ECB Sintra forum a key interest, with euro area flash inflation set to rise further in June
In a busy week ahead in the euro area, attention will be on the ECB’s annual Sintra central banking forum, which kicks off this evening with some remarks from President Lagarde. She will then give the main introductory speech tomorrow morning, and will also participate on Wednesday’s policy panel alongside BoE Governor Bailey, Fed Chair Powell and BIS head Carstens. Expect reaffirmation of central bank determination to return inflation to target despite the growing risks of global recession.
The data highlight will be the flash euro area inflation figures for June on Friday. With energy and food prices set to have increased further, we forecast headline HICP inflation to rise 0.3ppt to a new series high of 8.4%Y/Y. But with both services and non-energy industrial goods inflation perhaps moving sideways, we expect core inflation to be unchanged at 3.8%Y/Y, albeit similarly a record high. Given recent hints of a change to firms’ pricing behaviour, as well as the recent trend, the risks to these forecasts appear skewed to the upside. The flash data from Germany and Spain (Wednesday), France and Italy (Thursday and Friday respectively) will provide greater insight.
For further hints of recession risks, meanwhile, the European Commission’s business and consumer confidence survey results should be watched on Wednesday. If last week’s flash PMIs and German ifo survey are anything to go by, these are likely to suggest a sharp drop in new factory orders and a loss of confidence in many consumer- and manufacturing-facing services, albeit with still-firm demand in tourism-related activity providing support to activity. The headline economic sentiment index is forecast to fall 2pts to 103.0, the lowest since February 2021, but risks to this seem skewed to the downside.
Japanese BoJ Tankan survey to reaffirm recovery in services but ongoing struggles in manufacturing
After a quiet start to the week for Japanese economic news, the back end of the week will bring a number of top-tier releases including May retail sales (Thursday) and IP numbers (Friday). Retail sales are likely to have posted a further increase last month (about 1.0%M/M), supported by the relaxation of Covid restrictions and improvement in consumer confidence. But manufacturing production is forecast to decline for the second successive month (-0.3%M/M) as supply bottlenecks have been exacerbated by China’s lockdowns. And persisting challenges in the sector are expected to be flagged in Friday’s BoJ quarterly Tankan survey. Indeed, the headline DI for large manufacturers is forecast to decline 1pt to +13, which would be the lowest since Q121. In contrast, the DI for large non-manufacturers is expected to rise 4pts to +13, the highest since 2019. The Tankan will also be watched for signals on business inflation expectations – probably a touch firmer but still consistent with sub-target inflation over the medium term. Friday also brings the latest Tokyo CPI figures for June and labour market numbers for May.
US manufacturing orders and ISM set to flag slowing activity, personal spending set to be boosted by higher prices
A busy week for US economic releases kicks off with the advance durable goods orders (today) and goods trade figures (tomorrow) for May. Both releases are expected to have been boosted by higher prices. Even then, orders are expected to have remained relatively subdued on slowing activity, with our Daiwa America colleagues forecasting an increase in nominal terms of 0.5%M/M (admittedly above the consensus). Meanwhile, they also expect the goods trade deficit to have widened (by $5.3bn to $112.0bn) on the back of soft exports and higher imports. And the deterioration in manufacturing conditions is likely to be reflected in Friday’s manufacturing ISM survey, with the headline index forecast to have fallen to 55.0, a respectable level by historical standards but nevertheless well down on the average during 2021 (60.6) and would be the lowest level since July 2020.
Turning to households, the monthly personal income and spending numbers (Thursday) will be of note. Respectable gains in employment and earnings suggest that wages and salaries performed well (0.4%M/M). But on the spending side, a drop in sales of new vehicles will restrain outlays for durable goods. And while total spending is expected to have recorded modest growth (0.3%M/M), this will in large part reflect prices, with real personal spending is forecast to have fallen for the first month in five. Indeed, the core PCE deflator is expected to have risen a further 0.4%M/M in May, with the headline index boosted further by energy prices. Against this backdrop, the Conference Board’s consumer confidence index (tomorrow) is expected to have fallen in June to 100, the lowest since February 2021 and some 30pts below last year’s peak.
UK shop price inflation and bank lending numbers of note
In what should be a relatively quiet week for top-tier UK releases, the calendar kicks off with the BRC shop price index for June on Wednesday. This seems bound to report further upwards price pressures on the high street, not least reflecting higher global food prices. Meanwhile, Friday will offer an update on bank lending in May, with demand for new consumer credit likely to have remained subdued amid rising interest rates and diminished willingness to spend although we may well see further evidence of lower credit card repayments as the higher cost of living continues to weigh on households’ finances. Mortgage lending is expected to have remained firm as the Nationwide house price index for June (due Thursday) is likely to report that annual house price inflation remained in double-digits.