Key Events This Week: "The Most Closely Watched Data Release So Far This Year" After last week's disappointing yet "goldilocks" payrolls report, the big event this week is Thursday’s US CPI release. As DB's Jim Reid writes, consensus estimates for May currently expect both the headline and core rate to rise +0.4% month-on-month which would lift the YoY rate to 4.7% and 3.4% respectively which will be the highest since late 2008 and 1993 which would be a pretty impressive feat especially on the core. "This will undoubtedly be the most watched data release this year so far", according to Deutsche Bank. BofA's economists are even more aggressive, and expects an even stronger CPI report in May with core jumping 0.5% mom and headline up 0.4% mom. Coupled with positive base effects, % yoy core will jump to 3.5% from 3% and headline to 4.7% from 4.2%. We will also pay close attention to the inflation expectations data in Friday's University of Michigan consumer sentiment survey (89.0 vs 82.9). DB's rates strategists feel that expectations are heading back to their 1998-2014 regime after 7 years of rock bottom levels likely due to the slump in the oil price around that time. In turn this should be worth 3% on 10 year Treasuries. Their 2.25% YE forecast reflects a probability, rather than certainty, of this happening. Last month the 5-10 year expectation rose to a revised 3.0% with the 1yr at 4.6%. This follows May’s employment report missing expectations. The 559k gain headline payrolls (496k private) was characterized by Cleveland Fed President Mester as "solid" but still short of "substantial further progress". She also noted that the data are "not anywhere near a wage-price spiral". While there was some evidence in the report that labour shortages are resulting in upward pressure on wages – high demand in the leisure & hospitality sector being the most obvious - we are clearly along way from normality in the US labour market. However things might change very quickly as the economy fully opens up this year. Outside of US CPI the other main event of the week will be Thursday’s ECB meeting, where much attention will be on what sort of pace the Governing Council decides on for the bank’s PEPP purchases. Given the dovish tilt in the Council’s latest commentary, our economists expect the ECB to maintain the faster pace of PEPP purchases for the time being. However, they expect that after June the market focus will be on PEPP exit, as it is a pandemic policy and we expect exit to be confirmed in September or December. See here for their full note. Otherwise, the other G20 central bank policy decisions will come from Canada on Wednesday and Russia on Friday. There are no Fed governors set to speak this week as Saturday marked the start of their blackout period ahead of next week’s FOMC meeting. The rest of the data week is in the day by day calendar at the end. Also worth noting is that ahead of this weekend’s G-7 meeting we saw an agreement in principle from the same seven countries for a minimum global corporation tax of “at least 15%” on overseas earnings. The focus will now shift to a meeting of G20 finance minister in July to see if we can get wider agreement and on long-running talks between about 140 countries at the OECD. Overall it’s been clear for the last couple of years, even before the pandemic, that a 40-year race to the bottom for corporate tax rates was coming to an end and was likely to reverse. The pandemic has accelerated this. Turning to Germany’s state election now where Angela Merkel’s Christian Democrats are most likely to win in Saxony-Anhalt and fend off the AfD. According to projections from public broadcaster ARD, the CDU is on course to win 37%, an improvement over the 30% it received in 2016 in the state, while the far-right AfD, which was pushing for the lead in recent polls, is likely to be well back in second with 22% (24% five years ago). This was the final electoral contest before the national vote in September and will be a boost to the CDU’s Armin Laschet as he bids to succeed Merkel in the Chancellorship. Day-by-day calendar of events, courtesy of Deutsche Bank: Monday June 7 Data: China May trade balance, imports, and exports, Japan preliminary June leading index, Germany April factory orders Central Banks: ECB Holzmann speaks Tuesday June 8 Data: Japan final Q1 GDP, final Q1 GDP deflator, April labor cash earnings, April BoP current account balance, Germany April industrial production and June ZEW survey expectations, France April trade balance, Italy April retail sales, Euro area final Q1 GDP and June ZEW survey expectations, US May NFIB small business optimism, April trade balance, and April JOLTS job openings Wednesday June 9 Data: Japan May M2 money stock and preliminary May machine tool orders, Germany April trade balance and current account balance, US weekly MBA mortgage applications, and final April wholesale inventories Central Banks: Bank of Canada monetary policy decision Thursday June 10 Data: Japan May PPI, France and Italy April industrial production, US May CPI, weekly initial claims, continuing claims and May monthly budget statement Central Banks: ECB monetary policy decision and ECB President Lagarde press conference, Bank of Canada Deputy Governor Lane speaks Friday June 11 Data: UK April industrial production, manufacturing production and trade balance, US preliminary June University of Michigan sentiment survey Central Banks: Russian Central Bank monetary policy decision Other: G-7 summit begins in Cornwall, England Finally, focusing on just the US, Goldman writes that the key economic data releases this week are the CPI report and the jobless claims report on Thursday. There are no speaking engagements from Fed officials this week. Monday, June 7 There are no major economic data releases scheduled. Tuesday, June 8 06:00 AM NFIB small business optimism, May (consensus 100.9, last 99.8) 08:30 AM Trade balance, April (GS -$68.0BN, consensus -$69.0BN, last -$74.4BN): We estimate that the trade deficit declined by $6.4BN to $68.0BN in April, reflecting the partial normalization of goods imports following their surge in March. Goods imports are now well above their pre-pandemic level, and goods exports are slightly above their pre-pandemic level. Both imports and exports of services have recovered only slightly from their 2020Q2 troughs, despite the pickup in March. 10:00 AM JOLTS Job Openings, April (consensus n.a., last 8,123k) Wednesday, June 9 10:00 AM Wholesale inventories, April final (consensus +0.8%, last +0.8%) Thursday, June 10 08:30 AM CPI (mom), May (GS +0.46%, consensus +0.4%, last +0.8%); Core CPI (mom), May (GS +0.50%, consensus +0.4%, last +0.9%); CPI (yoy), May (GS +4.74%, consensus +4.7%, last +4.2%); Core CPI (yoy), May (GS +3.55%, consensus +3.4%, last +3.0%): We estimate a 0.50% increase in May core CPI (mom sa), which would boost the year-on-year rate by six tenths to 3.55%. Our monthly core inflation forecast reflects reopening-driven strength in airfares, hotel prices, and recreation prices. Additionally, we expect strong monthly readings in used cars (+6%) and new cars (+0.5%), reflecting supply chain disruptions and microchip shortages. Given the pickup in our shelter tracker, the reversal of rent forgiveness effects, and continued strength in the housing market, we expect firming in housing rent categories (we estimate rent +0.25% and OER +0.30%). On the negative side, ARP Act aid for day care and college tuition could weigh on education CPI, and we are assuming a normalizing of alcohol prices with bars generally open. We estimate a 0.46% increase in headline CPI (mom sa), reflecting higher food prices and little change in energy prices. 08:30 AM Initial jobless claims, week ended June 5 (GS 355k, consensus 370k, last 385k); Continuing jobless claims, week ended May 29 (consensus 3,700k, last 3,771k): We estimate initial jobless claims decreased to 355k in the week ended June 5. Friday, June 11 10:00 AM University of Michigan consumer sentiment, June preliminary (GS 86.0, consensus 84.2, last 82.9): We expect the University of Michigan consumer sentiment index increased by 3.1pt to 86.0 in the preliminary June reading. Source: DB, Goldman, BofA Tyler Durden Mon, 06/07/2021 - 09:13