Expected drop in inflation in June
On Tuesday at 9:30 a.m. the GUS will publish a quick estimate of June inflation. In our assessment, the CPI index fell in June to 2.7% y/y from 3.1% y/y in May, approaching the middle of the NBP target. The consensus forecasts are also at a similar level. The inflation decline is mainly due to lower fuel prices. Normalization of the energy commodity market should also support a drop in core inflation, due to lower pressure on service prices.
Prospects for the rest of the year are also improving. The expiration of the government CPN program and the return of the VAT rate on fuels to 23% will cause a modest rise in inflation in July, but according to our estimates the CPI index will remain within the NBP inflation target range. In such a scenario, in our view, the RPP will keep interest rates unchanged. This scenario is also priced in by financial markets today.
Will normalization in the Middle East boost industrial sentiment?
On Wednesday the PMI for Polish industry will be released, which according to our estimates rose in June to 49.7 points from 49.4 points in May.
Improved industrial sentiment will be aided by geopolitical normalization, and consequently by lower energy commodity prices and reduced worries about inflationary pressure.
The signing of an agreement between the US and Iran improved business cycle indices in EU countries, and we expect a similar reaction in Polish industry. Despite the expected improvement, the index will likely remain below the neutral value of 50 points.
Is the US labour market stable?
This week we will see a series of releases from the US labour market. It will open with the Tuesday release of the number of vacancies according to JOLTS in May.
The consensus forecasts indicate a decline to 7.275 from 7.618 million in April.
On Wednesday we will see the Challenger report, which informs about planned layoffs in June, and the ADP report, which informs about the estimated change in private sector employment in June.
For the latter, analysts expect an increase of 118 thousand, after an increase of 122 thousand in May.
The most important will be the Thursday labour market report, which contains data on changes in non‑farm payrolls.
It is usually published on the first Friday of the month, but that Friday is a holiday in the US due to Independence Day celebrations.
According to consensus forecasts, employment in the non‑farm sector in June rose by 115 thousand versus an increase of 172 thousand in May.
The unemployment rate is expected to be 4.3%, similar to May, and the hourly wage will rise by 0.3% m/m.
Recently published data indicate the resilience of the US labour market and its good condition.
Results in line with consensus forecasts, in our view, will support the Fed’s hawkish narrative.
Stabilisation of inflation pressure in the euro zone
This week preliminary inflation readings for the euro zone and its major economies will be released.
On Tuesday we will see CPI inflation data for Germany, which is expected to be 2.6% y/y in June, similar to the previous month.
On Wednesday Eurostat will publish inflation data for the entire euro zone.
The consensus forecasts indicate a drop in the HICP index to 3.0% y/y from 3.2% y/y in May.
The decline in fuel prices on international markets helps reduce price pressure in European countries, although inflation remains above the ECB target.
Realising these forecasts will support market expectations for another 25 basis point rate hike this year.
