Key Events This Week: All Eyes On The First CPI Print Over 4% In 3 Years

Before we look at the Fed, let's take another quick look at the rollercoaster of the past trading session: a hawkish Fed repricing after the payrolls report triggered a sharp US equity sell-off on Friday with the S&P 500 falling -2.64% (2.59% on the week), its worst day of the year so far, snapping a run of nine consecutive weekly gains. Tech led the declines, not helped by Broadcom’s softer earnings earlier in the week. The NASDAQ dropped -4.18% on Friday (4.68% on the week), while the Philadelphia semiconductor index plunged -10.26% - its worst day since March 2020, and dubbed the "Red Sox."

All of this comes as tensions in the Middle East are building again with renewed strikes between Iran and Israel, despite what should be the 61st day of a truce or ceasefire. Iran targeted Israel with a missile attack yesterday after an Israeli strike in Beirut, while Israel’s military has responded with strikes against targets in Iran overnight. The IRGC warned yesterday evening that its actions would mark "a full week of continuous strikes", but there are also signs that the sides are looking to avoid a full escalation, with Axios reporting Israel strikes were “relatively limited” in scope and Iranian state media denying that it launched a strike towards a US airbase in Saudi Arabia after a missile alert there. The de-escalatory tone appears particularly evident from the US side, with Trump reportedly urging Israel not to strike back earlier last night, telling Axios that "The Iranian strikes didn't hurt anybody. Hopefully Israel is not going to retaliate.” This and the wider quotes from Mr Trump sound like a President who really doesn't want this war to escalate any further and is trying to find all ways to avoid it. Still, the events have further complicated the chances of an imminent deal. The key sticking points to a deal remain the release of Iran’s frozen assets, its stock of highly enriched uranium, developments in Lebanon, and how control of the Strait of Hormuz will be handled going forward.

So what a backdrop for the main economic event of the week, namely Wednesday’s May US CPI report. The timing is critical with the Federal Reserve’s next policy meeting, and Kevin Warsh's first as Chair, a week later. For a while now the case for hiking has looked notably stronger than the case for a cut and last Friday’s payrolls has hugely reinforced that. Non-farm payrolls rose by 172k, comfortably ahead of consensus expectations of 88k, with private payrolls of 120k also exceeding forecasts (89k). It left the 3 month average for payrolls at a 2 year high of +188k. In addition, net revisions to prior months were positive by around 93k, adding to the impression of underlying momentum. While a large share of the upside came from leisure and hospitality hiring and a sharp increase in local government employment, job gains were not narrowly concentrated. The three month diffusion index rose to 53.8, its highest level since March 2024, signalling a broadening in employment growth across sectors.

Against this backdrop, attention now shifts squarely to inflation. DB economists expect energy to play a key role in May’s CPI, with a sharp increase in petrol prices (around +6.8% seasonally adjusted) lifting headline inflation more than core. They forecast headline CPI to rise by around +0.55% month on month (after +0.6% in April), while core CPI is expected to increase by a still firm +0.22% (after +0.4%). On a year on year basis, headline CPI is projected to move back up to around 4.3%, from 3.8%, while core inflation is expected to edge higher to roughly 2.9%.

As BofA's Hartnett cautions, with US CPI set to print above 4% YoY and on course for 5% by US midterms, in the past 100 years once CPI crosses 4% on average SPX -4% next 3 months, -7% next 6 months 

Beyond the aggregates, the composition of the CPI will be closely scrutinized. DB economists expect continued tariff related price pressures in apparel and ongoing firmness in certain information technology goods. Lagged wholesale price increases could also feed through into used car prices. On the services side, shelter inflation is likely to normalize following recent distortions, but markets will be watching carefully for any spillover from higher fuel costs into core services such as airfares, delivery services and other transport related components. Evidence of broader pass through would add to concerns about inflation persistence.

Thursday’s PPI release will be an important complement to the CPI, particularly as it informs the Fed’s preferred PCE inflation measure. Economists expect PPI to rise by around +0.5% month on month, following a strong April print. Based on current CPI assumptions and the PPI categories that feed into PCE, core PCE inflation is tracking around +0.33% in May, which would push the year on year rate up to roughly 3.4%. Key PPI components to watch include healthcare services, domestic airfares and portfolio management fees, all of which have been contributing to underlying inflation momentum.

Beyond inflation, the US data calendar is lighter but still relevant. On Friday, the University of Michigan survey will be watched for signals on consumer sentiment and inflation expectations. The headline sentiment index is expected to improve modestly to 48.5 from 44.8, with particular attention on whether longer term inflation expectations continue to drift higher.

Outside the US, central banks and inflation data remain the main focus, though the flow of information is more compressed. In Canada, the Bank of Canada announces its policy decision on Wednesday with no change expected. In Europe, the ECB meets on Thursday, where DB economists, and everyone else, expects a 25bp rate hike (99.9% probability according to futures), lifting the deposit rate to 2.25%, as policymakers continue to prioritise inflation control despite signs of softening growth. 

In the UK, April monthly GDP on Friday will be the key release, offering insight into whether growth regained traction early in the second quarter. In Germany, April factory orders (today), industrial production and trade (tomorrow) will give a read on manufacturing momentum and external demand. Inflation updates are also due for May in Denmark and Norway on Wednesday.

