Weekly Market Outlook (17-21 July)

Upcoming events:

Monday: PBoCMLF.

Tuesday: US Retail Sales, Canadian Consumer Price Index.

Wednesday: New Zealand CPI, UK CPI.

Thursday: PBoC LPR, Australia Jobs Report, US Unemployment Claims.

Friday: Japanese CPI, UK retail sales.

Monday: There is no expectation that the People’s Bank of China (PBoC) will cut the MLF rate as the recent comments of PBoC Deputy Governor Liu Guoqiang last Friday indicated that there is no fear of deflation as they expect inflation to have a U-shaped rebound in second half of the year. . The medium term lending facility (MLF) rate is the main rate at which the central bank lends to major commercial banks. The MLF acts as a guide to the loan prime rate (LPR).

Tuesday: US Retail Sales are expected to rise 0.5% vs. 0.3% previously, while the core gauge is seen at 0.3% vs. 0.1% previously. The control group is expected to rise 0.2% vs. 0.2% previously. US data has shown strength lately, and last week the big miss in US core CPI coupled with the big jump in consumer confidence on Friday gave the soft landing narrative a tailwind. It should miss the retail sales report by a very large margin to cause fear in the markets at this point.

Canadian CPI is expected YoY at 2.9% vs. 3.4% previously and the M/M number is expected at 0.3% vs. 0.4% previously. The BoC focuses on the core measures of inflation for its policy decisions, so the data points to watch are the core CPI and the BoC’s preferred metrics: CPI expected at 5.0% vs. 5.2% previously, CPI expected at 3.6%. % vs. 3.8% previously and the median CPI forecast is 3.7% vs. 3.9% previously.

Wednesday: New Zealand CPI (Q2) is expected YoY at 5.9% vs. 6.7% prior, while Q/Q reading is seen at 0.9% vs. 1.2% prior. The RBNZ last week left its official cash rate unchanged at 5.5% as expected as the central bank aims to “remain at a constrained level for the foreseeable future to ensure consumer price inflation returns to its annual target range of 1-3%”.

UK CPI is expected on an annual basis at 8.2% vs. 8.7% previously, while the month/month figure is seen at 0.4% vs. 0.7% previously. Core CPI is expected YoY at 6.8% vs. 7.1% previously, while M/M reading is at 0.4% vs. 0.8% previously. Last time around, both employment and inflation reports surprised the bullish and prompted the Bank of England to surprise with a 50bp rate hike. This time the employment report surprised on the wages side but missed on the jobs side, so if we see an error in the data the BoE should go ahead with a 25bp increase. On the other hand, if data gets hot again, it has to go up another 50 basis points.

Thursday: The People’s Bank of China (PBoC) is only likely to change LPR rates if it is surprised by a change in the MLF rate on Monday.

Last time the Australian jobs report surprised to the upside across the board. This time the Employment Change is expected to have increased by 17.0K vs. 75.9K previously and the Unemployment Rate to remain unchanged at 3.6% and the Participation Rate at 66.9%. The RBA would like some labor market easing to bring inflation back on target.

US Initial Claims are expected at 243K vs. 237K prior and Continued Claims at 1725K vs. 1729K prior. The US labor market remains very strong and we haven’t seen any noticeable sign of weakness yet with jobless claims still near record lows.

Friday: Japanese CPI is expected at 3.5% YoY vs. 3.2% prior and Core YoY reading at 3.3% vs. 3.2% prior. The CPI excluding food and energy is expected on an annual basis to 4.2% vs. 4.3% previously, the highest reading in four decades. The Bank of Japan is still stuck in its dovish monetary policy, and has not hinted at any change in the upcoming meeting. However, there is speculation of an adjustment in BoJ policy as the BoJ is seen raising its inflation forecast for fiscal 2023 above 2% and a former BoJ director said he expects the central bank to widen the YCC range from -/+0.50% to -/ +1.00% at the July meeting.