Global data hitting forecasts; Global Policy Rate steady at 4.35 percent

Global economic data continue on net to come in very near expectations, at minus 3 for the Relative Performance Index and at minus 5 less prices (RPI-P). These readings suggest no jolts for Econoday’s Global Policy Rate which stands at 4.35 percent in a reading that tracks central-bank benchmarks from 12 major economies.

Economic activity in the Eurozone continues to run well ahead of market forecasts. The RPI ended the week at a respectable 29 and the RPI-P at a solid 38. In the absence of a major upside surprise in Friday’s flash HICP report for May, the ECB should still lower key interest rates next week but, if sustained, such outperformance may dampen the bank’s enthusiasm for another ease as soon as July.

In the UK, slightly softer than expected business activity in May and a surprise slump in April retail sales helped to reduce the RPI to minus 16. However, the sub-zero reading here masks an upside shock on inflation last month – the RPI-P now stands at minus 31. Accordingly, a June cut in Bank Rate remains a possibility but, in light of the inflation update, for now the odds are still against.

Note too that PM Rishi Sunak’s surprising decision to call the next general election for 4 July could have interesting implications for how upcoming economic data are interpreted. Strong economic news will probably be seen as potentially reducing the size of a widely forecast Conservative defeat and so increase the risk of a hung parliament, which would probably be about the worst case for UK financial markets and the pound.

In Japan, a mixed week for economic data left the RPI and the RPI-P at 2 and 4 respectively, implying that overall activity is essentially matching expectations and leaving a weak yen and investors still contemplating a possible June BoJ tightening.

Canada ended the week at minus 6 overall and minus 7 less prices, both within consensus ranges and suggesting limited easing risk for the Bank of Canada. The US ended the week at minus 11 for both the RPI and RPI-P as the country continues to climb out of the negative zone where it dropped to at the outset of the month following the limited strength in the April employment report.