Weekly Market Outlook (01-05 July)

Upcoming events:

• Monday:China Caixin Manufacturing PMI, Swiss Retail Sales, US ISM Manufacturing PMI.
• Tuesday: Reserve Bank of Australia meeting minutes, Eurozone CPI, Eurozone unemployment rate, Canada manufacturing PMI, US jobs, Fed Chair Powell.
• Wednesday:Australian Retail Sales, China Caixin Services PMI, Swiss Manufacturing PMI, Eurozone PPI, US ADP, US Jobless Claims, US ISM Services PMI, FOMC Meeting Minutes.
• Thursday:US Holiday, Swiss Unemployment Rate, Swiss CPI, ECB Minutes, Canada Services PMI, UK General Election.
• Friday:Retail sales in the euro area, labor market report in Canada, non-farm payrolls report in the United States.

Monday

The US ISM Manufacturing PMI is expected at 49.0 vs. 48.7. We got the US S&P Global Manufacturing PMI which rose to 51.7 vs. 51.3 previously, and overall, the data highlighted The fastest economic expansion in more than two years, signaling an encouragingly strong end to the second quarter while at the same time inflationary pressures ease.

The survey also brought good news in terms of job gains, with A renewed desire to hire Driven by improved business optimism about the outlook. Meanwhile, selling price inflation slowed again after rising in May, To one of the lowest levels seen over the past four years. Historical comparisons suggest that the recent decline is driven by the survey’s price index. In line with the Federal Reserve’s 2% inflation target..

Tuesday

Eurozone CPI is expected to come in at 2.5% YoY versus 2.6% previously, while core CPI is expected to come in at 2.8% YoY versus 2.9% previously. This report will not change anything for the European Central Bank. As they want to see the data throughout the summer before making a decision to cut interest rates in September.

However, a rapid slowdown in inflation over the summer or some rapid deterioration in the economy would prompt the market to price in more rate cuts by the end of the year. The market is currently pricing in a 46 basis point cut by the end of the year, implying a 61% chance of no change at the July meeting and an 83% chance of a rate cut in September.

US job opportunities are expected to decline to 7.850 million from 8.059 million previously. The latest report missed expectations by a large margin with job openings falling to the lowest level since February 2021 and now approaching their pre-pandemic level.

This is good news for the Fed The labor market continues to rebalance with fewer job openings rather than more layoffs, and inflationary pressures should continue to ease.On the other hand, the job market is a place to watch carefully in this part of the cycle.

We’ll also hear from Fed Chair Powell who will speak at the ECB’s Forum on Central Banking 2024 in Sintra, Portugal. I don’t expect him to point anything out and maintain his usual neutral stance.

In my opinion, 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 is more likely to pre-commit to a September rate cut at the Jackson Hole Symposium.

Wednesday

US unemployment claims remain one of the most important releases to follow each week as they are a convenient indicator of the state of the labor market. Initial claims continue to hover around cycle lows, while continuing claims have been on the rise recently with data setting a new cycle high last week. This is something to keep an eye on. Initial claims this week are expected to be 235K versus 233K previously, while there is no consensus on continuing claims at the time of writing.

The US ISM Services PMI is expected to come in at 52.5 versus 53.8 previously. This survey has not provided any clear indication recently. As previously reported, US PMIs have surprised S&P Global on the upside with The services measure in particular shows a strong riseThe focus will likely be on the employment sub-index ahead of the nonfarm payrolls report, but the data we have so far suggests that the US economy is in good shape, and the labor market remains resilient.

Thursday

Swiss CPI is expected to come in at 1.4% YoY vs. 1.4% previously, while the monthly measure is expected at 0.1% vs. 0.3% previously. As a reminder, the Swiss National Bank cut interest rates by 25 basis points to 1.25% at its last meeting and lowered its inflation forecast. The SNB also added the line that it “stands ready to intervene in the foreign exchange market if and as necessary,” so if inflation surprises the market in Q3 or it sees inflation risks exceeding its expectations, we are likely to see some intervention.

In this context, the Central Bank expects inflation to rise slightly to an average of 1.5% in the third quarter. This will be the baseline, and if inflation surprises the market by falling, the market will factor in higher odds of another interest rate cut in September.Currently, the market is expecting only one rate cut in 2024, and the probability of a rate cut in September is 62%.

Friday

The U.S. nonfarm payrolls report is expected to show 180,000 jobs added in June versus 272,000 in May and the unemployment rate to remain unchanged at 4.0%. Average hourly earnings are expected to come in at 0.3% month-on-month versus 0.4% previously. The Fed is currently focusing heavily on the labor market. For fear of rapid deterioration.

As a reminder, they expect the unemployment rate to average 4% in 2024, so I can imagine they might panic a little and cut interest rates if the unemployment rate rises to 4.2% within the next couple of months. Currently, the data indicates that the labor market is rebalancing with lower hiring compared to increased layoffs, and overall, there are no material signs of deterioration.

Canada’s labor market report is expected to show 25,000 jobs added in June versus 26.7,000 jobs in May and the unemployment rate rising again to 6.3% versus 6.2% previously. The latest report was surprising even though we saw another rise in the unemployment rate. The main part was wage growth, which jumped to 5.1% compared to 4.7% previously. Which is what the Bank of Canada is focusing on more..

As a reminder, Canada’s CPI surprised last week with a rise, with core inflation measures Rising but still within target range 1-3%. This has prompted the market to scale back expectations of a rate cut as the odds are now around 50%. We will get another report on inflation before the Bank of Canada’s next policy decision, but if we see another jump in wage growth, the central bank will likely need very good CPI numbers to cut its interest rate in July.