Overview for 6 June 2022

02 Jun 2022

Major upcoming global economic releases and events

DateData / EventPreviousConsensus
7-Jun-22Australia interest rate decision0.35%0.60%
7-Jun-22US trade balance (Apr) (Apr)US$-109.8BUS$-89.3B
8-Jun-22Australia business confidence (May)10NA
9-Jun-22Europe interest rate decision0%0%
9-Jun-22US core inflation y/y (May)6.2%5.9%
10-Jun-22China inflation y/y (May)2.1%NA
10-Jun-22US consumer sentiment (Jun)58.458.2

Source: Bloomberg, UBS Global Research, Tradingeconomics.com

What to watch this week

AustraliaUSEurope

Domestic data was mixed last week, with the building approvals and home loans series both underperforming expectations while private credit held up well April. GDP data (see chart of the week) was in line with the consensus expectation immediately before the release, but only following downgrades on the back of weaker partial data prints in the build-up. 

The RBA meets this week and is expected to hike rates by 0.25% according to market consensus. While the near-term outlook is almost certain to see ongoing rate hikes, there is less clarity on the end point for cash rates. Market pricing suggests that ongoing hikes will see interest rates above 3% in the second half of 2023, but most researchers are expecting the RBA to pause well before that level is reached. For example, UBS and CBA both expect the RBA to stop hiking next year when the cash rate hits 1.60%. 

The business survey is the only other key domestic highlight in the week ahead.   


The April non-farm payroll report showed stronger than expected gains over the month, although the level of that strength continued its downward trend. The unemployment rate held at near decade lows of 3.6%. Wage growth slowed again, with the annual average hourly earnings number declining from 5.5% to 5.2%. Overall, the report was solid, and while it won’t deter the Fed from making 0.50% hikes at coming meetings, the decline in wage growth will provide some comfort. 


After rising materially over the first part of the year US 10-year bond yields have held around the 3% level in recent weeks. Signs that inflation may be peaking as well as the trimming of growth forecasts for the period ahead should help limit further upward pressure on yields and we therefore took a more constructive view on high-grade fixed income last week, closing a long-held tactical underweight. 

European inflation surprised to the high side in May with the annual number hitting a record high of 8.1%, up from 7.4% in April and above the 7.7% consensus. The core series was also higher than expected, showing that price rises were driven by broader influences than solely energy gains. Retail sales was weaker than expected, declining 1.3% in April.  

The European Central Banks (ECB) has followed global peers by taking steps in hawkish direction in recent months. Another step towards rate hikes is expected at the meeting this week, with the ECB expected to announce the end of asset purchases, paving the way for a rate hike in July. As the year progresses UBS expects further hikes in September and December, with another four hikes in 2023. Unlike Australia, market pricing for European interest rates sees a lower terminal rate for the hiking cycle, with cash rates only forecast to hit 1.50% by the end of 2024.  




Chart of the week—Australian retail sales


The Australian economy expanded by 0.8% in Q1, broadly in line with market expectations after a number of weaker than expected partial data prints over the prior week. The annual number moderated from an upwardly revised 4.4% to a still solid 3.3%. The data showed that demand remains strong and although consumption moderated from the re-opening boom, it posted a solid 1.5% quarterly gain. 

Within the data, services consumption outstripped goods spending, which is a key part of the rationale for declining inflation in the second half of the year. Lower than expected wage growth also showed that wages remain contained for the time being. 

Looking ahead, UBS has further downgraded its 2022 growth forecasts from 4.6% to 4.1%, with Q1 proving weaker than initially expected (prior to the underwhelming partials) and the impact of weather, Covid and supply chain disruptions likely to prove a drag on Q2 growth.  

Financial market movements

INDICATORAs at 03-Jun-221 WEEK CHANGE1 YEAR CHANGE3 YEAR CHANGE (ANNUALISED)5 YEAR CHANGE (ANNUALISED)
EQUITIES
%%%%
S&P/ASX 200 Accum. Index85,350.74 0.793.31 8.06 9.14
US S&P 500 TR^ Index8,665.801.31-1.47 14.9513.09
Europe STOXX TR Index895.00-0.73-4.74 7.31 4.13
UK FTSE 100 TR Index7,600.620.29   10.10 5.49 3.90
Japan TOPIX TR Index2,927.832.51 0.67 10.425.96
MSCI World ex-Australia TR Index6,570.73-0.71-2.62 12.049.83
FIXED INCOME %BPBPBPBP
Australian 90 day bank bill yield 1.24 10.65 120.53-5.50-9.92
Australian 10 year bond yield 3.4822.90181.9065.4421.35
US 90 day bank bill yield1.128.85 110.91-38.90 3.70
US 10 year bond yield 2.93 19.54 130.82 28.66 15.43
UK 10 year bond yield2.1624.50132.90 42.12 21.55
German 10 year bond yield1.2731.00 145.60 48.89 19.90
COMMODITIES
%%%%
Gold 1,851.19-0.14-1.05 11.787.67
Oil West Texas Crude 118.87 4.1972.75 30.69 20.06
Iron Ore Spot Price Index146.50 9.66-28.75 14.54 21.49
CURRENCIES%
%%%%
AUD:USD0.72 0.63-5.891.09-0.64
EUR:USD1.07-0.15-11.61-1.57-1.01
GBP:USD 1.25-1.13-11.47-0.47-0.63
USD:JPY130.88 2.97 18.676.59 3.46
NZD:USD0.65-0.34-8.90-0.45-1.84
CHF:USD1.04-0.56-6.141.03-0.00
AUD:EUR0.67 0.796.492.710.01
AUD:GBP0.58 1.786.30 1.56-0.01
AUD:JPY  94.313.62 11.63 7.752.79

*BP = Basis Point, Source: Bloomberg; ^TR = Total return.

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