Week Ahead for FX, Bonds: Spotlight on U.S. -2-

After an extremely weak set of data in April, ING economists expect to see a rebound in May thanks to the supportive policy rollout. "Recent indicators point to real interest rates remaining too high for current economic conditions," they said.

The week also features an announcement by the People's Bank of China, which is scheduled to decide the rate on its medium-term lending facility.

THAILAND

Thailand's central bank faces strong political pressure at its interest-rate decision on Wednesday, with policymakers gathering amid calls from the government to start lowering rates to boost flagging growth.

Bank of Thailand seems like a prime candidate to kick off the easing cycle in Asia, said Nomura chief Asean Economist Euben Paracuelles. It is unclear when that might happen however, as the BOT is likely reluctant to be seen as caving in to rate-cut calls, and will probably want to lower rates on its own terms.

On the other hand, the Thai central bank isn't as concerned about currency depreciation as its peers in the region, which means the BOT is more likely to cut ahead of the Federal Reserve, Paracuelles said.

At its previous meeting in April, the central bank kept its policy rate at a decade high despite a slow economic recovery and weak inflation, saying it expects growth to accelerate going forward.

Inflation accelerated in May. Food prices, particularly vegetables and fruits, usually increase during the summer, Barclays economist Shreya Sodhani said. This could indicate higher raw food prices in the near term before the La Nina weather conditions help improve crop growth in Thailand.

However, underlying demand-pull pressures are likely to be benign, at least as long as fiscal stimulus helps to increase demand materially, she said.

Barclays expects the BOT to hold steady this year, with financial stability taking precedence over growth.

TAIWAN

On Thursday, Taiwan's central bank will come into focus after the latest inflation readings signal it might keep rates high for now.

The central bank surprised markets with a rate hike in March, citing inflation risks, but most economists viewed the move as a case of one-and-done and penciled in an extended pause, with the central bank likely to keep monitoring domestic economic activity.

Strong economic growth also gives policymakers ample room to stay on the sidelines. Taiwan has been reaping the rewards of its position in the global semiconductor supply chain. Booming demand for AI and chips has been a windfall for the island economy, powering growth to 6.56% in the first three months of the year, outpacing most of its peers.

The Taiwan government has said it expects to triple its economic growth rate this year as tech demand boosts exports.

"We do not expect any more policy surprises even though CPI inflation picked up in May," Barclays economists said. The central bank's response to financial stability risks seems more likely to take the form of tightening macroprudential measures rather than tightening broad-based monetary conditions, they said.

AUSTRALIA & NEW ZEALAND

A relatively light data slate for Australia features jobs figures for May on Thursday.

Markets will be watching to see if joblessness has improved after rising in April. Higher unemployment would likely ease pressure on the Reserve Bank of Australia to raise interest rates further.

Overall conditions in the labor market have remained tight, but are now more consistent with increasing signs that economic growth has slowed sharply. Growth in the commodity-rich economy barely registered a pulse in the first quarter, as the impact of high interest rates and climbing costs due to nagging inflation pressures slowed activity to a crawl.

ING economists think that some of April's part-time employment strength will convert to full-time jobs in May, but not on a one-for-one basis.

"We may also see part-time job growth mean revert to a lower level. That could result in a lower increase of only 20,000 new jobs in May," they said. "We think that an increase in unemployment of around 25,000 in May, coupled with about the same increase in the labor force, will result in a slight uptick in the unemployment rate from 4.1% to 4.2%."

INDIA

As the dust settles from an unexpectedly close election and the central bank's decision to keep interest rates unchanged, inflation data out of India will be watched to see if price pressures are staying benign.

Markets will keep a close eye on any political developments, hoping to see broad policy continuity and a continued commitment to fiscal consolidation and other reforms.

"The next few weeks could see horse-trading over important ministerial jobs," ING economists said.

With no big swings in the key food categories in May, it seems likely that CPI will rise by a modest 0.5% on the month, "resulting in an annual inflation rate of around 4.8%, almost unchanged from April," ING said. "This should have no immediate consequence for the Reserve Bank of India, whose next policy meeting is 8 August."

CPI data is due Wednesday.

(All references to days are in local times.)

--Additional reporting by Ronnie Harui, Megumi Fujikawa, James Glynn, Paulo Trevisani, Emese Bartha, Miriam Mukuru and Dominic Chopping

Write to: Jessica Fleetham at jessica.fleetham@wsj.com and Fabiana Negrin Ochoa at fabiana.negrinochoa@dowjones.com

(END) Dow Jones Newswires

June 09, 2024 18:14 ET (22:14 GMT)

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