The major event for the week is the two-day meeting of the US Federal Reserve, especially in the wake of the surprising jobs report for May which showed a rise in new jobs and a fall in the unemployment rate.
As well GDP reports for the UK will be issued along with industrial production data for the eurozone while Chinese inflation and lending data (after Sunday’s trade figures for May) will be out.
Markets will be primed to go higher but will be starting to watch the Fed and its reaction to the surprise jobs report for May.
While it won’t change the Fed’s thinking for this meeting, the jobs report has probably ended hopes for any more stimulus packages from the US Congress ahead of the November 3 elections and will make the Fed more cautious about extending any of its current programs.
The Labor Department reported a surprise gain of 2.5 million jobs in May and a fall in the unemployment to 13.3%, with the Bureau of Labor Statistics conceding that the jobless rate would have been three percentage points higher had household data been recorded accurately.
In its April policy statement, the Fed said it would hold interest rates at zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
The question now is whether the May jobs data is the first step in this policy objective being met and if this brings forward a rate rise and end to some of the support programs, say, buying corporate bonds.
The US Fed’s Open Market Committee meeting comes after the European Central Bank (ECB) added an additional €600 billion to its lending program last Thursday.
Markets will be looking closely for any change in the Fed’s stance alongside its updated economic projections, which will set out the expected depth of recession and speed of recovery.
At its prior meeting, the FOMC held interest rates at near zero, but the minutes revealed that policymakers are prepared to adjust their stance, including elements of its various emergency lending programs, in response to evolving financial conditions.
May’s inflation figures (CPI and PPI) for the US will also be released, together with early consumer sentiment numbers for June.
US jobless claims are out Thursday night – the number of new claims is forecast to be around 1.5 million.
Core CPI inflation (out Wednesday) is expected to fall further to 1.3% year on year. Data for job openings for April (tomorrow) will also be released and are expected to show a sharp fall which will be contrary to the message from the May jobs report.
In Europe, markets will be eyeing the GDP data for the UK and industrial production numbers in the Eurozone for further clues as to the depth of the economic downturns in the second quarter, which PMI surveys indicate will be the largest on record, albeit with signs of the rate of contraction cooling in May.
In Asia, inflation, credit, and money supply figures will be released in China. Chinese CPI inflation for May (out Wednesday) is expected to fall further to 2.6% year on year as food prices ease) and producer price deflation is expected to intensify to an annual negative rate of 3.2%.
In Australia, the NAB business survey for May (today) is expected to show an improvement in business conditions and confidence consistent with the start of the reopening of parts of the economy.
Westpac’s consumer confidence survey for June (tomorrow) is expected to rise further but housing finance commitments for April (also Wednesday) are forecast to show a fall.
