Data Refuses to Behave
- 05 June 2023 (5 min read)
- Stronger than expected job creation raises doubts on the Fed’s pause, while lower than expected CPI helps the ECB doves. We however still see the two central banks proceeding as planned at their June meeting.
- Super-low inflation in China should trigger an export-led recovery and help tame global price pressure, but geopolitics get in the way.
The stage had been carefully set for a pause at the FOMC meeting on 14 June, while a day later the ECB would deviate by hiking further. The recent dataflow is however raising some questions. In the Euro area a bigger than expected deceleration in core inflation in May is providing the doves with some arguments to proceed more carefully while in the US strong job creation is casting doubt on the pace at which the economy would finally land.
The details in the data are however consistent with the two central banks proceeding as planned at their next meetings. The inflation decline in the Euro area owes too much to one-offs and while we continue to think there is more evidence that the European economy is slowing down, there is also still too much acquired speed on the labour market for the ECB to feel relaxed about the risk of a wage-driven inflation second wave. However, we are marginally more confident with our baseline that July, and not September, will be the peak in policy rates for the ECB. In the US, job creation according to the Establishment Survey is contradicted by the Household Survey, while some wage moderation seems to be underway, especially when taking working time in consideration. Yet, the issue is less about June than about the possibility that the Fed resumes hiking in July. We are counting on more evidence of the downturn accumulating in the next two months to ultimately stay the Fed’s hand, but it’s a very close call. In any case, we welcome the fact that the market is now pricing a lower probability of rate cuts in the second half of the year, consistent with our long-held view that the Fed will not revert stance as swiftly as investors expected.
Finally, we look at the Chinese dataflow but rather than focusing on evidence that the recovery is now sputtering – it clearly is – we are more interested in the fact that inflation remains super low over there. In normal circumstances, the ensuing competitiveness gain would trigger an export-led recovery which would help tame inflation globally. Politics however are getting in the way, as the US is reducing its reliance on Chinese products.
Disclaimer
This website is published by AXA Investment Managers Asia (Singapore) Ltd. (Registration No. 199001714W) for general circulation and informational purposes only. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities. It has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation or particular needs of any particular person and may be subject to change without notice. Please consult your financial or other professional advisers before making any investment decision.
Due to its simplification, this publication is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this publication is provided based on our state of knowledge at the time of creation of this publication. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
All investment involves risk, including the loss of capital. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested. Past performance is not necessarily indicative of future performance.
Some of the Services and/or products may not be available for offer to retail investors.
This publication has not been reviewed by the Monetary Authority of Singapore.