UPCOMING EVENTS:
- Monday: China Caixin Manufacturing PMI, Swiss Retail Sales, US ISM Manufacturing PMI.
- Tuesday: RBA Meeting Minutes, Eurozone CPI, Eurozone Unemployment Rate, Canada Manufacturing PMI, US Job Openings, Fed Chair Powell.
- Wednesday: Australia Retail Sales, China Caixin Services PMI, Swiss Manufacturing PMI, Eurozone PPI, US ADP, US Jobless Claims, US ISM Services PMI, FOMC Meeting Minutes.
- Thursday: US Holiday, Swiss Unemployment Rate, Swiss CPI, ECB Meeting Minutes, Canada Services PMI, UK General Election.
- Friday: Eurozone Retail Sales, Canada Labour Market report, US NFP.
Monday
The US ISM Manufacturing PMI is expected at 49.0 vs. 48.7. We got a great S&P Global US Manufacturing PMI which increased to 51.7 vs. 51.3 prior and overall the data highlighted the fastest economic expansion for over two years, hinting at an encouragingly robust end to the second quarter while at the same time inflation pressures have cooled.
The survey also brought welcome news in terms of job gains, with a renewed appetite to hire being driven by improved business optimism about the outlook. Selling price inflation has meanwhile cooled again after ticking higher in May, down to one of the lowest levels seen over the past four years. Historical comparisons indicate that the latest decline brings the survey’s price gauge in line with the Fed’s 2% inflation target.
Tuesday
The Eurozone CPI Y/Y is expected at 2.5% vs. 2.6% prior, while the Core CPI Y/Y is seen at 2.8% vs. 2.9% prior. This report won’t change anything for the ECB as they want to see the data throughout the summer before deciding on a rate cut in September.
Nonetheless, a faster easing in inflation during the summer or some quick deterioration in the economy should see the market pricing in more rate cuts by the end of the year. At the moment, the market sees 46 bps of easing by the end of the year assigning 61% probability of no change at the July meeting and 83% chance of a cut in September.
The US Job Openings are expected to fall to 7.850M vs. 8.059M prior. The last report missed expectations by a big margin with job openings falling to the lowest level since February 2021 and now getting close to the pre-pandemic level.
This is good news for the Fed as the labour market continues to rebalance via less jobs availability rather than more layoffs, and inflationary pressures should keep abating. On the other hand, the labour market is a spot to keep an eye on carefully in this part of the cycle.
We will also hear from Fed Chair Powell who’s speaking at the European Central Bank Forum on Central Banking 2024 in Sintra, Portugal. I don’t expect him to signal anything and just maintain the usual neutral stance.
In my opinion, a lot will depend on the next inflation data. I think the Fed will be more dovish if we get a good inflation report in July. Then, if we get some more good figures in August, Powell will likely pre-commit to a rate cut in September at the Jackson Hole Symposium.
Wednesday
The US Jobless Claims continue to be one of the most important releases to follow every week as it’s a timelier indicator on the state of the labour market. Initial Claims keep on hovering around cycle lows, while Continuing Claims have been on a sustained rise recently with the data setting a new cycle high last week. This is something to keep an eye on. This week Initial Claims are expected at 235K vs. 233K prior, while there’s no consensus for Continuing Claims at the time of writing.
The US ISM Services PMI is expected at 52.5 vs. 53.8 prior. This survey hasn't been giving any clear signal lately. As previously mentioned, the S&P Global US PMIs surprised to the upside with the Services measure in particular showing a strong rise. The focus will likely be on the employment sub-index ahead of the NFP report but the data we got until now suggests that the US economy is doing well, and the labour market remains resilient.
Thursday
The Swiss CPI Y/Y is expected at 1.4% vs. 1.4% prior, while the M/M measure is seen at 0.1% vs. 0.3% prior. As a reminder, the SNB cut interest rates by 25 bps to 1.25% at the last meeting and lowered its inflation forecasts. The SNB also added the line that says “will be ready to intervene in the FX market if needed and as necessary”, so if inflation surprises to the upside in Q3 or they see risks of inflation overshooting their projections, then we will likely get some interventions.
For context, the central bank expects inflation to pickup slightly and average 1.5% in Q3, so this is going to be the baseline and if inflation were to surprise to the downside, then the market will price in higher chances of another rate cut in September. At the moment, the market expects just one more rate cut in 2024 and the probability of a rate cut in September stands at 62%.
Friday
The US NFP is expected to show 180K jobs added in June vs. 272K in May and the Unemployment Rate to remain unchanged at 4.0%. The Average Hourly Earnings M/M is expected at 0.3% vs. 0.4% prior. The Fed at the moment is very focused on the labour market as they fear a quick deterioration.
As a reminder, they forecasted the unemployment rate to average 4% in 2024, so I can see them panicking a bit and deliver a rate cut if unemployment rises to 4.2% in the next couple of months. For now, the data suggests that the labour market is rebalancing via less hires than more layoffs and overall, there are no material signs of deterioration.
The Canadian labour market report is expected to show 25K jobs added in June vs. 26.7K in May and the Unemployment Rate to tick higher again to 6.3% vs. 6.2% prior. The last report surprised to the upside although we got another uptick in the unemployment rate. The key part was wage growth jumping to 5.1% vs. 4.7% prior, which is what the BoC is most focused on.
As a reminder, the last week the Canadian CPI surprised to the upside, with the underlying inflation measures rising but remaining within the 1-3% target band. This made the market to pare back rate cuts expectations with the probabilities now standing around 50%. We will get another inflation report before the next BoC policy decision, but if we see another jump in wage growth, then the central bank will likely need very good CPI figures to deliver a rate cut in July.
