Market forecast: Three central banks to decide on interest rates this week

Following interest rate cuts by the European Central Bank (ECB) and the Bank of Canada earlier this month, other central banks, including the Bank of England, the Swiss National Bank and the Reserve Bank of Australia, are about to decide on their interest rates.

Last week, the Federal Reserve projected an interest rate cut this year. The SNB cut rates in March, becoming the first central bank of this group to do so. Investors will closely monitor whether other central banks follow suit or at least give clear indications about the path of their rates.

Europe

This week, the focus will be on the producer price indices (PMI) manufacturing and services of the main economies: Germany, France and the euro zone will publish June data.

Although manufacturing activities in the euro zone continued to contract in May, the data showed that the slowdown occurred at a gentler pace in both France and Germany. In Germany, the services PMI maintained expansion for the third consecutive month in May. The consensus suggests that service activities will continue to improve in June.

In the United Kingdom, the Bank of England’s decision on interest rates will be key for regional markets. The bank is expected to maintain interest rates even though inflation has cooled to near its target level. However, it began to lean towards a moderate stance due to stagnating economic growth.

At its May meeting, seven members of the Monetary Policy Committee voted to keep rates unchangedwhile two members voted in favor of a cut, compared to just one member who voted in favor of a rate cut in March.

Furthermore, Bank of England Governor Andrew Bailey said at the last meeting that a rate cut before a general election should not be a problem. The early elections called by Prime Minister Rishi Sunak could have increased the possibility of a rate cut in June.

British shares could get a boost if this happens. The country will also publish its manufacturing and services PMI index, and both sectors have continued to expand in recent months. Both data sets are expected to continue growing in June.

This week, retail sales data for May will also be released, for which the consensus forecasts month-on-month growth of 1.6%compared to the 2.3% decrease in April.

In Switzerland, it is expected that SNB keeps interest rates at 1.5%as the country’s inflation rose to 1.4% for the second consecutive month in May, the highest since December 2023.

USA

In the United States, the most influential economic data for the country are retail sales for may and its ‘flash’ manufacturing and services PMIs this week. Retail sales remained unexpectedly stable in April, indicating that American consumers became cautious about spending due to the slowdown in the labor market.

The unemployment rate rose to 4% in Maythe highest since January 2022. The consensus points to a monthly increase of 0.3% in May.

Elsewhere, S&P Global’s US Manufacturing and Services PMI was revised upwards up to 51.3 for May, indicating a modest increase. However, the ISM manufacturing PMI contracted in the same month.

The data suggests that economic growth could be slowing down in the country, prompting the Federal Reserve to begin cutting interest rates, although inflation remained well above the target level. According to the consensus, both the US manufacturing and services PMI will continue to expand in June.

Pacific Asia

This week, we will closely monitor the decision of the Reserve Bank of Australia on interest rates. The bank is expected to keep the official interest rate at 4.35% for the fifth consecutive time. Monthly inflation rose to 3.6% in April, up from 3.5% in March, well above the 2% target.

In addition, China will publish its industrial production, retail sales, fixed asset investment and employment data on Monday, which are important economic indicators for the country. Likewise, the People’s Bank of China is about to make a decision on prime lending rates for one and five years, with no changes expected this week.