Week ahead: Fed policy meeting, UK inflation, ILO unemployment, retail sales

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Federal Reserve Jerome Powell testifies during a Senate Banking Committee hearing on 'The Quarterly CARES Act Report to Congress on Capitol Hill, on December 1, 2020 in Washington,DC. (Photo by Susan Walsh / POOL / AFP) (Photo by SUSAN WALSH/POOL/AFP via Getty Images)
Federal Reserve chair Jerome Powell. Photo: Susan Walsh / POOL / AFP via Getty Images

Markets will have plenty to focus on in the coming week with a bunch of economic releases to keep investors busy. 

The Federal Reserve is back in the fray and its two-day monetary policy meeting is the big event that could indicate whether the US central bank will tweak its interest rates outlook.

Investors will keep a close tab on whether the Fed will stick with its dovish stance as optimism in America’s economy grows, and for any hint of chair Jerome Powell paring back the bond buying programme.

Inflation is still in the mix, with CPI figures due for the UK on Wednesday, followed by Germany and France on Tuesday and Eurozone-wide inflation data on Thursday. 

Retail sales numbers for May are on the slate for both the US and UK on Tuesday and Friday respectively. Employment is also in spotlight both countries, with the usual weekly claims due for America and the ILO unemployment figure for the UK. 

Elsewhere: Markets will also watch for a batch of monthly activity indicators in China for May. Rate-setters in Switzerland are scheduled to meet to decide on monetary policy on Thursday, followed by the Bank of Japan's rate decision on Friday.

Watch: What is inflation and why is it important?

UK: Inflation, unemployment, retail sales 

Britain has a few economic releases out this week and traders will be monitoring the debate around the reopening timeline in the UK as the Delta vCOVID variant infections increase.

Hopes will be for a further reduction in the ILO unemployment figure, with expectations that April's numbers will decline further, and another negative claimant count change reading on Tuesday. 

The number of people coming off furlough and returning to the labour force as the economy reopens has kept sterling supported in recent weeks. 

The real effects of the furlough scheme are likely to be felt in the third quarter of this year, and the Bank of England expects UK unemployment to rise, but not by as much as projected in February when it forecast a peak of 7.7%. This was adjusted lower at the last inflation report, to 5.2% for 2021, and then down to 4.7% in Q2 of 2022.

"Despite the positivity as we head into the summer months, numbers could still go higher," said Michael Hewson, chief market analyst at CMC Markets. "A lot of jobs that were around over a year ago may not come back, and if next week’s June reopening date slips, then more businesses could fall by the wayside."

The inflation reading is out on Wednesday, following the 1.5% posted the month prior. Finally, Friday's retail sales data for May, following the unexpected 9.2% increase in April.

Investors have been worried about a potential rise in inflationary pressure, heightened further by supply chain shortages, Brexit and COVID-related disruptions and inflation spikes in China and the US. 

Retail sales have been rebounding since January's 8.2% decline after shops were shut amid England's third lockdown. They rose 2.2% in February and then a 5.1% rise in March, primarily driven by people shopping in garden and DIY centres. April's figures were even better, rising 9.2%, driven by the reopening of non-essential shops on 12 April and consumer demand. 

Key company results: 

  • Boohoo (BOO.L) — Q1 (Tuesday)

  • Dr Martens (DOCS.L), Halfords (HFD.L) — half year (Thursday)

  • Whitbread (WTB.L) — Q1 (Thursday)

  • Tesco (TSCO.L) — Q1 (Friday)

US: Fed meeting, retail sales, weekly jobless claims 

CHICAGO, ILLINOIS - MAY 26: A pedestrian walks by boarded-up windows of a Nordstrom store on May 26, 2021 in Chicago, Illinois. Despite the store being open, the windows and doors remain boarded up as a precaution following unrest in the city over the past year. Net sales at the retailer were down 13 percent compared to the same period in fiscal 2019. Sales were up 44 percent from 2020, but most stores were closed for roughly half the quarter due to COVID-19 restrictions.  (Photo by Scott Olson/Getty Images)
Before the Fed get-together there is a slew of data on Tuesday, with retail sales, PPI, Empire State manufacturing index and industrial production figures out. Photo: Scott Olson/Getty Images

The Federal Open Market Committee (FOMC) kicks off its meeting on Tuesday and chair Jerome Powell is expected to make concluding remarks on Wednesday. 

Economic indicators across the board have shown signs of improvement, most notably the US’ vaccination push, which reduced mortality rates.

This comes against a backdrop of falling jobless claims, rising retail sales, surging purchasing managers’ index (PMI) data and a spike in non-farm payrolls. 

While jobless claims have dropped to pandemic-lows, the headline nonfarm figure has repeatedly failed to match estimates across the last few months. This is important, as one of the requirements for Powell to consider tapering the Fed’s current stimulus programme is a "string of strong jobs reports".

"This holds as true now as it did then. After two successive below par jobs reports in April and May, it is hard to make the case for any type of change in policy, let alone discussion of a taper," said Hewson. "The Fed currently believes that the recent increase in inflationary pressures is likely to be transitory, and should fall back as the year progresses, and base effects fall away."

Before the Fed get-together there is a slew of data on Tuesday, with retail sales, PPI, Empire State manufacturing index and industrial production figures out. 

There is also the Philly Fed manufacturing index and the usual weekly jobless claims number on Thursday.

Eurozone: Industrial production data, Germany, France and region-wide inflation 

A view of a construction cranes over the construction site of the Salesforce Tower Dublin in Dublin's Docklands. .
On Thursday, 10 June 2021, in Dublin, Ireland. (Photo by Artur Widak/NurPhoto via Getty Images)
Region-wide industrial production data is out on Monday. Photo: Artur Widak/NurPhoto via Getty Images

It's a subdued week for European markets in the week ahead with just a few events on the calendar. 

There is the region-wide industrial production on Monday, German and French inflation on Tuesday, region-wide inflation on Thursday, and the current account number closing out the week on Friday.

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