Week Ahead: US CPI and Fed dot plot in focus, BoJ to line up hike?

The central bank bonanza carries on with the Fed and Bank of Japan meetings taking centre stage this week. To add into the mix, markets will have to juggle US inflation data released a few hours before the FOMC gathering. Indeed, the reaction to Friday’s non-farm payrolls report will take up some grey matter, after another strong headline print, even though unemployment saw an upside surprise.

Markets will likely take Monday at least to digest those latest US employment figures. We got a big rebound in headline job and wage growth. But the jobless rate did print with a four handle which hasn’t been seen since January 2022 and the labour participation rate came down. That jobless rate broke 28 straight months of prints below 4%. In addition, the household survey paints a much weaker picture. Rate cuts bets got shaved with the July FOMC meeting now firmly off the table for any first historic reduction and the September meeting back to a coin flip.

The Fed’s dot plot will be key for markets. How many rate cuts are seen in 2024 now? Three was the previous median guess by officials in March, but one or two only is likely now.  Policymakers are likely to want to retain maximum optionality and flexibility. Forward looking data still looks soft while activity figures remain solid. Questions are being raised about how restrictive Fed policy actually is with financial conditions variable.

The watchwords will likely be “patience” and needing “confidence” for Chair Powell and other rate setters to kick off policy easing. He will likely bat away suggestions of a hike, though there may be minor tweaks to growth and inflation, but nothing significant is forecast. It seems the Fed may have won the war with inflation, but it doesn’t want to lose the battle with a soft landing.

The Bank of Japan will keep rates unchanged at its meeting on Friday, but Governor Ueda will likely signal further rate hikes, with July potentially signposted. Consensus expects an announcement about the start of QT with the BoJ reducing its bond buying. USD/JPY has been messy recently, but the authorities will be relatively happy there is now two-way risk. Of course, they will be hoping their $62bn spent on intervention in May turns out like events in 2022 when the major turned sharply south as US rates cooled.

In Brief: major data releases of the week

Tuesday,11 June 2024

– UK Jobs: The unemployment rate is seen steady at 4.3%, though there are reliability issues with this data. Wage growth slowed to 5.7% in March, which is too sticky for the MPC. The increase in the National Living Wage adds some uncertainty to this release.

Wednesday, 12 June 2024

–  UK GDP: Activity is set to slow to 0.1% in April after the prior jump to 0.4%. This data has been volatile recently, with distortions from the timing of the early Easter holiday period to add into the mix.

–  US CPI: Expectations are for the monthly headline figure to come in at 0.2%, down from 0.3% in April. The core print is forecast unchanged, rising 0.3% m/m. Falling core goods prices will likely be offset by rising services.

–  FOMC Meeting: The Fed will keep rates unchanged at 5.25-5.50%. Downside risks for activity are emerging but job and wage growth remains solid. Focus will be on the new dot plot and economic projections, plus any guidance from Chair Powell.

Thursday, 13 June 2024

– Australia Jobs: Consensus sees 25,000 jobs added, likely due to shifting seasonal patterns. Part-time jobs converting to full-time roles could also boost the figures. The jobless rate is predicted to remain unchanged at 4.1%.

Friday, 14 June 2024

– Bank of Japan Meeting: The bank is expected to keep policy measures unchanged. But rebounding inflation and retail sales, plus strong wages mean further policy normalisation is on the table. The market sees the first move in October.