Saxo Spotlight: What’s on investors and traders radars this week?

US May CPI to re-affirm higher for longer. CPI rose 8.3% y/y in April, slightly slowing from March’s 8.5% y/y. Consensus expects a slight slowdown to 8.2% y/y in May, but we believe that talk of inflation slowing down from the peak is a stretched. US core PCE data came in as expected at 4.9% y/y and 0.3% m/m for May, but slower than last month's 5.2% y/y and have prompt further talk of inflation peaking out. While PCE is the preferred Fed metric, what cannot be ignored right now is that food and energy prices still have more room to run on the upside suggesting that inflation will remain higher for longer, and Fed needs to stay hawkish even beyond the couple of 50bps of rate hikes that remain the baseline for now.

ECB meeting to prepare for July lift-off. The European Central Bank (ECB) is scheduled to meet this week on Thursday. While expectations are broadly set for a lift-off in July, eyes will be mainly on the Bank’s inflation forecasts and any hints of an earlier-than-expected 50bps rate hike moves. May CPI rose to a fresh record high of 8.1% y/y from 7.5% y/y previously, and ECB tightening expectations have picked up since the report. We expect more of the policymakers to tilt hawkish in the coming weeks, which will likely bring forward the expectation of the 50bps move to Q3 rather than in December.

University of Michigan sentiment. While the sentiment has been generally positive over the last week, recent Fed surveys have been suggesting a loss in momentum in the US economy. The University of Michigan consumer sentiment index is due next on Friday, after it was revised lower to 58.4 in May, well below April’s 65.2. The index is a combination of the current assessment and expectations for the near future, and consensus expect the preliminary June reading at 58.9. Consumer confidence in the US is running at record lows, but spending continues to hold up. An increase in the reading would suggest consumers are more confident, a positive for stocks if that confidence translates into spending.

Threat of a global food crisis. Agricultural commodities have more and more supply issues to deal with. After the war and unfavourable weather conditions, rising protectionism has threated the supply of key crops as Indonesia banned palm oil exports, India announced curbs on wheat exports and Malaysia staled chicken exports. Threat is now seen for India’s rice exports (which if initiated can also be followed up by other rice exporters like Vietnam) or shortage of eggs. Palm oil concerns also continue despite Indonesia removing the ban, amid smaller reserves and China demand coming back. China’s first batch of trade data for May, including soybeans, edible oils and meat imports, will be released Thursday, while the USDA’s World Agricultural Supply and Demand Estimates are scheduled to be published on June 10. The Food and Agriculture Organization (FAO) of the United Nations also publishes its biannual Food Outlook next week, and would be key to watch for developments affecting the global food and feed markets.

China has a busy economic calendar this week.  May Caixin Services PMI came this morning at 41.4, much weaker than expectation and staying firming in the contractionary zone.  May trade data is scheduled to release on Thursday June 9.  Container throughput data in the first 20 days of May suggests recovery in trade growth from the previous month as disruption to logistics and production eased.  Bloomberg consensus is calling for exports and imports to rise 8% YoY and 2.5% YoY respectively. May PPI (Friday June 10) is expected to fall 6.5% YoY (Bloomberg consensus) from April’s 8.0% as energy and raw materials prices having plateaued and due to base effect.  May CPI is scheduled for Friday and is expected to inch higher to 2.2% (Bloomberg consensus) from April’s 2.1%.  During the month, China added to its state reserves of pork and triggered a rise in pork prices.  Pork has a weight of approximately 4.8% in CPI.  China is expected to release the aggregate financing, loan and money supply data between June 9 and 15 (the exact date is not made known).  New aggregate financing is expected to rebound somewhat to RMB1,975bn in May (Bloomberg consensus) from RMB910bn in April and it implies the growth rate of outstanding aggregate financing remains subdue at 10.2% YoY. 

For equities, across the Baskets we track at Saxo; Commodities and Defense remain the best performers this year and the only two baskets in positive territory. Ahead of the US Fed starting to reduce its balance sheet next week (June 15), it could be worth considering adding Commodities and Defense securities to your portfolio, as the market expects these sectors to see greater earnings growth in 2022.

The RBA is tipped to get aggressive with rate rises, with the second hike in a decade due tomorrow. Rate are tipped to rise from 0.35% to 0.6% as the RBA seeks to curb inflation and stabilize eco’ growth. Last week Aussie GPD and export income rose more than expected, ahead of Shanghai’s reopening. So as the economy is growing stronger than expected, and Labor’s new policy will see employment rise and wage pressure rise too, the RBA will have more room to rise rates across the year. The RBA Cash Rate Futures expect Australia’s interest rates to hit 2.8% this year. This will likely cause delinquency rates to rise across 2022, and could hurt some Australian banks as well, who are already facing margin (profit) compression, as borrowing rates have been steadily declining. At Saxo we’ve been hawkish, expecting higher for longer inflation, and now new research today from Bloomberg suggests more sustained and higher than expected inflation could linger in utilities too, with the Australian Energy Regulator suggesting prices could rise 4 to 14% from July, due to energy market disruptions. This supports our view that interest rates could possibly get close to potentially 3% in Australia this year.

Key economic releases this week

Monday 6 June

South Korea, Switzerland, Norway, New Zealand Market Holiday
Hong Kong S&P Global PMI* (May)
China (Mainland) Caixin Services PMI* (May)
Thailand CPI (May)

Tuesday 7 June

Japan All Household Spending (Apr)
Philippines CPI (May)
Australia RBA Cash Rate (Jun)
Germany Industrial Orders (Apr)
Taiwan CPI (May)
United Kingdom S&P Global / CIPS Services PMI* (May)
United States International Trade (Apr)
Canada Trade Balance (Apr)

Wednesday 8 June

South Korea GDP Growth (Q1, revised)
Japan Current Account (Apr)
Japan GDP (Q1, revised)
India Repo and Reverse Repo Rate (8 Jun)
Switzerland Unemployment Rate (May)
Germany Industrial Output (Apr)
United Kingdom Halifax House Prices* (May)
Norway Manufacturing Output (Apr)
Thailand 1-Day Repo Rate
Taiwan Trade (May)
United Kingdom S&P Global / CIPS Construction PMI* (May)
Eurozone GDP (Q1, revised)
United States Wholesale Inventories (Apr)

Thursday 9 June

United Kingdom RICS Housing Survey (May)
China (Mainland) Trade (May)
Eurozone ECB Deposit and Refinancing Rate (Jun)
United States Initial Jobless Claims

Friday 10 June

China (Mainland) CPI, PPI (May)
China (Mainland) M2, New Yuan Loans, Loan Growth (May)
Malaysia Industrial Output (Apr)
Norway CPI (May)
United States CPI (May)
Canada Capacity Utilization (Q1)
Canada Unemployment Rate (May)
Canada Manufacturing Sales (Apr)
United States UoM Sentiment (Jun, prelim)