This week will be all about rhe "Thursday Turmoil Trifecta" when the UK general election will be highlight of a busy week together with the ECB monetary policy meeting, while rounding off events in the US will be James Comey's first public testimony since he was fired by Donald Trump in which he is expected to testify that Trump pressured him to end the Russian probe into Mike Flynn.
Additionally, we also have the RBA meeting and industrial production in Germany, UK and Scandies. Central bank watchers will be busy as there will also be monetary policy meetings in India, Peru, Poland, Kazakhstan.
Focus is on the UK general elections
Despite fluctuating polls, virtually every analyst's base case for this election remains a Conservative majority large enough to allow for the necessary compromises to deliver an orderly "hard Brexit" with a transition period lasting 1-2y. However, the narrowing of the polls poses risks to this scenario.
The extent of the Conservative majority matters most for Brexit risks; a less than 60 seats increases the risks of the UK walking away from Brexit negotiations according to BofA. Whilst a Labour-led coalition or outright victory has the potential to lead to a softer Brexit, we worry about the growth risks posed by some of the policies put forward in their agenda.
A "milestone" ECB meeting
BofA's expects Draghi to erase the "or lower" when referring to the future possible path of rates and shift the balance of macroeconomic risks to neutral from "tilted to the downside". It also expects Draghi to point out that the ECB stands ready to increase the asset purchase program in terms of size or duration but remark that this would be now less likely. Market-wise this is now general consensus and the balance of risks is leaning towards a more dovish press statement given the recent weakness in inflation and ECB's warnings on the labour market.
A visual breakdown of the week's key news courtesy of BofA:
A breakdown of key events by day:
- This morning we’re kicking off in Europe with the remaining services and composite May PMIs which will also include a first look at the data for the UK and periphery. Over in the US this afternoon we also receive the remaining PMIs as well as final revisions to Q1 unit labour costs and nonfarm productivity, ISM non-manufacturing for May, factory orders for April and final durable and capital goods orders revisions for April.
- With little of significance in Asia on Tuesday we are straight to Europe with the June Sentix investor confidence reading and April retail sales for the Euro area. In the US tomorrow we are due to get JOLTS job openings for April.
- Wednesday kicks off in Germany with April factory orders, while in the UK we get the May house prices data. The only data due in the US on Wednesday is April consumer credit. China will also release May foreign reserves data at some stage.
- The early focus in Asia on Thursday is in Japan with the final Q1 GDP revisions, while the latest trade data will also be released. Over in Europe on Thursday we also receive the final Q1 GDP revisions for the Euro area, while industrial production in Germany for April and trade data in France is also due. The big event in Europe on Thursday comes just after midday with the ECB meeting which will be closely followed by Draghi’s press conference. The only release due in the US on Thursday is initial jobless claims. China will also release May trade data at some stage on Thursday. Away from the markets, two other key events will be the UK general election and James Comey's testimony in Congress.
- We end the week in Asia on Friday with the May CPI and PPI prints in China. Over in Europe we’ll get April trade data in Germany, industrial production in France, and industrial production and trade data in the UK. We finish the week in the US with the final April wholesale inventories print.
With the Fed into the blackout period now there’s no Fedspeak this week while over at the ECB, along with Draghi’s press conference we’ll also hear from Nowotny on Friday.
As noted above, other big events this week are the UK election this Thursday which will include exit polls just after polling stations close at 10pm BST. Results will then be released through the night. Also worth keeping an eye on is former FBI director James Comey’s testimony before the Senate on Thursday. Other things to note are the RBA meeting on Tuesday, RBI meeting on Wednesday and OECD 2017 outlook on Wednesday.
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A summary breakdown of key US events is shown below where the key economic release this week is the ISM non-manufacturing report later today.
And courtesy of Goldman, here is a breakdown of the main US events together with estimates and commentary:
Monday, June 5
- 08:30 AM Nonfarm productivity (qoq saar), Q1 final (GS flat, consensus -0.2%, last -0.6%); Unit labor costs, Q1 final (GS +2.2%, consensus +2.4%, last +3.0%): We estimate Q1 non-farm productivity will be revised up 0.6pp to +0.0% in the second vintage, well below the 0.75% trend achieved on average during this expansion. We expect unit labor costs – compensation per hour divided by output per hour – for Q1 to be revised down by 0.8pp to 2.2% (qoq saar).
- 09:45 AM Markit Flash US services PMI, May final (last 54.0)
- 10:00 AM ISM non-manufacturing, May (GS 56.7, consensus 57.1, last 57.5): We expect the ISM non-manufacturing survey to decline 0.8pt to 56.7 in the May report. Regional non-manufacturing surveys were mixed in May but all continue to signal moderate expansion in service-sector business activity. The Philly Fed (-4.5pt to +25.6), New York Fed (-1.2pt to +2.5, SA by GS), and Dallas Fed (-1.3pt to +7.7) surveys all moved lower while the Richmond Fed (+12pt to +34) increased sharply for a second month. Overall, our non-manufacturing survey tracker edged up to 56.1 in May (vs. 56.0 in April).
- 10:00 AM Factory orders, April (GS -0.5%, consensus -0.2%, last +0.5%); Durable goods orders, April final (last -0.7%); Durable goods orders ex-transportation, April final (last -0.4%); Core capital goods orders, April final (last +0.0%); Core capital goods shipments, April final (last -0.1%): We expect factory orders fell 0.5% in April, following a 0.5% increase in March. The April durable goods report showed flat core capital goods orders and a modest decrease in shipments, both below expectations.
Tuesday, June 6
- 10:00 AM JOLTS job openings, April (consensus 5,738k, last 5,743k)
Wednesday, June 7
- 03:00 PM Consumer credit, March (consensus +$15.0bn, last +$16.4bn)
Thursday, June 8
- 08:30 AM Initial jobless claims, week ended June 3 (GS 240k, consensus 240k, last 248k); Continuing jobless claims, week ended May 27 (consensus 1,920k, last 1,915k) We estimate initial jobless claims declined 8k to 240k in the week ended June 3. Claims rose 10k in the previous week and may have been affected by the timing of auto plant shutdowns. Continuing claims – the number of persons receiving benefits through standard programs – have fallen further in recent weeks, suggestive of labor market improvement that we expect to continue.
Friday, June 9
- 10:00 AM Wholesale inventories, April final (consensus -0.3%, last -0.3%)
Source: BofA. GS, DB