• Global markets cautiously optimistic...
  • ...as guidance points to a possible debt ceiling deal this weekend
  • Japanese core inflation is surging, adding to BoJ pivot risk
  • Why Fed Chair Powell’s appearance today may matter
  • Canada to update retail sales for March and April, debatable BoC interpretations

Solid risk-on sentiment is potentially marking an end to the week and there are several key developments to consider. The USD is broadly softer. Stocks are broadly higher including mild gains in N.A. futures plus gains of +/- ½% across European cash markets. US Ts and Canadas are slightly cheaper while gilts and EGBs are headed the other way.

The main catalyst is ongoing enthusiasm that a US debt ceiling deal may be near at hand. House Speaker McCarthy said late yesterday that a deal might be reached by this weekend and a possible vote could be held next week and hence before Yellen’s June 1st deadline. An added catalyst is that the US Treasury’s daily cash position fell again in yesterday’s release to just US$68B (chart 1).

Chart 1: Treasury General Account Balance

There are increasingly convincing signs that Japanese inflation may motivate a BoJ pivot this year. Japanese CPI accelerated to 3.5% y/y in line with expectations (3.2% prior). Ex-f&e CPI picked up to 4.1% y/y (4.2% consensus, 3.8% prior). More important is that CPI ex-f&e in m/m SA terms was tied with two other months for the hottest increases since a temporary blip in 2014 (chart 2). There is a trend toward rising m/m core CPI SA gains over the past year that indicates that inflation’s breadth is fanning out. Next Thursday’s Tokyo gauge for May will offer a fresher assessment. The implication is that the path to the mid-June BoJ meeting is being marked by reason to upgrade inflation forecasts in the context of ongoing speculation toward a policy pivot at some point.

Chart 2: Japanese Inflation's Breadth is Rising

Fed Chair Powell and former Chair Bernanke appear jointly on a panel at 11amET. In addition to anything Powell may say of relevance to the June 14th decision, there is also a possibility that they share updated views on the natural rate of interest. The occasion is to honour the late Fed economist Thomas Laubach. Laubach is well known in central banking for his work on the natural rate of interest. See the Global Week Ahead for a more detailed discussion of the issues, estimates and possibilities here.

Canada will update retail sales this morning for the month of March and with a preliminary look at April (8:30amET). There may be high revision risk to the preliminary March reading that showed a m/m SA nominal drop of 1.4%. That’s because the 28% sampling rate behind that flash measure was a record low. Hopefully the sampling rate for the preliminary April reading that we’ll also get today will be a tad more impressive.

Canada knocked back pricing for the BoC’s policy rate yesterday in what I think was some folks’ selective hearing toward what the Governor said and confusion over what a stress testing, risk-focused report communicated versus the BoC’s baseline forecast. Journalists talking their PAs blaring the negative stuff absent any balance from the report didn’t help.

Mexico also updates retail sales for March this morning (8amET) and they are expected to be little changed (+0.1% m/m).