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With market participants on hold ahead of several key US inflation prints, the dollar is essentially unchanged, Treasury yields are flat, and North American equity indices are moving sideways ahead of the open.

Softness in this morning’s producer price data could touch off a relief rally, but the release shouldn’t be as market-moving as others in recent memory. Somewhat unusually, today’s measure of input costs is scheduled before the broader consumer price index is published, making it difficult to estimate the impact on the Federal Reserve’s preferred measure of inflation – the core personal consumption expenditures index – due for release at the end of the month. Headline producer prices are seen rising 0.3 percent month-over-month in April, up from 0.2 percent in the prior month, with the core index expected to rise at a 0.2 percent pace for a second month.

Fed chair Jerome Powell will join European Central Bank Governing Council member and Dutch central bank president Klaas Knot in a panel discussion later this morning. No formal agenda has been provided for the annual meeting of the Amsterdam Foreign Banker Association, but Mr. Powell is expected to repeat the message delivered after the last policy decision – that stalling disinflation means it will take longer for Fed officials to gain the confidence needed to begin cutting rates.

Tomorrow’s consumer price index data has gained additional importance after a second release showed household price forecasts ratcheting higher. The New York Fed’s Survey of Consumer Expectations, released yesterday, showed year-ahead inflation expectations climbing to 3.26 percent, the highest since November. This followed Friday’s University of Michigan numbers, which showed a jump to 3.5 percent, and came after the Boston Fed’s Susan Collins specifically flagged consumer beliefs as a factor in determining the policy stance, telling an audience at MIT: “Because expectations are a key determinant of current behaviour, they influence actual inflation and its evolution, and are high on my ‘watchlist’.” Collins doesn’t vote on monetary policy this year, but is considered relatively centrist, making her views fairly reflective of Chair Powell’s.

We think risks are also tilted to the upside going into tomorrow’s retail sales report. Redbook same-store sales showed signs of a continued rebound in April and May, and an anecdotal review of numbers provided by the major banks shows an uptick in card spending volumes over the same period. As noted yesterday, the San Francisco Fed’s estimate of “excess savings” in the US economy is nearing zero, but rising real incomes and huge gains in paper wealth – particularly among baby boomers – are helping sustain remarkably strong levels of consumption.


The pound is modestly softer after new data showed labour market conditions cooling, helping clear the way for a rate cut as soon as June. According to the Office for National Statistics, the unemployment rate climbed to 4.3 percent in the three months ended in March, up from 4.2 percent previously, while private sector wage growth slowed to 5.9 percent on a year-over-year basis. The number of vacant positions available per unemployed worker fell back to pre-pandemic levels, with the direction of travel pointing to further declines. In a presentation delivered after the release, Bank of England chief economist Huw Pill said “There has been an easing of the labour market but it still remains pretty tight by historical standards,” noting that a summer rate cut was “not unreasonable,” although there was “still some work to do” to ensure that price pressures were subsiding on a sustainable basis.

Signs of economic optimism are helping to boost the euro. The German ZEW Institute’s investor sentiment gauge jumped from 42.9 in April to 47.1 in May as real incomes climbed, domestic consumption improved, and export demand recovered. Although a long-telegraphed June rate cut from the European Central Bank still looks overwhelmingly likely, persistent strength in euro area wage pressures, still-elevated core inflation, and the prospect of stronger growth could see officials using post-decision communications to push back on expectations for further easing. A “hawkish cut” might translate into a narrowing in cross-Atlantic rate differentials and lend the beleaguered euro some support against the dollar.

The Canadian dollar is still struggling to gain altitude relative to the US dollar. Friday’s stronger-than-expected jobs report came with plenty of caveats that pointed to weakness in underlying labour market conditions, and markets have – thus far – merely moved pricing for the first Bank of Canada rate cut to the July meeting, out from June previously. Bets on central bank “divergence” might grow in the coming days, but if next week’s consumer price data comes in hotter than expected – a strong possibility, given signs of recovery in the real estate sector and wider economy – markets could push the first expected move toward September, potentially pushing the loonie back through the 1.35 threshold that has repeatedly capped its advances in recent weeks.

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