Weekly Market Outlook (01-05 July) | Forexlive

EVENTS TO COME:

• Monday: Caixin manufacturing PMI in China, retail sales in Switzerland, American ISM manufacturing PMI.
• Tuesday: RBA meeting minutes, Eurozone CPI, Eurozone unemployment rate, Canadian manufacturing PMI, US job openings, Fed Chair Powell.
• Wednesday:Australia Retail Sales, China Caixin Services PMI, Swiss Manufacturing PMI, Eurozone PMI, US ADP, US Jobless Claims, US ISM Services PMI, Minutes of the meeting of the FOMC.
• THURSDAY:US public holiday, Switzerland unemployment rate, Swiss CPI, ECB meeting minutes, Canadian services PMI, UK general election.
• Friday: Eurozone retail sales, Canadian labor 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 Manufacturing PMI in the US which rose to 51.7 vs. 51.3 previously and overall the data highlighted the fastest economic expansion in more than two years, suggesting an encouraging and robust end to the second quarter, while at the same time inflationary pressures have eased..

The survey also brought good news in terms of job creation, with a a renewed appetite for hiring being driven by increased business optimism about the outlook. At the same time, sales price inflation slowed again after increasing in May, to one of the lowest levels seen in the last four years. Historical comparisons indicate that the latest decline brings the survey price indicator in line with the Fed’s 2% inflation target.

Tuesday

Eurozone CPI year-on-year is expected at 2.5% versus 2.6% previously, while core CPI year-on-year is expected at 2.8% versus 2.9% previously. This report will not change anything for the ECB because they want to see data throughout the summer before deciding on a rate cut in September.

Still, a faster decline in inflation over the summer or a rapid deterioration in the economy should prompt the market to anticipate further rate cuts by year-end. Currently, the market is pricing in a 46 basis point rate cut by year-end, giving a 61% chance of no change at the July meeting and an 83% chance of a cut in September.

U.S. job openings are expected to fall to 7.850 million from 8.059 million previously. The latest report missed expectations by a wide margin, with job openings falling to the lowest level since February 2021 and now approaching pre-pandemic levels.

This is good news for the Fed because the labor market continues to rebalance through reduced job availability rather than more layoffs, and inflationary pressures are expected to continue to easeOn the other hand, the labor market is an element to watch carefully in this part of the cycle.

We will also hear from Fed Chair Powell, who will speak at the European Central Bank Forum on Central Banking 2024 in Sintra, Portugal. I do not expect him to do anything concrete and simply maintain his usual neutral stance.

In my view, a lot will depend on the upcoming inflation data. I think the Fed will be more dovish if we get a good inflation report in July. Then, if we get more good numbers in August, Powell will likely pre-commit to a rate cut in September at the Jackson Hole symposium.

Wednesday

U.S. jobless claims continue to be one of the most important releases to follow each week, as they are a more timely indicator of the state of the labor market. Initial claims continue to hover around cycle lows, while continuing claims have seen a sustained rise recently, with the data hitting a new cycle high last week. This is something to watch out for. This week, initial applications are expected at 235,000 compared to 233,000 previously, while there is no consensus for continuing applications at the time of writing.

The US ISM Services PMI is expected at 52.5 versus 53.8 previously. This investigation has not given any clear signals recently. As mentioned earlier, S&P Global’s US PMIs surprised on the upside with the Services in particular record a strong increase. The focus will likely be on the jobs subindex before the NFP report is released, but the data we’ve obtained so far suggests that the U.S. economy is doing well and the labor market remains resilient .

THURSDAY

Swiss CPI YoY is expected at 1.4% vs. 1.4% previously, while the M/M measure is expected at 0.1% vs. 0.3% previously. As a reminder, the SNB cut interest rates by 25bps to 1.25% at the last meeting and lowered its inflation forecast. The SNB also added the line that says “will be prepared to intervene in the foreign exchange market if needed and if necessary,” so if inflation surprises to the upside in Q3 or if it sees inflation risks exceeding its projections, then we will likely see interventions.

As a reminder, the central bank expects a slight recovery in inflation and an average of 1.5% in the third quarter. this will be the baseline and if inflation were to surprise on the downside, the market would then price in higher chances of another rate cut in September. For now, the market only expects one more rate cut in 2024, and the probability of a rate cut in September stands at 62%.

Friday

The US NFP should show 180,000 jobs created in June compared to 272,000 in May and an unemployment rate unchanged at 4.0%. The average M/M hourly wage is expected at 0.3% compared to 0.4% previously. The Fed is currently very focused on the labor market because they fear rapid deterioration.

As a reminder, they predicted an average unemployment rate of 4% in 2024, so I see them panicking a bit and proposing a rate cut if unemployment reaches 4.2% in the coming months. For now, the data suggests that the labor market is rebalancing through fewer hires rather than more layoffs, and overall there are no significant signs of deterioration.

The Canadian labor market report is expected to reveal 25,000 jobs created in June compared to 26.7 thousand in May and an unemployment rate up to 6.3% from 6.2% previously. The latest report surprised on the upside, although we saw another rise in the unemployment rate. The key factor was wage growth which jumped to 5.1% from 4.7% previously. This is what the BoC focuses on most.

As a reminder, last week, the Canadian CPI surprised underlying inflation measures upwards. up but remaining within the target range of 1 to 3%. This has led the market to lower its expectations for a rate cut, with the odds now sitting around 50%. We will have another inflation report before the Bank of Canada’s next policy decision, but if we see another increase in wage growth, the central bank will likely need very strong CPI numbers to proceed with a rate cut in July.