The Calm Before The CPI

US data is unlikely to derail expectations of a prolonged Fed pause ahead of July's CPI release. Meanwhile, Poland's central bank is set to remain on hold despite softer inflation, while Czech economic indicators continue to show resilience.

THINK Ahead in developed markets

United States (James Knightley)

It is a quiet week for US data, sandwiched between a softer-than-expected US jobs report and a June CPI release scheduled for 14 July, which should show prices at the headline level falling month-on-month due to the plunge in gasoline prices. This may push the market further in the direction of anticipating a long pause from the Federal Reserve rather than an interest rate increase this year.
ISM Services PMI (Mon): The focus will be on business surveys, with the ISM services index set to soften a touch but remain consistent with GDP growth of a little above 2%. Meanwhile, the trade balance is set to deteriorate markedly based on the advanced goods figures already released. The US will also release existing home sales data. Given the lack of affordability caused by elevated prices and high mortgage rates, we expect sales to remain range-bound at weak levels.

THINK Ahead in Central and Eastern Europe

Poland (Adam Antoniak)

NBP Rates (Wed): With headline inflation returning to target in June, the prospect of any further rate hikes in Poland is now off the table. Markets have started to speculate that the National Bank of Poland could eventually resume the rate cuts that were put on hold following the outbreak of the war in the Middle East. We believe, however, that the NBP will maintain its wait-and-see approach for the time being. A substantial part of the recent disinflation reflects the fading fuel price shock and a surprisingly sharp decline in food prices. At the same time, core inflation remains above 3%, suggesting that underlying price pressures have not fully dissipated. The June macroeconomic projection is likely to bring a downward revision to the GDP growth path and may indicate that inflation could undershoot the target over the medium term. While the next move in interest rates is more likely to be a cut than a hike, we do not expect it to come anytime soon.

Czech Republic (David Havrlant)

Retail Sales/CPI Final (Tue/Fri): Retail sales likely returned to a punchy annual growth in May, driven by solid nominal and real wage growth. June’s annual headline inflation is expected to have eased on the back of tangibly weaker fuel prices, but also a marginally softer core inflation. The unemployment rate was likely driven slightly lower in June, reflecting seasonal employment gains in construction and the upcoming tourist season. We assume that May’s industrial output growth has strengthened, confirming the firm ground below the Czech industrial base, despite some headwinds linked to the Hormuz crisis.