Week Ahead for FX, Bonds: Markets Nervously Await French Elections, Focus on U.S. PCE Data

Below are the most important global events likely to affect FX and bond markets in the week starting June 24.

Focus switches back to U.S. economic data in the coming week, particularly Friday's PCE inflation data, the Federal Reserve's preferred measure of inflation.

In Europe, focus remains on politics and any moves in French assets as investors remain nervous ahead of snap elections in France, with the first round set for June 30. Rate decisions in Sweden, the Czech Republic and Turkey plus inflation data in Canada will also attract attention.

A string of economic data from Japan, a decision by the Philippines central bank and China PMIs are the main events in a relatively quiet week in Asia.

Inflation prints from Australia, Singapore and Malaysia are also on the radar, shedding light on how price pressures are doing midway through the second quarter.

U.S.

A busier week awaits for U.S. economic data as investors continue to look for evidence of whether the economy and inflation are slowing sufficiently to allow the Federal Reserve to cut interest rates in the coming months or whether this move will have to wait until December or even later.

In any case, the Fed is set to cut interest rates later than its European peers, likely keeping the dollar and U.S. Treasury yields propped up.

The Fed's recent forecasts suggest that interest rates could stay higher for longer, with the prospect of only one rate cut this year, though many policymakers still expect two.

Key will be U.S. PCE inflation data for May on Friday, the Fed's preferred measure of inflation, as well as revised first-quarter gross domestic product data on Thursday. The Conference Board's index of consumer confidence for June on Tuesday will give an indication of how the economy has been performing in recent weeks.

"A further softening in inflation and/or activity data in the U.S. is now needed to close the rate gap between the Fed and other central banks, and ultimately fuel a new dollar downtrend," ING currency strategist Francesco Pesole said in a note.

Thursday will also see the release of durable goods orders for May and weekly jobless claims, while the University of Michigan's final consumer survey for June is due on Friday.

The U.S. Treasury will offer floating rate notes on Wednesday.

CANADA

Canadian inflation data for May are scheduled for Tuesday, where a weak reading could result in a follow-up interest-rate cut in July after the Bank of Canada reduced rates earlier this month.

Canada's central bank is likely to test the limits of how much it can cut rates while the U.S. Federal Reserve is on hold, the fixed-income team at CIBC Capital Markets said. CIBC expects aggressive rate cuts given a rising share of mortgage renewals at much higher rates that are in the pipeline, the analysts said in a note.

Canada gross domestic product data for April are also due on Friday.

MEXICO

Mexico's central bank announces an interest-rate decision on Thursday.

Investors expect rates to be left on hold at 11.0% this month, with a rate cut delayed until August or beyond, having previously expected a move in June, analysts at Citi said in a note.

EUROZONE

Focus will firmly be on politics, with French bonds and banking stocks potentially vulnerable to jitters ahead of the first round of the National Assembly election on June 30.

Polls show strong support for Marine Le Pen's far-right National Rally party, raising concerns about potential political gridlock and excessive fiscal spending.

"All eyes will be on Rassemblement National [National Rally] and whether the far-right has a realistic chance of winning an absolute majority in the second round on 7 July," Investec economists said in a note.

Analysts will be watching data to see how the eurozone economy is recovering and particularly any indications that the upcoming French election is hurting sentiment.

German's Ifo business climate index for June is due on Monday, followed by the June German GfK consumer climate survey and France's consumer confidence survey, also for June, on Wednesday.

Provisional inflation figures for June from France, Spain and Italy on Friday will be watched for signs of whether or not prices are coming down as investors seek a steer for when the European Central Bank will next cut interest rates.

The ECB cut rates in June but was cautious about signaling further moves due to concerns about inflation.

Government bond issuance is set to slow, with only Germany and Italy lining up for auctions. Italy will conduct bond auctions on Tuesday and Thursday, while Germany will offer EUR4.5 billion in June 2026 Schatz on Tuesday.

U.K.

The week ahead is a quieter one in the U.K. but investors will be scrutinizing upcoming economic data after the Bank of England left interest rates on hold but offered a prospect of a rate cut as early as August. Two out of nine policymakers voted to reduce rates and others said the decision was "finely balanced."

