The Week Ahead (CCL, BB, MU, and NKE Earnings; Canadian CPI and US PCE)

As a new week of earnings announcements approaches, all eyes are on Carnival, Micron, Blackberry and Nike, each set to disclose their financial performance.

BlackBerry is expected to report revenue of C182.69M and EPS of C$-0.09. These figures represent a substantial decrease of 63% in revenue and a 235% drop in earnings per share when compared to the same period last year. The company has been grappling with persistent challenges within its cybersecurity segment, which have adversely impacted its financial performance for the past three years. Analysts anticipate this trend of underachievement to persist. Reflecting these difficulties, BlackBerry's stock price has declined by over 30% since the start of the year.

RBC forecasts that the inflation figures due on Tuesday will provide additional evidence of a gradual decline in price pressures. It's projected that the growth of the Consumer Price Index (CPI) will decrease slightly to 2.6% year-over-year from the previous month's 2.7%. If this holds true, it will represent the fifth straight month of annual price growth sitting comfortably within the Bank of Canada's inflation target range of 1% to 3%.

Contributing to this trend, gasoline prices have dropped in May, moving in tandem with a decrease in global oil prices. Concurrently, the growth rate of food prices is also expected to have continued its downward path. Nevertheless, the Bank of Canada's attention will likely remain on core inflation measures, which are used to gauge a more widespread slowdown in price growth throughout 2024. Despite expectations for a minor uptick, the three-month rolling averages of the CPI-trim and CPI-median are anticipated to stay subdued, following two months of exceptionally low figures that fell below the 2% inflation target. Additionally, there has been a noticeable easing in the scope of inflation, with fewer consumer products experiencing a yearly inflation rate above 3%, aligning once more with historical norms as of April.

Amid a tempering of economic growth, the likelihood has increased that inflationary pressures in Canada will not experience the same resurgence that occurred earlier in the United States. Next Friday's GDP figures for April are predicted to show a modest 0.3% increase, aligning with preliminary estimates from Statistics Canada. However, a significant portion of this growth is anticipated to stem from a boost in oil production and drilling activities in anticipation of the upcoming TMX pipeline expansion. Meanwhile, manufacturing output is expected to show minimal change, with a slight rise in sales volumes (0.4%) likely derived from existing inventory levels rather than fresh production. April's retail sales volumes showed a modest increase of 0.5%, but early data from Statistics Canada suggests a drop in sales for May, corroborating the trend of weakening consumption as indicated by RBC's card transaction monitoring. Consequently, RBC predicts that May's GDP growth will appear softer, resulting in a second-quarter GDP that aligns with their annualized forecast of 1.4%, indicative of a continued per-capita output contraction.

In May, the US Consumer Price Index (CPI) softened to an annual rate of 3.3% (expected 3.4%, previous 3.4%), with the core index, which excludes volatile items, also decreasing to 3.4% year over year (expected 3.5%, previous 3.6%). Additionally, the supercore rate, which further refines the core measure, dropped to 4.8% year over year, marking the first decline in the annual supercore rate since the previous October. At the same time, the Producer Price Index (PPI) slowed down to a year-over-year rate of 2.2% for the month (expected 2.5%, previous 2.3%), with the core PPI—which strips out food and energy prices—easing to 2.3% year over year (expected 2.4%, previous 2.4%).

Armed with this data, analysts have made predictions for the upcoming Personal Consumption Expenditures (PCE) index figures. Nick Timiraos, a prominent Fed observer from The Wall Street Journal, reported that inflation models are anticipating the core PCE index to have increased by approximately 0.08-0.13% month over month in May (versus a 0.2% rise in April). This would equate to an annual core PCE inflation rate of 2.6%, a decrease from April's 2.8%, and maintain the six-month annualized core PCE rate in the vicinity of 3.2-3.3% for May. The three-month annualized rate is expected to dip below 3% for the first time since January.

In its June policy statement, the Federal Reserve acknowledged "modest further progress" on curbing inflation, though it slightly increased its year-end inflation forecast to 2.6% from the previously projected 2.4%. Despite officials welcoming the recent downtrend in inflation figures, they have emphasized the need for continued evidence of declining inflation to confidently assert that it will stabilize around the target rate and potentially justify rate reductions.

The Fed's updated economic forecast from June has also scaled back expectations for interest rate cuts, now foreseeing only a single reduction in 2024, in contrast to the previously anticipated three cuts. Nonetheless, analysts point out the narrow gap between median and mode predictions, suggesting that just a few additional Fed officials supporting rate cuts could lead to two decreases this year.

Currently, the money markets are pricing in roughly 47 basis points of rate cuts for the year, which fully anticipates one 25 basis point cut and assigns a high likelihood to a second cut occurring.