Weekly Market Outlook (08-12 July)

Upcoming Events:

• Monday:Japan wage data.
• Tuesday:National Federation of Businesses Small Business Optimism Index, Fed Chair Powell’s testimony.
• WednesdayJapan PPI, China CPI, RBNZ Monetary Policy Decision, Fed Chair Powell Testimony.
• ThursdayUK GDP, US CPI, US unemployment claims.
• Friday:New Zealand Manufacturing PMI, US Producer Price Index, University of Michigan Consumer Confidence Index in the US.

Tuesday

Fed Chair Powell is scheduled to testify before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday, and market participants will be watching closely for any hints or comments on the path of monetary policy after the latest nonfarm payrolls report.

The transcript is usually released before the testimony so it can be scrutinized for evidence or “bias,” but the market will also be focused on the question-and-answer session that follows the opening remarks. Given recent statements, Powell is likely to lean toward the dovish side.

Wednesday

The Reserve Bank of New Zealand is expected to leave interest rates unchanged at 5.5%. As a reminder, the central bank was very hawkish at its last meeting, raising its official interest rate forecasts and postponing the first rate cut until late 2025. The market continues to price in 41bp of easing by the end of the year.

Thursday

The US CPI is expected to come in at 3.1% YoY vs. 3.3% previously, while the monthly measure is expected at 0.1% vs. 0.0% previously. The core CPI is expected at 3.4% YoY vs. 3.4% previously, while the monthly figure is expected at 0.2% vs. 0.2% previously.

This will be an important release. I think the Fed will be more dovish at the next meeting if we get a good report. Then, if we get some more positive numbers in August, Fed Chairman Powell is likely to pre-commit to a September rate cut at the Jackson Hole Symposium.

US unemployment claims remain one of the most important data to follow each week, as they are a more accurate indicator of the state of the labor market.

Initial claims remain largely stable around cycle lows and within the 200K to 260K range that has been established since 2022. Continuing claims, on the other hand, have been on a steady rise recently with the data printing new cycle highs each week.

This shows that layoffs are not accelerating and are remaining at low levels while hiring is more subdued. This is something to watch. This week, initial claims are expected at 240K vs. 238K previously, while continuing claims are expected at 1,860K vs. 1,858K previously.

Friday

US PPI YoY is expected at 2.3% vs. 2.2% previously, while MoM is expected at 0.1% vs. -0.2% previously. Core PPI YoY is expected at 2.5% vs. 2.3% previously, while MoM is expected at 0.2% vs. 0.0% previously. I don’t expect this data to have much impact on the market as sentiment will be determined by the consumer price reports the day before.