This week's macro-events preview in the cryptocurrency circle: FOMC and CPI are released on the same day, and the big event in June is coming soon: The US May CPI and the Fed's June meeting are released on the same day. If the CPI is too far from expectations, the market and the Fed may react greatly. Just like two years ago when the CPI was 8.6% year-on-year, the market was in chaos, and the Fed directly raised interest rates by 75 basis points. Who knows what the CPI will be like this time?
Monday: There are the New York Fed's inflation expectations and the results of the 6-month and 3-month Treasury auctions. The U.S. Treasury yields have been falling recently. If the auction results are better than expected, the market will react; if not, the Fed may be more aggressive in shrinking the balance sheet. There is also Apple's WWDC24, which is expected to launch some AI features, but many iOS18 features may only support A17Pro and M2 and M4 chips.
Tuesday: 1-year and 10-year Treasury auctions, nothing else special.
Wednesday: Fed rate decision and CPI report. This is really a stroke of luck. I am worried that expectations will be revised sharply. If CPI is too high, don't expect no rate hike this year. The interest rate may exceed 5% next year. The market expects CPI to increase by 3.36% year-on-year, and 0.1% month-on-month after seasonal adjustment. The core CPI will increase by 0.3% month-on-month, and will slightly decline to 3.5% year-on-year. The Fed's dot plot is expected to reduce the number of rate cuts. It is estimated that there will be only one rate cut. Two times will be considered dovish. It is not ruled out that the super hawk will raise interest rates again. The economic summary may raise inflation and unemployment expectations and lower growth expectations. Powell's press conference may be slightly dovish, emphasizing that the threshold for further rate hikes is very high and the rate cut forecast within the year. However, this is the case when CPI meets expectations. If CPI exceeds expectations, then we will start over. In addition, there is Broadcom's financial report. Analysts have high hopes for it. If it doesn't work, we have to bury it. It has a market value of 650 billion US dollars.
Thursday: PPI data and Treasury auctions. The previous PPI data exceeded expectations, but the previous value was revised down. Powell said the data was complicated. It is expected that PPI will slow down month-on-month and may accelerate year-on-year. The core PPI growth rate may also slow down, with little change year-on-year. There are also Treasury auctions and initial and renewal claims data.
Friday: Bank of Japan interest rate decision, Michigan Consumer Confidence Index and inflation expectations. Japan's economic data was not good before, and the market doubted whether it could continue to tighten and withdraw from YCC. Recently, some media have leaked that bond purchases may be accelerated. The narrowing of the US-Japan interest rate gap did not prevent the depreciation of the yen. The good news is that the threshold for the yen to depreciate to systemic risk is higher than expected, possibly at 180-200. The Michigan Consumer Confidence Index is also under attention, and it is expected to rebound and inflation expectations will decline.
Personally, I think there is good news for many CPI items, such as gasoline and housing, and the cooling of commodities is good for commodity inflation. However, the downward trend of used cars may slow down, and core service inflation may still be around 5%. As for the threshold of CPI triggering a big sell-off, it is 0.3% month-on-month and 3.6% year-on-year. In this case, the Fed's interest rate path will be significantly repriced, and it is unlikely to exceed expectations slightly. If CPI grows by 0 month-on-month and 3.2% year-on-year or lower, the expectation of three interest rate cuts this year may be ignited again.
My forecast is: CPI 3.4% year-on-year, +0.2% month-on-month, core CPI +0.3% month-on-month, +3.6% year-on-year, slightly higher than market expectations, but will not cause a big sell-off and repricing. PPI 0 month-on-month, +2.4% year-on-year, core PPI +0.3% month-on-month, +2.4% year-on-year, upstream prices rose moderately. Michigan Consumer Confidence Index 75, inflation expectations fell back to 3.1%. In terms of the Fed's decision, it is expected to raise inflation expectations and the end point of interest rates in the next three years, with a rate cut of 25-50-75bp, and interest rates at the end of 2026 will be slightly higher than 4%. Slightly lower this year's GDP forecast, and raise unemployment and inflation expectations.
