Week Ahead: Expectations high for FOMC meeting

Week Ahead

As has become the norm, we can expect a slew of dire economic data over the coming week. We’ll be looking at the figures for clues on how long the economic recovery could take, and also if projections for the expected Q2 collapse look like they were dire enough. 

The FOMC could bring back its economic projections, and may also provide some additional clarity on the policy outlook with a shift towards implicit forward guidance. 

What can confidence data tell us about the post-Covid recovery? 

Traders, economists, businesses, and policymakers across the globe are still uncertain what shape the post-lockdown recovery will take. Many are still hoping for a sharp rebound, but it seems unlikely. 

Amongst all this uncertainty, business and consumer sentiment is a useful indicator of how people on the ground feel about the road ahead. Unsurprisingly the surveys so far have been deeply pessimistic. 

But economies are reopening, lockdown measures are being eased, and some semblance of normal life is returning for people in many countries. Has this translated into a more positive outlook, or has taking the first step simply highlighted how far we have left to travel on the road to recovery?

US inflation data – is sustained deflation on the way? 

US inflation data is due this week. The headlines recently have been impressive – April saw the biggest drop in price growth since December 2008, and core inflation posted the largest drop since the data series began in 1957. 

A single month of sharp price declines isn’t going to worry policymakers too much, but the big worry is that we’re entering an extended period of deflation. Interest rates are already at rock bottom, but another below-zero reading for price growth could see markets questioning how much longer the FOMC can leave it before pushing rates negative. 

FOMC meeting – markets looking for economic projections and forward guidance 

The Federal Open Market Committee announces its latest policy decisions on Thursday. 

Markets will be hoping for more direction from the FOMC this time around. April’s meeting, and the subsequent minutes, failed to provide any concrete outline of how monetary policy could evolve in the future to respond to worsening economic conditions. Members had discussed establishing targets for unemployment and inflation, and also for setting a threshold date before which rates would not be increased. 

We’re likely to see the Summary of Economic Projections make a return; this was dropped in March, because the outlook for the economy at the time was too uncertain to call. This, and a move towards implicit forward guidance, will give markets a more accurate picture of Fed policy going forwards. 

UK growth and production data to shape Q2 expectations 

A slew of UK data for April gives us a glimpse of the dreaded Q2 performance. It’s accepted that this quarter will be dire, but monthly GDP and industry production figures will show whether even the worst-case scenarios have been gloomy enough. 

The GDP average for the threemonth period ending in April is expected to print at -12%, down from -2% in April. On a monthly basis, growth is forecast down -24%, while the year-on-year drop will be around -29%. Manufacturing production is likely to have fallen almost -30%. We’re in the midst of what is supposed to be the worst of it, but there are still questions over just how badly the economy has been hit. 

Clear skies for Adobe’s cloud-based offering? 

With earnings season over, the corporate calendar is looking decidedly thin, although Adobe could prove an interesting highlight. 

The company’s software is cloud-based, much to the relief of many of the businesses who rely on it but have employees stuck at home away from their work computers. The fact its products are sold on a subscription model could help to keep revenue relatively stable, although like most companies Adobe is likely to report a hit to business during the quarter.

Highlights on XRay this Week 

Read the full schedule of financial market analysis and training.

07.15 UTC Daily European Morning Call
17.00 UTC 08-June Blonde Markets
From 15.30 UTC 09-June Gold, Silver, and Oil Weekly Forecasts
17.00 UTC 10-June FOMC Preview with chief market analyst Neil Wilson
14.45 UTC 11-June Master the Markets with Andrew Barnett

Key Events this Week

Watch out for the biggest events on the economic calendar this week:

06.00 UTC 08-Jun German Industrial Production
08.30 UTC 08-Jun Eurozone Sentix Investor Confidence
01.30 UTC 09-Jun AU NAB Business Confidence
09.00 UTC 09-Jun Eurozone Final Employment Change / Revised GDP (Q/Q)
00.30 UTC 10-Jun Westpac Consumer Sentiment
01.30 UTC 10-Jun China CPI
12.30 UTC 10-Jun US CPI
14.30 UTC 10-Jun US EIA Crude Oil Inventories
18.00 UTC 10-Jun FOMC Rate Decision
18.30 UTC 10-Jun FOMC Press Conference
Pre-Market 10-Jun Dollarama – Q1 2021
12.30 UTC 11-Jun US Unemployment Claims
14.30 UTC 11-Jun US EIA Natural Gas Storage
After-Market 11-Jun Adobe – Q2 2020
06.00 UTC 12-Jun UK GDP (M/M), Manufacturing/Industrial Production (M/M), Construction Output (M/M)
14.00 UTC 12-Jun Preliminary University of Michigan Sentiment Index