UPCOMING EVENTS:
Monday: EZ-UK-US PMIs.
tuEsday: US Consumer Confidence.
Wednesday: Australia CPI, FOMC Policy Decision.
Thursday: ECB Policy Decision, US Jobless Claims, US Q2 GDP.
Friday: BoJ Policy Decision, US PCE, US ECI.
Monday:
The Eurozone Manufacturing PMI is expected to be lower at 43.3 compared to 43.4 previously, while the Services PMI is seen at 51.4 compared to 52.0 previously. Eurozone economic data has started to surprise consistently on the downside lately which has hinted at a possible recession hitting the economy in H2 2023 and the ECB ending its rate hike cycle.
UK Manufacturing PMI is expected at 45.9 vs. 46.5 before, while the Services PMI is seen at 53.0 vs. 53.7 before. This pattern of contractionary Manufacturing Sector and expansionary Services Sector is the theme of this tightening cycle and what might delay the recession because the Services Sector is less sensitive to rate hikes..
The US Manufacturing PMI is expected to be a touch higher at 46.4 compared to 46.3 before, while the Services PMI is seen to be a touch lower at 54.0 compared to 54.4 before. A downside surprise should weigh on the USD as low US inflation readings are still fresh in the market’s mind and could cause another dovish repricing of interest rates expectations. On the other hand, an upside surprise should give the USD some support because the market may start pricing in another rate hike.
Tuesday:
US Consumer Confidence is expected at 113.0 vs. 109.7 before. Last month, we saw a big surprise increase in the report that jumped from 104.0 to 109.7. The US Consumer may feel happier due to a strong labor market, low inflation (energy deflation increased disposable income) and a higher stock market.. In fact, the index of the current state of the Consumer Confidence report is seen as a leading indicator for the labor market and it jumped from 146.8 to 155.3 last month. Higher stock market prices, on the other hand, have a positive effect on wealth that keeps the labor market strong and consumer spending healthy.
Wednesday:
Australia CPI Y/Y is expected at 5.4% compared to 5.6% before, while CPI Q/Q is seen at 1.0% compared to 1.4% before. the The RBA’s preferred measures of inflation are the Trimmed Mean and the Weighted Mean, see all below. The Trimmed Mean Y/Y is expected at 5.9% versus 6.6% before, while the Q/Q figure is seen at 1.0% versus 1.2% before. The Weighted Mean Y/Y is expected at 5.4% compared to 5.8% before, while the Q/Q reading is seen at 1.0% compared to 1.2% before. Australia’s Labor report last week beat expectations across the board, and it gave expectations in favor of another rate hike, but a miss in the inflation report could give the RBA an excuse to keep the cash rate steady. As a reminder, the The RBA’s inflation target is 2-3% per year.
The Fed is expected to hike by 25 bps and bring the FFR to 5.25-5.50%. The market has already baked into this rate hike, so it’s not a surprise. In fact, the market will focus more on hints for the next move as now that the Fed is seen to have done with this hike in July. In my opinion, it is unlikely that the Fed will pre-commit anything in this meeting as they remain dependent on the data and the recent low Core inflation reading should increase their hopes for a soft landing. They will also see two more reports on NFP and CPI before the September meetingso I think this meeting is probably the most boring one of the year.
Thursday:
The ECB is expected to increase by 25 bps and bring the deposit rate to 3.75%. This rate hike has already been written into the ECB’s final rate decision because President Lagarde said that “inflation is projected to remain very high for a long time” and that there is “more ground to cover”. In fact, all ECB speakers have been repeating every week that they will hike the July meeting and that the most intense debate will center on The September decision, which is more dependent on the data. In fact, we are unlikely to see any pre-commitment at this meeting as the ECB will likely only emphasize their confidence in the data and determination to return inflation to target.
The US Jobless Claims report continues to be one of the most market-moving events as the labor market continues to be at the top of the market’s focus. Last week, we saw another big beat in Initial Claims sending the US Dollar higher across the board, while Continuing Claims ticked higher, even though they lagged Initial Claims by a week. As a reminder, last week’s Initial Claims data coincided with the NFP survey week. This week Initial Claims are expected at 233K vs. 228K before, and Continuing Claims are seen at 1742K vs. 1754K before.
Friday:
The BoJ is expected to keep its monetary policy unchanged with rates at -0.10% and YCC to flexibly target the 10yr yield within the -/+ 0.50% target band. The BoJ will also release its Outlook Report where the central bank is expected to revise higher inflation forecasts. There were some expectations coming into this meeting that the BoJ might tweak its YCC policy, but those were dashed first by Governor Ueda’s dovish comments and finally by a Reuters report on Friday that said the BoJ is confident of maintaining yield control policy at the upcoming meeting.
US Core PCE M/M is expected at 0.2% compared to 0.3% before while there is no expectation for the Y/Y number at the moment, although the Cleveland Fed Inflation Nowcast points to a 4.2% reading compared to 4.6% before. The market is likely to focus more on the US Employment Cost Index (ECI) although it is expected at 1.1% compared to 1.2% before.