In Asia, the focus turns to China, with May trade data tomorrow followed by CPI and PPI on Wednesday. China’s gradual reflation is expected to continue, with PPI rising to around 3.0% year on year from 2.8% and CPI edging up to roughly 1.4% from 1.2%. Trade is also expected to remain firm, with export growth around 15% year on year and import growth staying elevated near 26%. In Japan, the highlight is May PPI on Wednesday. Futures are suggesting a 94% probability of a BoJ hike next week. DB's economist is more hawkish than consensus and expects a hike per quarter over the next year. You can see more on this in the World Outlook. On the corporate side, earnings highlights include Oracle and Adobe.

Courtesy of DB, here is a day-by-day calendar of events

Monday June 8

• Data: US May NY Fed 1-yr inflation expectations, Japan May bank lending, Economy Watchers survey, April BoP current account balance, BoP trade balance, Germany April factory orders

Tuesday June 9

• Data: US May NFIB small business optimism, existing home sales, April trade balance, wholesale trade sales, China May trade balance, Japan May M2, M3, machine tool orders, Germany April industrial production, trade balance, Canada April international merchandise trade
• Central banks: ECB’s Moulin speaks
• Auctions: US 3-yr Notes ($58bn)

Wednesday June 10

• Data: US May CPI, federal budget balance, China May CPI, PPI, Japan May PPI, Italy April industrial production, Norway May CPI, Denmark May CPI, Sweden April GDP indicator
• Central banks: BoC decision
• Earnings: Oracle
• Auctions: US 10-yr Notes (reopening, $39bn)

Thursday June 11

• Data: US May PPI, initial jobless claims, UK May RICS house price balance, Germany April current account balance, Canada April building permits
• Central banks: ECB’s decision
• Earnings: Adobe, Lennar
• Auctions: US 30-yr Bond (reopening, $22bn)

Friday June 12

• Data: US June University of Michigan survey, UK April monthly GDP, Japan April capacity utilisation, Canada Q1 capacity utilisation rate
• Central banks: ECB’s Kocher and Nagel speak

Looking at just the US, Goldman writes that the key economic data release this week is the CPI report on Wednesday. Fed officials are not expected to comment on monetary policy this week, reflecting the blackout period ahead of the June FOMC meeting. 

Monday, June 8 

• There are no major data releases scheduled. 

Tuesday, June 9 

• 08:30 AM Trade balance, April (GS -$57.0bn, consensus -$56.5bn, last -$60.3bn); We forecast that the trade deficit narrowed from $60.3bn to $57.0bn in April, roughly in line with consensus expectations. The forecast reflects declines in the goods trade deficit and the services trade surplus, with the latter driven by a sharp pullback in tourism services exports in April.
• 10:00 AM Existing home sales, May (GS +0.5%, consensus +1.0%, last +0.2%)

Wednesday, June 10 

• 08:30 AM CPI (MoM), May (GS +0.45%, consensus +0.5%, last +0.6%); Core CPI (MoM), May (GS +0.17%, consensus +0.3%, last +0.4%); CPI (YoY), May (GS +4.17%, consensus +4.2%, last +3.8%); Core CPI (YoY), May (GS +2.79%, consensus +2.9%, last +2.8%): We estimate a 0.17% increase in May core CPI (month-over-month SA), which would leave the year-over-year rate unchanged at 2.8% on a rounded basis. We expect mixed autos inflation, reflecting unchanged used car prices, a 0.1% increase in new car prices, and a 0.1% decline in the car insurance category. We forecast benign readings for the shelter categories—a 0.22% increase in the OER category and a 0.22% increase in the rent category—reflecting the continued slowdown in their underlying trend. We expect increases in the travel services categories (airfares: +2%; hotels: +0.2%), reflecting signals from alternative price data. We expect downward pressure from potential residual seasonality on the communication categories and public transportation categories outside of airfares. We estimate a 0.45% rise in headline CPI—reflecting higher food prices (+0.3%) and sharply higher energy prices (+4.2%)—which would raise the year-over-year rate to +4.17% from +3.81%. Our forecast is consistent with a 0.27% monthly increase in the core PCE price index in May. We expect a sharp increase in the financial services component—reflecting the increase in equity prices in April, which flow through to the component with a lag—to contribute to the larger increase in core PCE prices than the core CPI.

Thursday, June 11 

• 08:30 AM Initial jobless claims, week ended June 6 (GS 220k, consensus 219k, last 225k); Continuing jobless claims, week ended May 30 (consensus 1,785k, last 1,777k)
• 08:30 AM PPI final demand, May (GS +0.5%, consensus +0.7%, last +1.4%); PPI ex-food and energy, May (GS +0.4%, consensus +0.5%, last +1.0%); PPI ex-food, energy, and trade, May (GS +0.4%, consensus +0.5%, last +0.6%)

Friday, June 12 

• 10:00 AM University of Michigan consumer sentiment, June preliminary (GS 46.0, consensus 46.5, last 44.8); University of Michigan 5-10-year inflation expectations, June preliminary (GS 3.8%, last 3.9%)

Ssource: DB, Goldman