- Monday: Chinese government bonds
- Tuesday: US Fed Policy Announcement; US Existing Home Sales (June), Richmond Fed (July), Eurozone Consumer Confidence (July)
- Married: Bank of Canada Policy Announcement and Monetary Policy Report; Japanese Spot PMIs (July), German Spot PMIs (August), European, UK and US Spot PMIs (July)
- Thursday: CBR Announcement, CBRT Announcement; EZ M3 (Jun), German IFO (Jul), US Durable Goods (Jun), Advanced GDP & PCE (Q2), IJC (Jul 20)
- Friday: Moody’s Review of Bulgaria, Czech Republic, Latvia; Japan CPI in Tokyo (July), US PCE (June), University of Michigan Final Index (July), German Import Prices (June)
Note: Previews are listed in order of the day..
Chinese Treasury Bond Rate (Monday):
The People’s Bank of China is expected to maintain its benchmark lending rates next week, with the one-year and five-year lending rates at their current levels of 3.45% and 3.95%, respectively. The likelihood of China maintaining its benchmark rates follows the central bank’s decision to keep the one-year medium-term lending facility rate at 2.50%, which serves as a fairly accurate leading signal of intent regarding the benchmark interest rates, which are the reference rates for most new loans and mortgages. The central bank is also seen focusing on short-term liquidity measures, which was evident in the increased pumping during the 7-day reverse repo announcements this week, while earlier this month it was reported that it would conduct temporary overnight repos or reverse repos based on market conditions to keep the banking system liquidity reasonably adequate and increase the accuracy and efficiency of open market operations. Furthermore, industry sources quoted by Financial News, which is backed by the People’s Bank of China, said that the People’s Bank of China will clarify that it will start using the short-term interest rate as its main policy rate after reducing the importance of the long-term lending rate as a policy benchmark, indicating a lack of urgency to adjust the benchmark interest rates. However, future rate adjustments cannot be ruled out given recent data that included contracting imports, as well as weaker-than-expected CPI and retail sales data that point to weak domestic demand, while Q2 GDP data also failed to meet estimates and housing prices continued to contract. As such, if the data continues to deteriorate, it could fuel slowdown fears and justify support measures, while analysts quoted by Shanghai Securities News recently suggested that China may see an opportunity to cut interest rates or the reserve requirement ratio at the end of Q3 or in Q4 to support its economy.
EZ Flash PMI (Wednesday):
The manufacturing PMI is expected to rise from 45.8 to 46.0, the services PMI is expected to rise from 52.8 to 53.0, and the composite index is expected to remain at 50.8 versus 50.9 previously. As a reminder, the previous release saw the manufacturing PMI fall from 47.3 to 45.8 and the services PMI fall from 53.2 to 52.8, leaving the composite at 50.9 versus 52.2 previously. The accompanying report noted that “while manufacturing weakened significantly in June, activity growth in the services sector remained roughly as strong as in the previous month.” This time around, attention will be focused in part on whether and to what extent any political uncertainty seeps into the data. Furthermore, given the ECB’s more dovish stance on eurozone price pressures, cost measures in the release are likely to receive additional attention. From a policy perspective, with the ECB’s July meeting just in the rearview mirror and a lot of data between now and the September meeting, the release is unlikely to have a major impact on market rates. Inflationary developments and comments from ECB officials will act as a greater guiding force for this meeting, which currently has a 64% chance of a rate cut.
UK Spot PMI (Wednesday):
The services reading is expected to rise from 52.1 to 52.5, and the manufacturing reading is expected to rise from 50.9 to 51.2, leaving the composite at 52.6 versus 52.3 in the previous reading. As a reminder, the previous release saw the services reading fall from 52.9 to 52.1, and the manufacturing reading fall from 51.2 to 50.9, leaving the composite at 52.3 versus 53.0 in the previous reading. The accompanying report noted that the UK is “on track for another quarter of GDP growth… albeit less robust than the 0.7% in Q1”. This time around, analysts at Investec noted that the certainty provided by the general election result and “the new government’s key focus on boosting growth should help businesses strengthen their own plans for the future”. As such, the office expects a recovery in both the services and manufacturing components. On prices, Investec notes: “In June, despite some easing in input cost pressures, the price index edged up. A reversal of this would be very welcome from a policy perspective.” From a policy perspective, the release will be the highlight of the data ahead of the BoE’s August announcement, which is almost a coin flip. The release could cause some market price action on the day, however, it is unlikely to decide the matter one way or the other given the MPC’s obsession with services inflation and real wage growth.
Bank of Canada Announcement (Wednesday):
The current analyst survey has yet to be released, but money markets are currently pricing in an 80% chance of a July rate cut following weak data, with ING, RBC and Scotia all looking for the BoC to follow up with another 25bps rate cut after a 25bps cut in June. Recent data has been on the cool side, and inflation has continued to slow, with the BoC’s core average rising 2.6% y/y in June, down slightly from 2.63% previously, although this was revised down from 2.70%. Meanwhile, the June jobs report was weak, with the unemployment rate rising to 6.4% from 6.2%, above expectations of 6.3%. The monthly change in employment was also disappointing, falling by 1.4K, with full-time jobs down 3.4K and part-time jobs up 1.9K, well below the 22.5K expected and 26.7K previously. The latest survey of business expectations showed that most respondents expect inflation to return to near target within 2-3 years, while expectations were mostly unchanged from the previous quarter and more pessimistic than average. The share of firms reporting labour shortages was the lowest in the survey, but few firms are planning to cut headcount. On the price front, firms expect slower growth in input prices and selling prices, suggesting inflation will continue to decline over the coming year. The weak labour market and further signs of easing price pressures open the door to another rate cut in July. Looking ahead, markets are fully pricing in two 25 basis point rate cuts this year, with a 60% chance of a third. The focus of this meeting will be the interest rate decision, but any guidance on interest rates in the statement will also be key. This meeting will also be accompanied by the latest Monetary Policy Report, which will also be used to gauge how the Bank of Canada expects the economy to perform, which could provide insight into future easing. ING sees the Bank of Canada cutting interest rates again in July, and expects another 50 basis point rate cut after that. The bureau acknowledges that higher unemployment and lower-than-expected inflation have prompted the bank to change its view to expect a rate cut at its next meeting.
