The Week Ahead: US Personal Income and Outlays Report Crucial for the Fed

The US Dollar

On Tuesday, June 25, US consumer confidence numbers kick-start the week for the US dollar. A larger-than-expected fall in consumer confidence could raise investor bets on a September Fed rate cut. Downward trends in consumer confidence may affect spending and dampen demand-driven inflation.

Housing sector data will garner investor interest on Wednesday, June 26. An improving housing market could support consumer confidence and spending. However, tight inventories may increase rents, fueling property services and headline inflation.

On Thursday, June 27, jobless claims, GDP, and durable goods orders will draw investor interest. Upward trends in durable goods orders would support expectations of a soft landing.

US jobless claims could influence sentiment toward the Fed rate path. Tighter labor market conditions would support wage growth and increase disposable income. Upward trends in disposable income would fuel consumer spending.

Barring a revision to the Q1 2024 GDP numbers, the jobless claims will likely have more influence.

On Friday, June 28, the Personal Income and Outlays Report is a crucial data release. Downward personal income and spending trends and weaker Core PCE Price Index figures could cement a September Fed rate cut.

Beyond the numbers, investors should track FOMC Member commentary. Views on inflation, the economic outlook, and the timing of interest rate cuts could move the dial.

The EUR

On Monday, German business sentiment figures will influence buyer demand for the EUR/USD. After weaker-than-expected private sector PMIs for June, waning business sentiment could fuel expectations of a Q3 2024 ECB rate cut. Downward trends in business sentiment may affect employment, consumer confidence, and private consumption.

The German economy will be in the spotlight again on Wednesday, with GfK Consumer Climate Index in focus. While the headline number needs consideration, the willingness to buy sub-component could be more market-moving. In June, the willingness to buy sub-index remained subdued, testing expectations of an improving economic outlook.

On Friday, German retail sales and unemployment figures will affect investor bets on a Q3 2024 ECB rate cut. Downward trends in retail sales and a softer labor market environment could and dampen demand-driven inflationary pressures.

Other stats include inflation numbers from France, which could prove pivotal as investors hope for inflation to weaken.

Beyond the economic data, investors should monitor French Election news and central bank commentary.

Sentiment toward the sustainability of the EU Project could be crucial for the EUR and ECB monetary policy goals.

The Pound

The Bank of England could drive volatility in the Pound on Thursday. In focus are the BoE Financial Stability Report and Bank of England Governor Andrew Bailey.

Adverse views on financial stability could affect buyer demand for the Pound as the UK prepares for the General Election. Comments from Bank of England Governor may be vital following a surge in retail sales.

On Friday, UK GDP numbers could also move the Pound. A robust UK economy may give the BoE more time to ensure inflation returns to target.

The Loonie

Inflation numbers from Canada are a crucial data release on Tuesday and will influence near-term trends for the Loonie. Softer inflationary pressures could enable the Bank of Canada to begin discussions about another interest rate cut. The Bank of Canada was the first of the G7 to cut interest rates in the new cycle of policy easing.

On Friday, GDP numbers for April also warrant investor attention. However, we expect the inflation numbers to be pivotal for the Canadian dollar.

The Australian Dollar

It is a crucial week for the Aussie dollar, with inflation capable of forcing the RBA into an off-trend rate hike.

Australian consumer confidence will be in focus on Tuesday. Downward trends in consumer confidence could affect spending and dampen demand-driven inflation. A softer inflation outlook may ease pressure on the RBA to hike interest rates.

However, the Australian Monthly CPI Indicator will be a crucial data release on Wednesday. A pickup in inflationary pressure could fuel speculation about the possibility of an RBA rate hike. Last week, RBA Governor Michele Bullock warned that Board members discussed raising interest rates to tame inflation.

Inflation will be in the spotlight again on Thursday, with consumer inflation expectations in focus. Higher consumer inflation expectations could fuel more bets on an RBA interest rate hike.

On Friday, private-sector credit will draw investor interest. An unexpected slump in demand for credit could trigger fears of an economic recession. Weaker demand for credit affects consumption and the Australian economy.

The Kiwi Dollar

Economic indicators from New Zealand may affect investor bets on an RBNZ interest rate cut and buyer demand for the NZD/USD pairing.

On Monday, trade data will garner investor interest. Improving trade terms could signal a pickup in demand. New Zealand has a trade-to-GDP ratio of over 50%. Better trade terms could boost the NZ economy and the Kiwi dollar.

On Friday, business and consumer sentiment will be in focus. Consumer confidence trends will likely have a more immediate impact on the RBNZ rate path and the Kiwi dollar. An improving consumer confidence environment could fuel spending and demand-driven inflation.

The Japanese Yen

It is another pivotal week for the Japanese Yen, which moved toward the intervention zone this week.

On Monday, the Bank of Japan Summary of Opinions will give investors a sense of how willing the BoJ is to hike interest rates. In recent speeches, BoJ Governor Kazuo Ueda talked about the BoJ being data-dependent. However, other Board members spoke less hawkishly about interest rates, signaling a 2025 rate hike.

On Friday, economic data from Japan will impact investor expectations of a July BoJ rate hike. Key stats include:

• Tokyo inflation.
• Retail sales (Japan).
• Job/applications ratio (Japan).
• Unemployment rate (Japan).
• Industrial production (Japan).

With the Bank of Japan eyeing private consumption and demand-driven inflation, the inflation and retail sales data will affect buyer demand for the Yen more.

Beyond the numbers, investors should monitor BoJ chatter. The BoJ could begin signaling a rate hike to bolster the Japanese Yen.

BoJ Deputy Governor Ryozo Himino recently spoke about the impact of a weaker Yen on the economy, stating,

“Exchange-rate fluctuations affect economic activity in various ways. It also affects inflation in a broad-based and sustained way, beyond the direct impact on import prices.”

Out of China

Investors should monitor People’s Bank of China-related activity. Amidst fading hopes of a bazooka stimulus package, further measures to bolster the economy could drive buyer demand for riskier assets.

Founder and managing director of Z-Ben Advisers Peter Alexander recently shared his views on speculation about fiscal stimulus, saying,

“What has it been, the past year or so, where you’ll have people on that are always talking about the need for China to have this bazooka of fiscal stimulus? You know, China did that in 2008/9, and it led to some pretty disastrous long-term effects. They don’t want to do that again.”