Week ahead: Fed and BoJ meet, EU election results awaited

The week kicks off with bond and FX markets digesting the results from the European elections. A wave of support for right-wing parties could upend the establishment and create volatility and a widening in sovereign bond spreads that could be negative towards European risk assets and the euro. Then it’s on to two major central bank meetings – the Federal Reserve and the Bank of Japan. The Fed is seen staying on hold but recent economic data has raised expectations that a cut could come by September. The BoJ is considering reducing bond purchases but could surprise markets with a second rate hike this year.

Here are the week’s key events:

Monday, June 10th: EU elections

Rising electoral support for right wing parties is going to be the thing to watch for as the results from the European Parliament elections are digested on Monday morning. Geopolitical risk premium has been quite absent from yields lately, but we could start to see something in sovereign bond spreads that would tend to be net negative for the euro and other European risk assets.  

Anti-EU, hard-right parties could gain ground in the EU elections, which could make decision-making harder for the centrist bloc and upend assumptions about what the EU is able to achieve in the coming years. Watch for wider spreads, which would tend to be negative for the euro.

Tuesday, June 11th: UK wage data 

UK jobless figures and wage growth data will be the focus early on and likely to impact GBP crosses. Persistent pay growth remains a sore point for the Bank of England as it seeks to control inflation. Wage growth excluding bonuses remained elevated at 6% in the three months to March, though unemployment ticked up to 4.3%. Markets are expecting the Bank of England to cut rates sometime this summer – whether the wage data is relatively hot or cold could change market pricing. Elsewhere, check for a US 10-year bond auction.

On the earnings front, GameStop (GME) is due to update the market in the wake of the recent resurfacing of meme stock mania.

Wednesday, June 12th: FOMC decision, US CPI inflation

Fed Day! The Federal Open Market Committee (FOMC) delivers its rate statement – no change is expected due to the persistence of inflation. But eco data from the US – job openings, the ISM data, the Atlanta Fed’s GDPNow prediction for Q2 growth – has seen bond yields drop and the case for cutting rates later this year is once again building. Traders will watch for the language surrounding future rate cuts and what Jay Powell has to say about the way the FOMC views the stickiness of inflation and the risks to growth.

It’s also a busy day for economic data. We start with the latest CPI and PPI inflation data from China. Consumer prices rose for a third month in April (+0.3% from +0.1% in March), though consumer prices extended their decline (-2.5% from –2.8% in March).

And ahead of the FOMC are the US CPI inflation numbers – although unlikely to shift the needle on this meeting’s decision, it could have big implications for the outlook for the rest of the year. Also watch the UK GDP figures as they come during the election campaign with a lot riding on the July 4th poll.

Thursday, June 13th:  More US inflation data

Australian labour market data is the main event during the Asian session and may offer some clues as to what the Reserve Bank of Australia does next, which could be a hike. Recent meeting minutes showed policymakers considered raising rates as the flow of data since the previous meeting had “mostly been stronger than expected”, and that it was “difficult either to rule in or rule out future changes’ to rates”.  

PPI inflation data from the US will be important, albeit a little less than it otherwise may be since the CPI inflation figures and FOMC decision came only the day before.

Friday, June 14th: Bank of Japan

The Bank of Japan has found itself in a tough spot with the yen weakening to multi-decade lows following its decision to gentle raise rates this year. There have been suggestions the BoJ will slow its pace of bond purchases but it could surprise with a direct monetary policy response.  

BoJ governor Ueda has indicated that the central bank could hike rates again should the weak yen lead to upwards pressure on inflation.

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