RBC Capital Markets

Day ahead: There are rate decisions in Canada & Poland (see CAD & CE3). Data wise, there are May CPI releases in MX, BZ, & HU. In Sweden, Prospera’s inflation expectations survey is out, while Japan publishes weekly capital flows. There are central bank speakers from the Riksbank and NBH.

CAD: Our economists are expecting no change in the overnight rate target (0.25%), QE purchases (C$3bn/wk) or forward guidance timeframe (H2-2022 as of April MPR) at today’s statement-only meeting. Data in the interim has seen output in Q1 and early indications for Q2 somewhat below the MPR projection, though April inflation and our Q2 tracking are higher. The focus now is on (safer) re-openings, which mean increased confidence in a growth acceleration in the second half of this year given the pace of vaccinations. On the policy settings, attention will be on any hints on the timing of the next step in the taper, which we think will be a move down to C$2bn/wk.

The language from the April press conference noted less QE stimulus would be needed if the recovery evolves in line or stronger than their projection, which may be a tough hurdle for the July MPR. If not then, we think a further taper can occur at the September meeting, with more data on the expected growth acceleration available by then. The usual economic progress report will be given by Deputy Governor Lane the day after the meeting. USD/CAD features support at 1.2076 and 1.2013, with 1.2145 and 1.2203 serving as resistance.


Choppiness within markets persisted across the Asian session with activity side-lined, as investors await for a potentially broader trend to emerge in the wake of US inflation figures. So far this week, Asia's emerging currencies have adopted a cautious view in line with broader FX dynamics. On the equity front, the S&P500 was steady and near its record high on Tuesday while Asia stocks were mixed heading into London session. HSI, KOSPI, TAIEX in the red while CSI and NIFTY up on the day. US treasuries continue its overnight rally with 10 year yield falling below 1.53% on the back of strong 3y auction and positioning.

In China, producer prices rose at their fastest annual pace in over 12 years in May, largely due to higher commodity prices. However the surge in PPI has yet to feed through to consumer inflation. Unverified Bloomberg headlines followed that Beijing is considering imposing price controls on surging coal market to rein on rising price levels.