1. U.S CPI
Tuesday’s Core CPI read may not be the event you pay admission for in a week highlighted by a trio of central bank policy meetings and a historic Summit between President Donald Trump and North Korean dictator Kim Jung Un, but it begs to set the tone. In fact, Wednesday’s FOMC Meeting encourages a stronger emphasis on this inflation indicator. Core CPI in April released last month did not meet expectations and the MoM component was arguably disappointing. After four months with a steady pace of gains, 0.2-0.3%, April slowed at +0.1%. The Federal Reserve officially began dovening their rhetoric at their last meeting May 2 and CPI a week later agreed with such. A stronger or weaker read on Tuesday at 7:30 am CT will encourage hawkish or dovish speculation ahead of Wednesday’s main event; look for movement in the Dollar and Treasuries to confirm such.
2. FOMC vs. ECB
This two-round bout delivers the FOMC’s policy decision at 1:00 p.m. Central on Wednesday and the ECB’s at 6:45 am CT on Thursday. ECB Chief Economist Peter Praet, a confidant of ECB President Mario Draghi, said last week that the central bank will debate changing policy and ending or winding down QE when their bond purchases expire in September. With the Italian crisis dissipating from headlines last week, the Euro strengthened, and yields rose on these comments from the well-known dove. We at Blue Line Futures have been calling for this policy shift all year. Slower than expected economic expansion and inflation growth through the first half of the year blocked this trajectory. In fact, doubters have gained traction each week; the last four to be exact.
The Commitment of Traders has not only shown a Leveraged net-short Euro position for four weeks running, but it has increased for each. Our belief has been that the slower data is part of a traditionally transitory first quarter that also builds into a loll around the Easter holiday in Europe. Considering the budding net-short position, many traders could easily get caught offsides in the face of a more hawkish ECB. The May 31 Eurozone CPI read went a bit under the radar given the Italian crisis but could be enough to give the ECB what they need to take this step toward tightening; headline YoY read crushed expectations at 1.9% versus 1.6%, the strongest in a year. It is a foregone conclusion that the Federal Reserve will hike rates on Wednesday. However, the question is their rhetoric. They have taken a dovish approach of their own in the last 30-60 days.
Ultimately, they want to avoid an extreme policy divergence from other major central banks. The meetings on Wednesday and Thursday now become intertwined because a slightly more hawkish than expected Fed first could merely be a head fake for what is to follow the next morning from the ECB. Fed officials publish their projections in the widely known Dot Plot, this will be key in understanding their expectations. Fed Chair Powell will hold a press conference following the statement. Volatility will remain extremely high over this 36/48-hour span and patience will be important because the Bank of Japan is up next. They hold a policy meeting Thursday night and they are expected to leave things unchanged. However, if the Fed and ECB are both more hawkish than expected, the question then is does it put pressure on the BoJ to signal an eventual exit from its ultra-loose monetary policy?
3. North Korea Summit
President Trump and North Korean dictator Kim Jung Un plan to begin meetings by 8:00 pm CT Monday night. Believe it or not, expectations run high for substance from this groundbreaking Summit. Kim Jung Un has already arrived in Singapore and the drama builds. On May 24th, when President Trump canceled this scheduled meeting, volatility ensued; investors sold stocks and bough safe haven assets only to reverse such when the meeting was still in the mix. Given heightened tensions upon President Trump’s exit from the G7 Summit, everyone from world leaders to investors and traders are looking for positive news from this meeting. Such could be necessary in order to maintain recent momentum in equity markets ahead of Wednesday’s FOMC meeting. A failure to see headway with North Korea may not cause a stock market selloff, but at the end of the week, a more hawkish Fed, a questionable geopolitical landscape and quadruple witching are very likely to keep buyers on the sidelines at a bare minimum.
Other Key Events
4. Members of Parliament will debate and vote on crucial Brexit legislation as it hits the Lower House of Commons Tuesday and Wednesday.
5. U.K Claimant Count and Earnings data (jobs report) is released on Tuesday at 3:30 a.m. Central
6. German ZEW Economic Sentiment is due Tuesday at 4:00 a.m. Central. This important read in April hit the lowest level since November 2012. The data was matched in May and is now expected to worsen for June.
7. The OPEC Monthly Report on Tuesday at 6:20 p.m. Central comes about two weeks ahead of a landmark meeting where they are largely expected to raise production. Crude finished Friday 10% from its peak May 22. The IEA’s Monthly Report is on Wednesday at 3:00 am CT and the EIA releases weekly inventory data later that day at 9:30 am CT.
8. Australian Employment data is due at 8:30 pm CT Wednesday
9. Key reads on China’s Industrial Production, Fixed Asset Investment and Retail Sales are due Wednesday at 9:00 pm CT.
10. An important read on U.S Retail Sales is to be released on Thursday at 7:30 a.m. CT.