Market Economics | Interest Rate Strategy - BNP PARIBAS ...

Key Data Preview
Chart 1: US Total vs. Core CPI Inflation
Source: Reuters EcoWin Pro
% m/m Jun (f) May Apr Mar
CPI -0.1 -0.2 -0.1 0.1
Core 0.0 0.1 0.0 0.0
NSA (index) 218.26 218.18 218.01 217.63
Key Point:
Falling energy prices will offset higher food prices,
bringing headline to zero. Core unchanged will bring
y/y to its 1961 low.
BNP Paribas Forecast: More Weakening
US: Consumer Price Index (June)
Release Date: Friday 16 July
Headline CPI is expected to decline by 0.1% m/m in June,
driven mainly by declining energy prices. Weekly EIA data
indicate that pump prices declined throughout June,
reflecting the decline in crude oil prices in May. As a result,
we expect CPI energy prices after seasonal adjustment to
fall by 1.4% m/m in June, approximately half the decline
seen in May. Food prices are forecast to increase by 0.2%
m/m in June. Food prices have followed a rollercoaster
path of strongly up followed by negligible increases in
alternate months. Excluding food and energy, core CPI is
expected to remain unchanged after nudging higher (0.1%)
in May. As a result, core yearly inflation should ease to
0.85% y/y from 1.0% previously, pushing it closer to its
1961 all-time low (0.7%). Weakness should be
concentrated in core goods (no change), and shelter prices
(-0.04%). Within shelter, only lodging away from home has
any price buoyancy. There is a risk to the goods price
forecast that state and local governments could raise taxes
on tobacco and other goods to help redress massive
budget deficits again, as they did in May. In non-seasonally
adjusted terms, total CPI is expected to remain largely
unchanged, inching up to 218.256 from 218.18 in May.
This should drive total yearly inflation much lower, to 1.2%
in June from 2% previously.
Chart 2: US Present Conditions Compared
Source: Reuters EcoWin Pro
July p (f) Jun 2H Jun p Jun May
Michigan
Sentiment 74.0 76.5 75.5 76.0 73.6
BNP Paribas Forecast: Decline
US: Michigan Consumer Sentiment (July, preliminary)
Release Date: Friday 16 July
The University of Michigan Survey of Consumer
Confidence index rose in June to 76.0 from 73.6 in May.
Recent developments in consumer confidence likely reflect
weakness in gasoline prices. Nevertheless, the turmoil in
financial markets and the risks to the economic recovery
from the European sovereign crisis as well as private
sector hiring losing steam should send consumer
confidence lower in the first half of July. In addition, stocks
have given up all of this year’s gains. Therefore, we expect
a decline to 74.0 in July from 76.0 in June. On the other
hand, as the recovery progresses, albeit at a moderate
pace, consumer confidence should continue trending
higher in the coming months.
Key Point:
Unfavourable news on the European sovereign risk
crisis and private sector hiring losing momentum
should depress consumers’ optimism early in July.
Market Economics 166 July 2010
Market Mover
58
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