Interest rate decisions from the Federal Reserve, European Central Bank and Bank of Japan stand out among a major week for economic events and data.
As for the UK, wages will be eyed ahead of a Bank of England meeting the following week.
Fed pause not guaranteed
The Fed is not currently expected to join the ECB in further hiking interest rates next week, but it may depend on Tuesday’s US inflation figures.
At present, the Fed is expected to keep rates at 5.25%, with chair Jerome Powell strongly hinting back in the early May meeting that after raising rates from near zero over the past 14 months, policymakers could pause at the June meeting.
Initially, this led to markets anticipating rate cuts for later in the year, before subsequent economic data showed inflation continuing to run hot and the jobs market remaining solid.
Furthermore, Australian and Canadian central banks surprisingly hiked rates this past week.
“Hawkish comments from a few Fed officials have added to the sense that they may not be done,” said economists at ING.
Markets are currently pricing a 33% chance of a 25bp hike next week, he noted, while only around one in ten economists are looking for an increase.
The ING team predicts a “hawkish hold, with the central bank leaving the door open to additional hikes if inflation fails to show signs of softening and the jobs market remains hot”.
If Tuesday’s core consumer price inflation comes in above the 0.4% consensus forecast, then ING says “the odds would likely swing in favour of a hike on Wednesday, as the measure would be heading in completely the wrong direction”.
Philip Marey, strategist at Rabobank, said Powell’s bias toward a pause in June leads to an expectation that the FOMC will keep things largely unchanged this month but the stronger economic data has “already convinced about half of the FOMC that additional rate hikes are warranted”.
He added: “Because of the reacceleration of the economy, and the modest impact of the banking turmoil on credit conditions, we now expect the FOMC to resume the hiking cycle in July in order to get inflation under control. For now, we expect one rate hike of 25 bps before the FOMC takes a pause for the remainder of the year.”
Other major data will be published after the Fed’s decision, including retail sales and industrial production on Thursday and the University of Michigan consumer sentiment on Friday.
ECB currently at 3.75%
As for the ECB, markets are confident that there will be another quarter-point hike on Thursday.
Nonetheless, a “notable shift from some of the recent narrative” is expected, said market analyst Michael Hewson at CMC Markets.
“The change of emphasis appears to have come about because of recent sharp falls in the headline rate of CPI, as well as evidence that core prices may well have also seen a peak.”
Still a hawkish message is expected, says Deutsche Bank, expecting the focus will to be on “what the ECB signals for the path ahead”, with “risks further hikes beyond July might be needed”.
UK, Japan and others
As for the UK, ahead of the Bank of England meeting on 22 June, wage growth will be eyed in the coming week’s jobs market data.
Wage growth has been easing, which is what BoE boss Andrew Bailey wants, though average earnings are expected to pick up from April’s 5.8%.
ING’s take: “We expect a 25bp rate hike later this month, though for now, the jobs market data doesn’t scream the need for the Bank of England to take rates much higher than that. It does however suggest rate cuts are likely to take time to come through – and probably longer than in the US.”
Friday will see the focus on the Bank of Japan and newish governor Kazuo Ueda.
He is "a rare creature indeed among central bankers", say analysts at AJ Bell.
This is because Ueda has not raised rates and nor has he abandoned Japan’s quantitative and qualitative easing (QQE) scheme, whereby the central bank buys government bonds to cap the yield on the ten-year paper at 0.50%.
The market is not expecting things to change this time, either, even with inflation now at 3.5% versus ahead of the 2% target.
"This ongoing monetary stimulus could be one explanation for why the Nikkei 225 stock index keeps moving higher," say the AJ Bell team.
Economic announcements
Monday: Budget Statement (US)
Tuesday: Claimant Count Rate (UK), Unemployment Rate (UK), Consumer Price Index (US)
Wednesday: Balance of Trade (UK), Gross Domestic Product (UK), Index of Services (UK), Industrial Production (UK), Manufacturing Production (UK), MBA Mortgage Applications (US), Producer Price Index (US), Crude Oil Inventories (US)
Thursday: Continuing Claims (US), Empires State Manufacturing (US), Import and Export Price Indices (US), Initial Jobless Claims (US), Philadelphia Fed Index (US), Retail Sales (US), Retail Sales Less Autos (US), Capacity Utilisation (US), Industrial Production (US), Business Inventories (US)