The main upcoming release will be revised gross domestic product data for the first quarter, due on Friday, which will provide breakdowns on income, while business investment figures will also be released. The Confederation of British Industry's industrial trends survey for June is released on Monday and the distributive trades survey on Wednesday.

Politics will also be in focus ahead of a U.K. general election on July 4, with the opposition Labour Party expected to win a majority. Analysts say the impact on U.K. assets is likely to be limited, possibly marginally positive.

The U.K. Debt Management Office plans to sell a November 2033 index-linked gilt on Tuesday and January 2038 conventional gilt on Wednesday.

SCANDINAVIA

Sweden's central bank, the Riksbank, is expected to keep interest rates on hold at 3.75% in a decision on Thursday after starting rate cuts in May.

Analysts expect the Riksbank will flag further rate cuts to come due to low inflation and a weak economy, in a marked contrast to Norway's central bank, Norges Bank, which looks unlikely to start cutting interest rates until at least December and possibly not until 2025.

"We expect the Riksbank to leave the policy rate unchanged and keep the policy rate path from the March Monetary Policy Report largely unchanged, matching previous communication of two more rate cuts in the second half of 2024," SEB analysts said in a note.

"After the higher-than-expected May inflation print, the probability for a June cute is close to zero," they said.

SEB forecasts three more rate cuts this year, with the next reduction likely in August. Citi analysts also forecast "at least" three more cuts this year, in August, September and December, they said in a note.

Norway will hold a bond auction on Wednesday.

CZECH REPUBLIC

The Czech central bank, or CNB, announces a rate decision on Thursday and is expected to cut interest rates by at least 25 basis points and potentially by 50 basis points.

"Though we initially assumed a 25 basis-point [interest-rate] cut and we do not rule out this option, core CPI/PPI data and the CNB's communication lead us to expect a 50 basis-point cut in June," Citi analysts said in a note.

TURKEY

Turkey's central bank announces a rate decision on Thursday.

"Developments to date lead us to believe that the CBT [Turkey's central bank] is likely to keep rates on hold until the end of the third quarter as the focus turns to the unwinding of unconventional regulatory measures," Citi analysts said in a note.

Turkey's benchmark interest rate stands at 50%.

AUSTRALIA

In Australia, money markets will await the release of the monthly inflation report for May on Wednesday, which has taken on added importance after the Reserve Bank of Australia indicated a slightly more hawkish position at its June policy meeting.

The April consumer-price index data came in above expectations, adding to a growing sense of unease that inflation pressures might be more stubborn than expected.

While RBA Governor Michele Bullock stopped short of announcing a tightening bias at the most recent policy meeting, she did admit to heightened alertness about inflation risks.

Any upside surprise in the CPI reading will see bets on an August interest-rate increase grow sharply.

JAPAN

Japan's data week kicks off with the Bank of Japan's Summary of Opinions on Monday, which will be looked at for more insight into the central bank's thinking after it opted to hold rates steady and trim purchases of Japanese government bonds.

Retail sales data for May on Thursday will be watched for signs of how consumer demand is faring amid concerns that inflation gains are outpacing wage growth.

Jobs and industrial production data for May, plus Tokyo's CPI print for June will be released on Friday. Economists will be looking to see how the wage-inflation growth story is playing out and its implications for BOJ policy, and watching for a rebound in manufacturing output after car-factory shutdowns earlier in the year dented production.

Japan's consumer inflation had picked up in May, adding to market expectations for interest-rate increases.

Adjustments to energy prices might make the headline and core inflation data difficult to take at face value for the next few months, HSBC Global Research said, noting that broad price increases aren't speeding up, while services inflation moderated further in May.

HSBC expects the BOJ's next rate hike in July, alongside the central bank's unveiling of detailed plans to cut Japanese government bond purchases over the next one to two years.

CHINA

China's May industrial profit data is scheduled for Thursday, coming after data earlier this month painted a mixed picture for the economy's health. Home prices continued to fall, while growth in fixed-asset investment and industrial production lost some momentum.

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June 21, 2024 10:25 ET (14:25 GMT)

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