• European markets settle down, await France’s first round election on June 30th
  • RBA’s hawkish hold talks up hike risk
  • US retail sales for May due today…
  • …and they understate growth in US consumer spending
  • US markets shut tomorrow, today’s positioning could be impacted
  • German ZEW investor sentiment starts to show France’s effects
  • BCCh faces a somewhat more divided consensus

Australia's curve is underperforming others in the wake of a hawkish sounding RBA. European markets are a bit calmer as they await the results of the June 30th first round French election. US retail sales could spice it up a bit this morning ahead of the US holiday tomorrow. That won’t stop excessive Fed speaking today.

The RBA delivered a hawkish hold. The press conference hosted by Governor Bullock revealed that the Board discussed a possible hike and there was no discussion of a cut. They flagged some improvement in inflation but that it was proving to be persistent. Bullock emphasized the importance of Q2 CPI inflation data that is due on July 31st.

German ZEW investor sentiment slipped in June as a sign of the effects on confidence of European political turmoil. The current conditions component fell and the expectations component remained weak with no statistically significant change. July's reading after the French election will matter more.

US retail sales for May (8:30amET) are expected to post a small gain given what we know about vehicle sales and gas prices, but upside risk could come from the National Retail Federation’s estimate for core sales (chart 1). Industrial production is also due for an update with May’s figures expected to post a small rise (9:15amET).

Chart 1: Tracking US Retail Sales

The US consumer is very much alive despite softly trending retail sales volumes. What has been happening is a rotation of spending more toward services that are more fully captured in total consumption in the GDP accounts than in retail sales (chart 2).

Chart 2: US Retail vs GDP Consumption

The US holiday tomorrow could have market participants hesitantly managing their positions into today’s regular close.

Chile’s central bank delivers a policy decision after today’s close. 14 out of 21 expect a 25bps cut, six expect -50bps including our Santiago-based economists, and one expects a hold. We may hear a more cautious sounding central bank toward the pace of easing either now or in future not least of which because of 525bps of cuts to date since they began last July. Since the 50bps cut on May 23rd, inflation has been a little hotter than expected and at 3% y/y remains above target. The peso has appreciated more than other crosses given higher copper prices and the unemployment rate fell. GDP is tracking two consecutive months of decline, however, which could tip the balance toward a larger cut. The surprise hold by Peru’s central bank and the FOMC’s dot plot that is on the fence between 25bps and 50bps of cuts this year may also weigh on the decision.

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