US GDP advances (Thursday):
The US second-quarter GDP report will be released on Thursday, July 25. The final version for the first quarter showed growth of 1.4%, while second-quarter growth is currently tracking at 2.7%, according to the Atlanta Federal Reserve’s GDPNow estimate, though that will be updated on Wednesday, July 24. During the second quarter, retail sales data saw April’s report revised to -0.2%, down from 0.6% in March, while May saw a gain of 0.1%, and June was unchanged, though above expectations of -0.3%. However, the control gauge, a strong measure of consumer spending, fell 0.5% in April, rose 0.4% in May, and rose 0.9% in June, suggesting that consumers were spending more in the latter parts of the quarter. In the durable goods reports, shipments of non-defense capital goods excluding aircraft are incorporated into the GDP report, which saw a 0.4% increase from March to April, but a 0.5% decline from April to May; With the nominal dollar amount of shipments in the latest report only slightly down from March’s figure. The current consensus for GDP is for 1.8% growth in the second quarter, but analysts’ expectations are mixed, ranging from 1.2-2.6%. The consensus is likely to adjust as more forecasts are released. ING is leaning toward the upper end of the forecast, expecting 2.5% to reflect better consumer spending, higher inventories and slightly stronger investment readings. Looking ahead, they expect weaker growth in the second half as the Fed begins cutting interest rates from September.
CBRT Announcement (Thursday):
Turkey’s central bank is likely to hold interest rates at its meeting on Tuesday, which was postponed from its usual announcement on Thursday. Expectations to keep the weekly repo rate at 50.00% come amid the dovish policy stance widely announced by the central bank and its governor Karahan. Inflation in Turkey slowed in June, sparking talk of possible rate cuts. Despite speculation of a rate cut due to slowing inflation, Karahan stressed the need to maintain a dovish stance and stressed that policy actions should be in line with achieving the inflation target in 2025 and beyond. The central bank expects inflation to fall to 38% by the end of 2024, 14% in 2025 and 9% in 2026. Some have suggested that the central bank aims to see clearer improvements in inflation expectations before easing policy.
Japan CPI in Tokyo (Friday):
Tokyo’s core CPI for July is expected to rise to 2.2% from 2.1% in June; Tokyo inflation data is a leading indicator of national price trends. The data will also be released a week before the Bank of Japan’s meeting. Analysts at ING expect “Tokyo core inflation to rise 2.0% y/y, above the BOJ’s 2% target.” The bureau also assumes that “along with strong wage growth, a recovery in the auto sector, and retail sales, the BOJ is expected to deliver a 15 basis point hike at its July meeting.”
US CPI (Friday):
The US June CPI, the Fed’s preferred measure of inflation, is due out on July 26, with analysts’ current expectations for core CPI on a monthly basis ranging between 0.15-0.2%. Furthermore, ING notes that core CPI deflator is expected to come in at 0.2% on a monthly basis, with risks skewed to the downside. The bank adds that core CPI was just 0.1% on a monthly basis, but some of the PPI inputs into the CPI deflator, such as portfolio and transportation fees, support 0.2%. However, this would track the run rate required to achieve 2% annual inflation over time and should sustain expectations for rate cuts. In June, US CPI was cooler than expected across the board, with core CPI rising just 0.1% (expected, previous 0.2%), while the year-over-year growth pace slowed to 3.3% (previous, expected 3.4%). The headline came in below all analysts’ expectations at -0.1% (expected +0.1%, previous 0.0%), with year-over-year growth softening to 3.0% (previous 3.3%), below the 3.1% forecast. June’s PPI was hot, but there were significant revisions to May’s numbers and analysts at Bank of America noted that the components of the PPI report that influence the PCE report were generally weaker. Following inflation measures, Wall Street Journal Fed watcher Nick Timeraos said that based on the June CPI and PPI, forecasters charting the PCE project core prices to rise 0.17% in June, keeping the 12-month rate at 2.6%. Furthermore, the six-month annual rate will rise to 3.3% and the three-month annual rate will fall to 2.1%. However, Pantheon Macroeconomics notes that “the core PCE print is not perfectly predictable, as the Bureau of Economic Analysis uses expert judgment to seasonally adjust some components, and some series are derived from non-CPI/PPI data sources that are not available in advance.” Finally, the Fed’s Waller noted that recent inflation data makes him more confident that the Fed will meet its inflation target, but on monthly PCE inflation, he needs to see more evidence that this will continue, which is in line with recent comments seen from other officials. Financial markets are now fully pricing in a first cut by September, with 62.5 basis points priced in by year-end (implying two or three 25 basis point rate cuts by 2024), with near-zero odds at the next meeting on July 31.
This article originally appeared on Newsquake.
