Diary: The Illusion of Control

By Glenn Dyer | More Articles by Glenn Dyer

The global calendar of major economic and markets events this week will be a central bank bonanza one, packed with decisions and updates that will alter investor sentiment and asset price trajectories – and probably leave us just as confused as usual.

There are meetings and possible rate rises from one of the world’s two major central banks – the European Central bank is tipped to impose another 0.25% increase, while the Fed is thought likely to do nothing, for a change.

The Bank of Japan meets Friday but no policy change is expected.

But there’s also other important data – none more influential than the US consumer inflation report for May out later tonight (around 10.30pm Sydney time for all you night owls).

China’s final economic data dump for May is out Thursday – it won’t be pretty, so don’t be surprised if there’s some sort of monetary policy easing revealed this week.

The Chinese government has already invited (and that request has been accepted) some major national and regional banks to trim some of their interest rates – no policy cut, mind you.

In Australia, we’re facing the May labour force report on Thursday and the market expects a fall of more than 4,000 jobs, including a drop of 27,000 jobs but no change in the jobless rate at 3.7%.

There’s also the Westpac consumer confidence survey and the monthly National Australia Bank business conditions and confidence survey later today.

The US economic calendar will be dominated by the CPI and Fed releases.

Some analysts believe it is too early for economic optimism (which a Fed pause might trigger).

There’s also the NY Empire State manufacturing survey and the Philly Fed survey which will provide a first look at US regional factory performance in June – expect a continuation of the weakness that has plagued the industry this year.

Jobless claims released last Thursday were higher than expected, a sign that the labour market could be cooling. This rise could be considerable compared to the one six weeks ago.

Jobless initial benefits claims jumped back above 260,000 last week after falling in recent reports.

A big rise this week will change the atmosphere in the US jobs market and likely signal the start of a slowing in monthly job gains which could morph into losses in a couple of months.

There’s also the producer price index for May (a fall of 0.1% is forecast after the 0.2% rise in April), retail sales for May (a good indicator of the strength of consumer demand with a fall of 0.1% forecast after April’s 0.4% rise), industrial production, and the University of Michigan consumer sentiment survey.

Despite a fall in EU inflation to an annual 6.1% in May from 7% the month before, the European Central Bank is expected to hike interest rates by 25 basis points at its June meeting on Thursday. This would bring its policy rate to 4%, just short of the RBA’s 4.1% here.

Moody’s economists wrote at the weekend that “There is not enough irrefutable evidence that core inflation is safely on a downward path. Both core and headline inflation remain at multiples above the 2% target. We think the ECB is most likely to stop hiking after raising rates one more time in July.”

In Asia, China’s May activity data will again reflect the country’s uneven and bumpy recovery.

Economists think that growth in industrial production and retail trade likely slowed, with base effects for 2022 when much of the country was locked down to varying degrees, overstating the slowdown. Underlying cautiousness by businesses and consumers and weakened offshore demand will have also hurt the May readings.

Japan’s nominal trade deficit looks like it narrowed again in May. The deficit has narrowed considerably over the past several months, with falling global commodity prices lowering the nominal value of Japan’s goods imports.

“Year on year, goods imports are falling, and exports are recording moderate growth,” Moody’s economists wrote at the weekend.

But it will be the Bank of Japan meeting Friday that holds attention in that country and at the end of the week.

Recently-appointed BOJ Governor Kazuo Ueda has signalled that the long ultra-easy policy of his predecessor will remain until wage gains and inflation are stable and sustainable.

Wages and inflation are both rising at an annual 3% plus – a very unexpected outcome for Japan and one that policymakers are not used to.

The stockmarket is still at 30-year plus highs and economic growth rose strongly in the first quarter but might slow over the rest of the year.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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