Monday: China Caixin/S&P Global Manufacturing PMI came in at 50.5 vs. 50.2 expected and 50.9 prior.
The Switzerland CPI Y/Y came in at 1.7% vs. 1.8% expected and 2.2% prior while the Core CPI Y/Y printed at 1.8% vs. 1.9% prior. The inflation rate is back within the SNB 0-2% target band, so we should expect the SNB to remain on hold at the next meeting, all else being equal.
Saudi Arabia extended the voluntary output cuts for another month. Russia has also said that it will reduce oil exports by 500K bpd in August.
ECB’s Nagel (hawk) said that inflation is not retreating as they would like it to, but he is confident that a hard landing can be avoided. He also said that they still have way to go with policy tightening and that the euro systems balance sheet should be significantly reduced in coming years.
The US ISM Manufacturing PMI came in at 46.0 vs. 47.0 expected and 46.9 prior. The other notable components were:
· Prices paid at 41.8 vs 44.0 expected. The prior reading was 44.2.
· Employment at 48.1 vs. 50.5 expected. The prior reading was 51.4.
· New orders at 45.6 vs. 42.6 prior.
As Eric Basmajian from EPB Research noted, it’s rare to see the 100% of the ISM Manufacturing PMI components being in contraction.
Tuesday: The RBA has left the cash rate unchanged at 4.10% as expected. The central bank said that higher rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so. The RBA decided to hold interest rates steady to assess the impact of rate hikes to date and the economic data. They stated that some further tightening of monetary policy may be required, and that the RBA remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.
The Canada S&P Global Manufacturing PMI came in at 48.8 vs. 49.0 prior with output, new orders and employment all declining.
Wednesday: The China Caixin/S&P Global Services PMI came in at 53.9 vs. 57.1 prior.
According to Japan’s largest trade union confederation Rengo, Japanese firms offered the biggest wage hikes in 30 years hitting 3.58% for 2023. Wage growth is one of the key trends the Bank of Japan (BOJ) is closely watching as it considers when it should unwind its ultra-loose monetary policy.
ECB’s Nagel (hawk) said that interest rates must rise further but it’s too early to say how far.
ECB’s Visco (dove) said that more rate hikes are not the only way to curb inflation as they can just maintain rates adequately high for a sufficient period of time. He added that rate decision is taken on a meeting-by-meeting basis, depending on the data. He concluded by saying that he doesn’t agree with the idea of tightening too much over tightening too little.
The FOMC Minutes showed that some participants favoured or could have favoured a 25 bps hike noting the tight labour market, stronger economic momentum and little evidence of inflation on path to 2%. The Fed staff saw a mild recession as likely later this year. Almost all participants stated that upside risks to inflation might become unanchored. Overall, there’s nothing really new that we haven’t known already.
Fed’s Williams (hawk) said that he’s not happy with where inflation is, and that fighting inflation remains the Fed’s main job. He acknowledged progress on inflation but added that price pressures are still too high. He also said that the economy has strong demand for labour, and he’s surprised to see resilience of the housing market. He concluded that inflation’s ultimate fate is up to the Fed and that it makes sense to slow rate rises right now and being dependent on the data.
Thursday: BoJ’s Deputy Governor Uchida said that they will maintain YCC to help continue easy monetary conditions as the risk of missing the chance to hit 2% inflation with premature policy shift is bigger that being late in tightening monetary policy.
SNB’s Maechler said that further rate hikes cannot be ruled out.
BoE’s Bailey said that there is evidence that some retailers are overcharging customers and that the moves by regulators on retail prices will help to lower inflation. He added that he cannot give a data on when interest rates will start to come down.
The US Challenger layoffs fell to a seven-month low in June as employers cut 40.71K vs. 80.09K prior.
The US June ADP employment came in at 497K vs. 228K expected and 278K prior. This was the largest increase since February 2022.
The US Initial Claims showed a 248K increase vs. 245K expected and the downwardly revised 236K prior. The Continuing Claims beat expectations again printing at 1720K vs. 1745K expected and 1733K prior. This is a sign that people are finding jobs pretty quickly after being laid off.
Fed’s Logan (hawk) said that she would have been ok with a June rate hike and that more rate hikes are likely necessary. She expressed concern whether inflation will cool quickly enough as the process of rebalancing the economy is slower than expected. She acknowledged that the uncertain environment enabled the June pause but she’s sceptical about lagged impact of past Fed rate hikes.
The US ISM Services PMI beat expectations coming at 53.9 vs. 51.0 expected and 50.3 prior. Almost all the sub-indexes beat expectations, with employment coming at 53.1 vs. 49.9 expected and prices paid at 54.1 vs. 53.3 expected. The services sector remains pretty strong and it’s likely to make the Fed’s job of bringing core inflation down to target harder.
US Job Openings in May fell to 9.824M vs. 9.935M expected and the prior upwardly revised 10.320M figure. Notably, the quits rate moved higher from 2.4% to 2.6%, which is indicative of a stronger labour market as people generally quit when they are confident of finding a better job pretty easily.
Friday: ECB’s Lagarde (hawk) said that they still have work to do to bring inflation back down to their target and that the priority is to maintain price stability. She acknowledged that inflation has started to decline but it’s still higher than the 2% target.
The Switzerland June seasonally adjusted unemployment rate remained unchanged at 2.0%.
ECB’s de Guindos (dove) said that they will continue to follow a data dependent approach as they are now beginning to see the impact of rate hikes on the economy. He acknowledged that their job is not yet done, and that services inflation and labour costs need to be closely monitored as the evolution of core inflation will be key to future policy decisions. He concluded that what happens in September remains an open question.
The US NFP has finally broken the winning streak coming at 209K vs. 225K expected and 339K prior. The unemployment rate printed at 3.6% vs. 3.6% expected and 3.7% prior with the participation rate remaining unchanged at 62.6%. The more concerning stuff for the Fed is Average Hourly Earnings that printed at 0.4% (0.358% unrounded) vs. 0.3% expected for the M/M reading and 4.4% vs. 4.2% expected for the Y/Y one. Average Weekly Hours have also ticked up to 34.4 vs. 34.3 prior. Apart from the slight miss on the headline number, there’s not much here that indicates a softening in the labour market considering also the data we got in the previous days/weeks.
The Canadian June Employment chant printed at 59.9K vs. 20.0K expected and -17.3K prior. The unemployment rate ticked higher to 5.4% vs. 5.3% expected and 5.2% prior. The participation rate printed at 65.7% vs. 65.5% prior.
The highlights for next week include:
- Tuesday: UK jobs data.
- Wednesday: RBNZ rate decision, US CPI, BoC rate decision.
- Thursday: US Jobless Claims, US PPI.
- Friday: University of Michigan Consumer Sentiment.
That's all folks, have a great weekend!
