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RANsquawk Eco Week Ahead 18-23 June 2017

RANsquawk Weekly G10 Central Bank Monitor can be accessed here

NORTH AMERICA

TUE 20 JUN 2017 - 1330BST: US CURRENT ACCOUNT BALANCE (Q1)

Forecast: The deficit is seen narrowing to USD 124.9bln vs a deficit of 112.4bln prior.

WED 21 JUN 2017 - 1500BST: US EXISTING HOME SALES (MAY)

Forecast: 5.55mln vs prior 5.57mln. Both new and existing home sales slipped in April, with the former falling by the most in two years – almost completely wiping out gains made in 2017 – while the latter fell by over 2%, leaving the annualised rate only a touch higher Y/Y. “A lack of inventory is behind the dip in activity,” says Capital Economics. “On a per capita basis, the number of existing homes for sale has reached its lowest level since records began in 1982, and while the inventory of new homes is larger, note that many of them are at the more expensive end of the spectrum.” The consultancy, therefore, believes that despite lower mortgage rates boosting home purchases, it will difficult to sustain the traction going forward. This month it forecasts a further fall in existing home sales, while new home sales should see a small rise.

THU 22 JUN 2017 - 1330BST: CANADA RETAIL SALES (APR)

Forecast: retail sales 0.10% vs prior 0.70%; ex-autos 0.20% vs prior -0.20%. Retail sales growth is likely to be driven by sales of new vehicles, though volumes are seen largely unchanged on the month.

FRI 23 JUN 2017 - 1330BST: CANADA: CPI (MAY)

Forecast: 1.30% Y/Y vs 1.60% prior. Lower gasoline prices are expected to be the main driver of lower inflation in May. “Given that there is still some excess slack leftover in the economy and no sign of wage cost pressures, the core CPI-common inflation rate likely was at 1.3%,” Capital Economics says.

FRI 23 JUN 2017 - 1445BST: US MARKIT PMI SURVEYS (JUN, FLASH)

Forecast: Services PMI 53.9 vs 53.6 prior; Manufacturing 53.0 vs 52.7 prior.

FRI 23 JUN 2017 - 1500BST: US NEW HOME SALES (MAY)

Forecast: 600k vs 569k prior. Both new and existing home sales slipped in April, with the former falling by the most in two years – almost completely wiping out gains made in 2017 – while the latter fell by over 2%, leaving the annualised rate only a touch higher Y/Y. “A lack of inventory is behind the dip in activity,” says Capital Economics. “On a per capita basis, the number of existing homes for sale has reached its lowest level since records began in 1982, and while the inventory of new homes is larger, note that many of them are at the more expensive end of the spectrum.” The consultancy, therefore, believes that despite lower mortgage rates boosting home purchases, it will difficult to sustain the traction going forward. This month it forecasts a further fall in existing home sales, while new home sales should see a small rise.

EUROPE

SUN 18 JUN: FRANCE LEGISLATIVE ELECTIONS SECOND ROUND

President Macron’s La Republique En Marche party is seen running away in the second-round election, taking a hefty majority in the French lower house. The consensus expects En Marche to take 425 seats, eclipsing the 289 seats needed to gain a majority. The Socialists are forecast to win 30 seats, and the Republicans around 100 seats. The Front National is seen taking just 15 seats. “A large parliamentary majority would make it easier for the new government to pass legislation. However, in any case, opposition to the reforms is more likely to come from trade unions and the public at large than from the legislature, in our view,” says Morgan Stanley. As yet, there is little information on what Macron’s legislative agenda will entail, and will no doubt begin to be shaped over the coming weeks. “The new government has come to power during a cyclical upswing in the French economy,” MS writes, “however, a substantial improvement in France's structural outlook is more uncertain (even if the government hits its reform targets). We only factor a modest impact from Macron's reforms into our short-term growth forecasts.” Projections will begin to be released around 1900BST. At the margin, attention will be on the turnout rate, which was a record low 48.7% in the first-round.

THU 22 JUN 2017 - 0900BST: NORGES BANK RATE ANNOUNCEMENT

Forecast: Rates to be held at 50bps. The Norges Bank is seen maintaining rates at 50bps, though there will be a lot of attention on the rate path going forward. The Bank meets amid a firming in domestic activity – as indicated by the Regional Survey released this week – with many indicators coming in above the central bank’s own forecasts; inflation, however, has been surprising to the downside. Meanwhile, the NOK is around 3% softer than March MPR, while oil prices have dropped by around 7%. “On balance, we expect no major changes to Norges Bank's policy rate path (published alongside an updated June MPR),” says Goldman Sachs, “we expect Norges Bank to revise its forecast for mainland GDP growth higher, while lowering its inflation forecast,” and GS sees the Bank on hold in the quarters ahead. It is also worth keeping in mind that, for the first time, the Norges Bank will publish its meeting minutes alongside its rate decision.

THU 22 JUN 2017 - 1500BST: EUROZONE CONSUMER CONFIDENCE (JUN, FLASH)

Forecast: -3.0 vs -3.3 prior.

