable as he sees the economy already being hit. This is the most dove shot we’ve heard yet, but that it comes from a dove isn’t all that surprising.

The ECB’s Muller (a hawk) said it was too early to say where rates would end up and they would have to look at data on rate hikes after July. He admitted that the risks to inflation are still pro-inflationary, but added that rate hikes are gradually having an effect.

The ECB’s Vujcic (hawkish) said there was a good chance of a September hike and they may suggest a soft landing.

The ECB’s Vasle (hawk) said they need to continue to tighten policy at the next meeting (in July) as inflation remains persistent. He added that they will remain data dependent after July.

The ECB’s Lagarde (a hawk) said they are very likely to tighten again in July as they still have ground to cover and see no tangible evidence of domestic inflation stabilizing. She added that Europe’s economy is “stagnant at best” but their baseline does not include a recession. They will be data dependent for the September increase.

The BoE’s Bailey (a hawk) said the data showed clear inflation persistence and that they would do what was necessary to bring it down to target. He admitted that the UK has a “very, very robust labor market” and that the economy has so far proved much more resilient. He added that he remains “evidence-driven” for his policy.

The Fed’s Powell (a hawk) said he believes tighter policy is coming because if you look at the data over the last quarter, jobs, inflation and activity are strong. He admitted that the policy has not been restrictive for long, and as they get closer to the target, the risks become more balanced. He added that they didn’t make the raise decision every other meeting, and he wouldn’t take the moves off the table in consecutive meetings. He concluded that they need to see more softening in the labor market and that the services sector is not particularly sensitive to interest rates. The following day, Fed Chairman Powell essentially repeated what he had said the day before, but added that a large majority of the FOMC expected it to be appropriate to raise rates. two or more times
at the end of the year.

The BoJ’s Ueda (a dove) said that core inflation is still below 2% and if they want to reach their 2% target, they need wage inflation that is slightly or well above 2%, so there is still room to cover. He touched on the yen’s weakness, saying it was influenced by many factors, including the policies of other central banks. Ultimately, he said, if they manage to normalize their mainstream monetary policy, then rates could rise by large margins and they would have to be careful and do all sorts of stress tests.

The ECB’s Villeroy (a hawk) said inflation expectations remain anchored and that he believes in a soft landing, but not without some pain. He added that he expects real wages to catch up, but no price spiral. Finally, he said they need to be patient with the duration rates being kept high and getting closer to the final rate levels.

Thursday: The ECB’s Centeno (dove) said that they are very close to the point where monetary policy can be paused and that not overreacting is a big problem for any central bank.

Fed Chairman Powell (a hawk) essentially repeated what he said a day earlier, but added that a large majority of the FOMC expected a rate hike would be appropriate. two or more times
at the end of the year.

The ECB’s De Cos (hawk) said the decision on the September meeting is absolutely open.

The Fed’s Bostic (neutral) said he did not see as much urgency to move as others have indicated and would likely do more only if inflation appeared to have stalled significantly. He added that no one should take his views as a signal that the Fed should pause and that there are undoubtedly scenarios where they could move in two consecutive meetings. He added later in the day that he was not prepared to rule out further rate hikes if necessary, but saw no need to as he believed the policy in place was sufficient to bring inflation back to the 2% target since last year’s tightening . is beginning to manifest itself in the real economy, including the labor market. He also reaffirmed his commitment to reducing inflation, even if it results in rising unemployment.

Final US GDP for Q1 came in at 2.0% vs. expected 1.4% and preliminary 1.3%. Growth in consumer spending accelerated more than expected to 4.2%, the strongest in almost two years.

US initial claims beat expectations coming in at 239,000 vs. 265,000 expected and continuing claims fell further to 1,742,000 vs. 1765,000 expected and 1761,000 earlier. This suggests that the labor market is still tight and the Fed may have more work to do as it wants to see more softness in the jobs data.

The BoJ’s Himino said recent growth in Japan’s CPI is softer compared to the US and Europe, but stronger than previously expected. He sees no risk of Japan experiencing too much inflation. He concluded by saying that they must be alert to the signals coming from the markets and the impact of market movements on the Japanese economy.

The BoE’s Tenreyro (dove) said they saw very little policy tightening and that the data could be consistent with a slightly slower decline in inflationary pressures. She cited forward-looking indicators as the reason why she voted for no change at the last BoE meeting. He believes that the coming tightening would be enough to bring inflation back to and likely below target. It concluded that the more the BoE raises rates now, the sooner and faster the central bank will have to cut rates later. Tenreyro will leave his position at the BoE on July 4^Thursday.

Friday: China Official Manufacturing PMI reached 49.0 vs. expected 49.0 and 48.8 earlier, while services PMI showed 53.2 vs. 53.7 expected and 54.5 earlier.

UK final Q1 GDP came in at 0.1%, confirming the initial estimate.

The year-on-year CPI of the Eurozone reached 5.5% vs. 5.6% expected and 6.1% earlier, while the month-on-month readings were printed at 0.3% vs. 0.0% expected and 0.0% earlier. We are now focusing more on the fundamental indicators and those that did not meet expectations with 5.4% year-on-year growth compared to the expected 5.5% and 5.3% previously and M/M figure at 0.3% vs. 0.7% expected. and 0.2% earlier. The unemployment rate remained unchanged at 6.5%.

US PCE reached 3.8% year-on-year vs. 4.6% expected and 4.3% earlier, while the M/M reading showed 0.1% vs. 0.5% expected and 0.4% earlier. US Core PCE Y/Y, the Fed’s preferred measure of inflation, came in at 4.6% versus 4.7% expected and 4.7% before, while the M/M reading showed 0.3% vs. 0.3% and 0.4% expected earlier. Core PCE Y/Y looks stuck above the 4% level.

Next week is a big week on the data front:

• Monday: US ISM Manufacturing PMI.
• Tuesday: RBA policy decision.
• Wednesday: Minutes of the FOMC meeting.
• Thursday: US Jobless Claims, US Job Opening and ISM Services PMI.
• Friday: NFP USA and the Canada Jobs Report.

That’s all folks. Enjoy the weekend!

This article was written by Giuseppe Dellamotta.