FED: Boston's Collins Still Eyes Cuts Resuming This Year
Boston Fed's Collins (2025 FOMC Voter, leans dovish) sounds as patient as before on rate cuts in a speech Wednesday (link). She continues to see rate cuts later this year from the currently "modestly restrictive" stance but like the vast majority of her colleagues, she highlights prevailing uncertainty and wants to see more data before coming to that conclusion. Some key quotes:
- "calibrating appropriate policy is challenging in contexts when projections of inflation call for a tighter policy stance while forecasts of real activity call for a looser one. The overall solid current conditions enable the Fed to take the time to carefully assess the incoming data and their implications for the economic outlook and the balance of risks to inflation and economic activity. Indeed, the recent back-and-forth in tariff policy, and the potential for more changes to come, validate the careful approach I call “active patience” that the Fed has taken since the beginning of the year."
- "While I continue to expect it will be appropriate to resume gradual policy normalization later this year, my outlook could change significantly as events unfold, and the economic impact of changes in various government policies comes into sharper focus. Much will depend on whether the “price shock” from tariffs dissipates quickly, without derailing inflation expectations, and on whether the associated slowdown in real activity is limited. For now, however, I see the current monetary policy stance as modestly restrictive, and well positioned to address a range of possible outcomes."
- "I continue to see upside risks to my outlook for inflation and downside risks to my outlook for economic growth and the labor market. And I do not rule out scenarios with larger and more persistent tariff effects on inflation."
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EUROPEAN INFLATION: French Flash May HICP Expected Unchanged At 0.9% Y/Y
The Eurozone May flash inflation round kicks off with France tomorrow at 0745BST/0845CET. The data is being released so early this month because of Thursday’s Ascension Day holiday. Current consensus looks for annual HICP inflation to remain steady at 0.9% Y/Y, with a monthly rate of 0.1% M/M.
- The May flash PMI contained soft inflation details: “Subdued demand conditions were a factor that weighed on companies’ pricing decisions during May. Not only did prices charged fall, but they did so to the greatest extent since January 2021. Discounting was broad-based by sector, underlying survey data revealed. According to panellists, prices charged were reduced as a result of lower interest rates, strong competitive pressures and promotional offers. Notably, output price reductions occurred despite a slight intensification of input price inflation”.
- Goldman Sachs expect French headline HICP at 0.8% Y/Y, with core to ease to 1.7% Y/Y from 1.9% prior. They expect “both core goods and services moving slightly lower on a year-over-year basis”. Specifically, they “expect an 11%mom nsa decline in the airfares component and a 2.6%mom nsa increase in package holidays, partly offset by recreational and accommodation services components”.
- Goldman look for “energy inflation to fall further to -7.9%yoy from -7.4%yoy in April, partly driven by a reported 6.4% gas price decline. We expect processed food inflation to go to 1.0%yoy (from 0.9%yoy in April) and unprocessed food inflation to decline to 2.5%”.
- Meanwhile, SEB write that “the April reading was partly lifted due to Easter effects on recreation and transport. A larger reversal effect is therefore expected in the May numbers”.
STIR: Goldman: A Closer Call For June BoC, But Value In The CAD Front-End
Goldman Sachs note that “the upside surprise in Canada’s April inflation print saw market cut pricing sharply reset, with the market pricing in only about 5bp for the June meeting”.
- Their economists expect “the BoC to look through the one-off price level increase due to tariffs - which they think played a role in the upside surprise - and continue to expect a cut at the June meeting (plus one more in July to a 2.25% terminal rate), though they acknowledge the risks of a hold have gone up”.
- Given market pricing implies only about 60% of a full cut by the July meeting, Goldman Sachs think “there is value to receiving the very front-end of the CAD curve with the softer activity picture continuing to point towards cuts” and recommend receiving July BoC meeting OIS.
OIL: Little Changed As Negative MT Fundamentals Counter Latest Crude Positives
Crude oil futures are little changed on the day, with the crude-supportive developments in the EU-U.S. trade talks, in addition to geopolitical risks in the form of the potential for a further intensification in the Israel-Hamas conflict and the latest Russian missile launches on Ukraine, neutralised by some ongoing fundamental headwinds.
- That leaves WTI & Brent futures little changed, with medium-term bearish technical themes intact despite the recent bounce.
- Bulls need to break the 50-day EMA’s in the contracts ($62.75 & $66.24, respectively), to turn the tide more in their favour.
- Meanwhile, the respective April 9 lows present key support and the technical bear triggers.
- Our commodity team notes that fundamental pressure remains evident amid general economic headwinds, coupled with expectations for a more meaningful OPEC+ production increase from July.
- BBG have warned that OPEC+’s seemingly hardline approach to punishing its overproducing members risks plunging crude into a full-blow price war.
- Elsewhere, some downward pressure seemingly came from U.S. President Trump noting that he was “optimistic” following the last round of talks with Iran on limiting their nuclear programme in exchange for sanctions relief.
- Also, note that the Trump administration is preparing to use a narrowly tailored license for Chevron to allow it to perform minimal maintenance of essential operations in Venezuela.
