Three central banks – the Bank of England (BoE), the Swiss National Bank (SNB), and the Reserve Bank of Australia (RBA) – are set to decide on interest rates this week, potentially driving market volatility.
Following rate cuts by the European Central Bank and the Bank of Canada earlier this month, more central banks, including the BoE, SNB, and RBA, are poised to decide on their interest rates. Last week, the Federal Reserve projected one rate cut for this year. The SNB delivered a rate cut in March, making it the first central bank among this group to do so. Investors will closely watch whether other central banks will follow suit or at least provide clear indications about their rate paths.
Europe
The spotlight will be on major economies’ flash manufacturing and services producer price indices (PMIs) this week, with Germany, France, and the Eurozone, reporting the readings for June. While manufacturing activities in the Euro area remained contracted in May, the data showed the slowdown was at the softest pace in both France and Germany. Services PMI in Germany sustained expansion for the third consecutive month in May. Consensus suggests that the services activities will continue improving in June.
In the United Kingdom, the BoE’s interest rate decision will be a key focus for the regional markets. The bank is expected to keep interest rates on hold despite inflation cooling to near its target level. However, it started leaning to be dovish due to stalled economic growth. In its policy meeting in May, seven members of the monetary policy committee voted to hold rates unchanged, while two members voted for a cut, compared to only one member who voted for a rate cut in March.
Additionally, Bank of England Governor Andrew Bailey said in the last meeting that a rate cut before a general election should not be an issue. The snap election called by Prime Minister Rishi Sunak may have reinforced the possibility of a June rate cut. The British stock markets could get a boost if this happens. The country will also report its flash manufacturing and services PMI, with both sectors having remained expanded in recent months. Both sets of data are expected to continue growing in June. Retail sales data for May is also due for release this week, with consensus forecasting a 1.6% month-on-month growth from a 2.3% decline in April.
In Switzerland, the SNB is expected to keep its interest rate on hold at 1.5% as the country’s inflation elevated to 1.4% for the second month in May, the highest since December 2023.
The US
In the United States, the most influential economic data for the country are the retail sales for May and its flash manufacturing and service PMIs this week. Retail sales were unexpectedly flat in April, indicating that US consumers became cautious about spending due to a slowing labour market. The unemployment rate climbed to 4% in May, the highest since January 2022. Consensus calls for a 0.3% monthly increase in May.
Furthermore, the S&P Global US manufacturing and services PMI was revised up to 51.3 for May, signaling a modest gain. However, the ISM manufacturing PMI contracted in the same month. The data suggests economic growth may be slowing down in the country, prompting the Fed to start cutting interest rates, though inflation remained well above the targeted level. According to consensus, both the US manufacturing and services PMI will continue to expand in June.
Asia Pacific
The Reserve Bank of Australia’s rate decision will be closely watched this week, with expectations that the bank will keep the Official Cash Rate (OCR) on hold at 4.35% for the fifth consecutive time. Monthly inflation climbed to 3.6% in April, up from 3.5% in March, which was much higher than the 2% targeted level.
Additionally, China will report its industrial production, retail sales, fixed asset investment, and employment data on Monday, which are important economic indicators for the country. Also, the People’s Bank of China is poised to decide on the 1-year and 5-year Loan Prime Rates, with no expectations for a change this week.