FRI 23 JUN 2017 - 0900BST: EUROZONE PMI SURVEYS (JUN, FLASH)

Forecasts: Manufacturing PMI seen at 56.8 versus 56.6 prior; Services PMI seen at 56.4 versus 55.8 prior; prior composite 56.8. Surveys continue to paint a solid picture of a recovering Eurozone economy, and Markit said that last month’s surveys were consistent with 0.7% growth in Q2, which would be a 0.1ppts higher than the revised up Q1 print. It is the Eurozone’s powerhouse economies – Germany and France – that drove activity data higher in May; excluding those two countries, the services PMIs were softer in the Eurozone, with Italy a notable concern. Analysts at HSBC write “This is a further signal of a possible slowdown in domestic demand on the back of higher inflation, which had already started to emerge in the Q1 GDP.” The bank also points out that hard data still lags the optimism seen in surveys, citing recent industrial production. And looking ahead, HSBC says “with real wage growth hovering around zero and signs that the global manufacturing cycle might have peaked already, we continue to expect a moderation of the soft data.”

UK

MON 19 JUN 2017 - 1000BST: BREXIT NEGOTIATIONS BEGIN

The Brexit negotiations between the UK and the EU will begin officially on Monday, and a press conference between the EU’s Michel Barnier and UK Brexit Secretary David Davis is scheduled for 1700BST. It seems the early negotiations will likely focus on the contentious approach: The UK wants to negotiate the terms of Brexit alongside the future relationship between the UK and EU. The EU, however, insists that the terms of Brexit must be finalised before any future deals are made. A sources story, released Friday, has suggested that the UK is willing to accept EU demands, however. This stage is expected to be concluded by October. The talks will begin despite the UK being in a political limbo, with no official deal concluded between the Conservatives and the Irish DUP party on a so-called “supply and confidence” pact where the DUP will support the Tories to guarantee the government has a working majority in Parliament. This political arrangement is expected to be wrapped-up early this week, and certainly before the delayed Queen’s speech on 21 June 2017 – which lays out the government’s legislative agenda, and is likely to include details about the Great Repeal Bill. The consensus view seems to accept that a deal with the DUP will mean that the Government’s approach will be softer, despite assertions from UK Prime Minister Theresa May that hard Brexit is preferable to a ‘bad deal’ with the EU.

WED 21 JUN 2017 - 0930BST: UK PUBLIC BORROWING DATA (MAY)

Forecast: GBP -6.7bln vs previous GBP -10.4bln. Last month’s public finance figures disappointed, coming in just over GBP 1bln than analysts foresaw, printing the largest deficit since April 2014. One of the factors bond traders noted was the higher interest payments on linkers due to higher RPI. Looking to May’s data, “the adverse consequences of higher inflation on debt interest spending is likely to have persisted in May,” Oxford Economics writes. “However, a robust performance from retail sales should have supported VAT receipts.”

ASIA-PACIFIC

MON 19 JUN 2017 - 0050BST: JAPAN TRADE DATA

Forecast: trade balance to narrow to JPY 47.9bln vs 481bln prior; Exports 15.5% vs 7.5%; Imports seen rising 12.5% vs 15.2% prior. Prelim data indicates imports have eased on the month, while exports have firmed quite sharply, according to analysis by Capital Economics. “We suspect that exports rose less rapidly during the whole month but we’ve still pencilled in a marked rebound in the seasonally-adjusted trade surplus,” the consultancy writes.

TUE 20 JUN 2017: NZ DAIRY AUCTION

TD Securities notes that futures are a touch lower, indicating downside to this week’s GDT whole milk powder prices.

TUE 20 JUN 2017: RBA MINUTES

The RBA held its cash rate at 1.50%, as expected. The minutes are seen reflecting the dovish tone of the statement, which flagged slowing household income growth as a key factor constraining consumption. It will also be interested to see what the central bank has to say about the weakness seen in Q1 GDP, which the central bank categorised as reflecting quarterly variations. The RBA is likely to sound upbeat on the labour market, however, as the statement did note stronger employment growth (though noted the average hours worked had slipped). “RBA appears comfortable with a neutral stance for now,” Barclays’ analysts write. “The current weakness in household consumption and wages will continue to keep RBA watchful, despite the improvement in business conditions. We believe that, more than headline growth, if the trend of improvement in the labour market continues and wages start to rise at the margin, it may create conditions for RBA to normalize policy, but not before those trends are firmly established.”

WED 21 JUN 2017 - 2200BST: RBNZ RATE ANNOUNCEMENT

Forecast: Official Cash Rate will be held at 1.75%. The RBNZ is unanimously seen keeping rates on hold in June, with the tone of the statement mirroring the May Monetary Policy Statement, which noted global risks remained tilted to the downside, though commodity prices, consumer sentiment, household spending and net migration were solid. However, analysts at TD Securities aren’t expecting a BOC-esque hawkish tilt, ad say that unlike the BOC, the RBNZ is taking on a more cautious view on offshore developments. “The RBNZ is likely to reiterate its neutral stance on monetary policy at next week’s meeting,” TD writes, “the weaker Q1 GDP print (+0.5% cf mkt +0.7% and RBNZ +0.9%) buys the Bank some breathing space, as RBNZ Governor Wheeler is determined to remain neutral until his contract expires in late September.” TD also notes that, the trade weighted currency is some 3% higher than the May MPS, but oil is around 5% lower, leaving little to change to inflationary profile in the immediate term. Currently, OIS look for the first RBNZ hike to come in Q3 2018.

(Write to Yogesh Chandarana: Yogesh.Chandarana@RANsquawk.com)
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