The upcoming week will be eventful, with several key economic indicators and policy announcements scheduled across different regions:

Monday will feature the release of Flash Manufacturing PMI and Flash Services PMI for the United States. On Tuesday, Japan will announce the BoJ core CPI y/y, while the United States will publish the CB Consumer Confidence index.

Wednesday will bring important data for Australia, with the inflation figures being published. In the United States, new home sales data will be released, alongside the highly anticipated FOMC Statement, federal funds rate decision, and the FOMC Press Conference.

Thursday holds significance for the eurozone, as they will make their Monetary Policy announcement. Additionally, the United States will provide the pending home sales m/m data.

Friday will see the release of Tokyo Core CPI y/y for Japan, followed by the most awaited event of the day, the BoJ outlook report, which includes the monetary policy statement, BoJ policy rate decision, and the BoJ press conference. Switzerland will also share its KOF Economic Barometer on the same day. For the United States, data will be published for the Core PCE Price Index m/m, employment cost index q/q, revised UoM Consumer Sentiment, and revised UoM Inflation Expectations.

The expected consensus for the U.S. Flash Manufacturing PMI indicates a decline from 46.3 to 46.1, while for the Flash Services PMI, it is projected to decrease from the previous 54.4 to 54.0. It is worth noting that a value above 50 still signifies an expansion in service activity and this suggests that despite the drops in PMI figures, service activity is showing signs of improvement and remains a key driver of consumption in the economy.

The core CPI y/y for Japan is expected to show a slight decrease from 3.1% to 3.0%. This change is likely to be influenced by the stabilization of commodity prices, leading to a decrease in energy contribution. However, there remains a considerable level of uncertainty surrounding inflation data due to special factors like price pass-throughs and government policies that will continue to play a role.

As for the U.S., the CB Consumer Confidence index is anticipated to show some improvement, rising from 109.7 to 112.1. Analysts from Citi highlight that this particular measure is more sensitive to employment conditions compared to the University of Michigan index due to the inclusion of a specific question about job availability in the CB survey.

The upcoming CPI data for Australia is important to watch as it can provide clues about the RBA's future actions. Specifically, it could indicate whether the Bank will resume its tightening cycle at the next meeting scheduled in August. As a reminder, at the previous July meeting, the RBA chose to maintain its monetary policy unchanged.

Australia's inflation continues to remain higher than the target set by the central bank, and the labor market is experiencing tight conditions with the unemployment rate reaching almost record low levels. While there are indications that inflation might be cooling down, the strength of the jobs market will play a role in influencing the RBA's decision. If inflation slows down less than is forecasted, it might provide sufficient justification for the RBA to implement a 25bps hike at the upcoming meeting.

During this week's FOMC meeting, the consensus among analysts is for a 25bps rate hike. It's worth noting that in the previous meeting, the Federal Reserve opted to keep rates unchanged while hinting that the tightening cycle is not yet complete. Presently, the market anticipates one more rate hike before the year's end.

Recent inflation data for the U.S. has shown some signs of cooling down. However, the Fed is unlikely to be fully convinced that inflation will not surge again in the autumn, given that it is currently well above its target. To be assured that this cooling trend is not merely temporary, the Fed will require more evidence. Monetary policy decisions operate with a time lag, necessitating a wait-and-see approach to observe their effects over a longer period. Moreover, while job growth is experiencing some slowdown, the labor market as a whole continues to remain very tight which further contributes to the complexity of the Fed's decision-making process.

A 25bps hike at Wednesday's meeting is fully priced in by the market, making it more likely to see a reaction to any guidance in Chair Powell's press conference regarding future rate increases than to the hike itself.

The inflation data for the eurozone continues to stay elevated, requiring further attention and action from the ECB. The Bank has already indicated the possibility of another 25bps rate hike, and it appears probable they will implement it at this meeting. Additionally, there is potential for an additional rate hike at their September meeting, and any indications or hints regarding this matter will be carefully observed by market participants and analysts. The ECB's decisions in the coming months will play a crucial role in managing inflationary pressures and shaping the region's economic outlook.

It's anticipated that new home sales in the U.S. will drop from the previous figure of 763K to 721K. So far, the data has been surpassing expectations, with new home sales experiencing a more substantial increase over the year when compared to existing home sales, for example.

Until last week, the market's expectation for the BoJ meeting on Friday included a potential adjustment in YCC policy. However, the odds have now shifted in favor of no changes being made to the current monetary policy, including YCC. Nevertheless, analysts from Citi have emphasized the possibility that the policy board member median projections in the July Outlook Report could indicate three years of inflation above 2%, starting in FY22.

The BoJ's approach seems to lean towards caution, as they would rather favor being behind the curve if inflation stays above 2% in the coming year. This cautious stance is preferred over risking an early tightening cycle that could hinder economic recovery and prolong periods of low inflation. While a change in monetary policy is expected next year, the path ahead remains uncertain, making it difficult to predict how the situation will evolve.

In Japan, inflation is currently above the BoJ's target, but not as elevated as in other developed countries. The GDP saw a rise of 2.7% quarter-on-quarter in Q1, and the Tankan survey for Q2 indicated an improvement in confidence among both manufacturers and non-manufacturers.

It is expected that the Personal Income and Personal Spending data for June will show a slight increase. Personal income data is likely to rise by 0.5% m/m, and personal spending is also anticipated to increase by 0.4%. Additionally, the Core PCE is expected to rise by 0.21% m/m.

This article was written by Gina Constantin.