UPCOMING EVENTS:
- Monday: New Zealand Services PMI, PBoC MLF, China Industrial Production and Retail Sales, Eurozone Industrial Production, BoC Business Outlook Survey, Fed Chair Powell.
- Tuesday: Eurozone ZEW, Canada CPI, US Retail Sales, US NAHB Housing Market Index.
- Wednesday: New Zealand Q2 CPI, UK CPI, US Housing Starts and Building Permits, US Industrial Production and Capacity Utilization, Fed’s Waller, Fed Beige Book.
- Thursday: Australia Labour Market report, UK Labour Market report, ECB Policy Decision, US Jobless Claims.
- Friday: Japan CPI, UK Retail Sales, Canada Retail Sales.
Monday
The PBoC is expected to keep the MLF rate unchanged at 2.50%. Reuters reported that market participants believe the significance of the MLF rate will gradually diminish as the PBoC tries to improve the effectiveness of its interest rate corridor. The PBOC introduced a new cash management mechanism last week and Governor Pan Gongsheng said recently that the seven-day reverse repo rate "basically fulfils the function" of the main policy rate.
Tuesday
The Canadian Trimmed Mean CPI Y/Y is expected at 2.8% vs. 2.9% prior, while the Median CPI Y/Y is seen at 2.7% vs. 2.8% prior. The BoC will likely need benign data to deliver a back-to-back rate cut in July given that wage growth jumped to 5.6% in the last labour market report. The market is assigning a 78% chance of a rate cut in July and with an upside surprise in the data that might fall to roughly 50%.
The US Retail Sales M/M is expected at 0.0% vs. 0.1% prior, while the Ex-Autos M/M measure is seen at 0.1% vs. -0.1% prior. Consumer spending has been pretty stable which is something you would expect given the positive real wage growth and resilient labour market. We’ve been also seeing some weakness in the UMich Consumer Sentiment which could suggest that consumer spending is likely to soften a bit.
Wednesday
The New Zealand Q2 CPI Y/Y is expected at 3.5% vs. 4.0% prior, while the Q/Q measure is seen at 0.6% vs. 0.6% prior. As a reminder, the RBNZ kept the OCR unchanged at 5.5% in July but softened the language a bit, which prompted the market to increase the expectations of rate cuts by the end of the year. The first rate cut is seen in October.
The UK CPI Y/Y is expected at 2.0% vs. 2.0% prior, while the M/M measure is seen at 0.1% vs. 0.3% prior. The Core CPI Y/Y is expected at 3.4% vs. 3.5% prior. The market was assigning a 60% chance of a rate cut in August but that went down to 50% following some hawkish comments from BoE’s Pill.
The central bank chief economist said that it was an open question of whether the time for a rate cut was now or not and added that more data will come before the next policy decision, but they had to be realistic about how much any one or two releases could add to their assessment.
This suggests that there’s not much willingness to deliver the first cut in August unless the inflation data comes out extremely good or the jobs data shows an extremely ugly picture.
Thursday
The Australian Labour Market report is expected to show 20K jobs added in June vs. 39.7K in May and the Unemployment Rate to remain unchanged at 4.0%. The data shouldn’t change anything in terms of policy expectations as everyone is waiting for the Australian Q2 CPI report on July 31st.
The UK Labour Market report is expected to show 45K jobs added in June vs. -140K in May and the Unemployment Rate to remain unchanged at 4.4%. The focus will be on wage growth with the Average Earnings including Bonus expected at 5.7% vs. 5.9% prior and the Average Earnings ex-Bonus seen at 5.7% vs. 6.0% prior.
The data shouldn’t influence that much the expectations for the August BoE decision, but softening in wage growth or ugly jobs figures should increase the expectations for more easing with the market pricing in 49 bps of cuts by year-end.
The ECB is expected to keep interest rates unchanged at 3.75%. The central bank speakers said countless times that they are not going to do anything in July as they want to wait for more data. Therefore, this is going to be a non-event and the next truly open meeting is in September. The market is seeing an additional 46 bps of easing by year-end.
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 remain pretty much stable around cycle lows and inside the 200K-260K range created since 2022. Continuing Claims, on the other hand, have been on a sustained rise recently with the data printing new cycle highs every week (although last week we saw a pullback).
This shows that layoffs are not accelerating and remain at low levels while hiring is more subdued. This is something to keep an eye on. This week Initial Claims are expected at 235K vs. 222K prior, while there's no consensus for Continuing Claims at the time of writing although the prior reading saw a drop from 1856K to 1852K.
Friday
The Japanese Core CPI Y/Y is expected at 2.7% vs. 2.5% prior.Inflation in Japan is basically at target and there are no strong signals that point to a reacceleration. It’s hard to see a rate hike given that Japan strived to achieve inflation for decades and it might ruin this accomplishment by tightening policy.
The data shouldn’t change much for the BoJ which is expected to trim bond purchases by a “substantial” amount at the upcoming policy meeting where the market assigns also a 58% probability of a rate hike.
