The
upcoming week will be eventful, with several key economic indicators and policy
announcements scheduled across different regions:
Monday will
feature the release of Flash Manufacturing PMI and Flash Services PMI for the
United States. On Tuesday, Japan will announce the BoJ core CPI y/y, while the
United States will publish the CB Consumer Confidence index.
Wednesday
will bring important data for Australia, with the inflation figures being
published. In the United States, new home sales data will be released,
alongside the highly anticipated FOMC Statement, federal funds rate decision,
and the FOMC Press Conference.
Thursday
holds significance for the eurozone, as they will make their Monetary Policy
announcement. Additionally, the United States will provide the pending home
sales m/m data.
Friday will
see the release of Tokyo Core CPI y/y for Japan, followed by the most awaited
event of the day, the BoJ outlook report, which includes the monetary policy
statement, BoJ policy rate decision, and the BoJ press conference. Switzerland
will also share its KOF Economic Barometer on the same day. For the United
States, data will be published for the Core PCE Price Index m/m, employment
cost index q/q, revised UoM Consumer Sentiment, and revised UoM Inflation
Expectations.
The expected consensus for the U.S. Flash Manufacturing PMI indicates a decline
from 46.3 to 46.1, while for the Flash Services PMI, it is projected to
decrease from the previous 54.4 to 54.0. It is worth noting that a value above
50 still signifies an expansion in service activity and this suggests that
despite the drops in PMI figures, service activity is showing signs of
improvement and remains a key driver of consumption in the economy.
The core CPI y/y for Japan is expected to show a slight decrease from 3.1% to
3.0%. This change is likely to be influenced by the stabilization of commodity
prices, leading to a decrease in energy contribution. However, there remains a
considerable level of uncertainty surrounding inflation data due to special
factors like price pass-throughs and government policies that will continue to
play a role.
As for the
U.S., the CB Consumer Confidence index is anticipated to show some improvement,
rising from 109.7 to 112.1. Analysts from Citi highlight that this particular
measure is more sensitive to employment conditions compared to the University
of Michigan index due to the inclusion of a specific question about job
availability in the CB survey.
The upcoming CPI data for Australia is important to watch as it can provide
clues about the RBA’s future actions. Specifically, it could indicate whether
the Bank will resume its tightening cycle at the next meeting scheduled in
August. As a reminder, at the previous July meeting, the RBA chose to maintain
its monetary policy unchanged.
Australia’s
inflation continues to remain higher than the target set by the central bank,
and the labor market is experiencing tight conditions with the unemployment
rate reaching almost record low levels. While there are indications that
inflation might be cooling down, the strength of the jobs market will play a
role in influencing the RBA’s decision. If inflation slows down less than is
forecasted, it might provide sufficient justification for the RBA to implement
a 25bps hike at the upcoming meeting.
During this week’s FOMC meeting, the consensus among analysts is for a 25bps
rate hike. It’s worth noting that in the previous meeting, the Federal Reserve
opted to keep rates unchanged while hinting that the tightening cycle is not
yet complete. Presently, the market anticipates one more rate hike before the
year’s end.
Recent
inflation data for the U.S. has shown some signs of cooling down. However, the
Fed is unlikely to be fully convinced that inflation will not surge again in
the autumn, given that it is currently well above its target. To be assured
that this cooling trend is not merely temporary, the Fed will require more
evidence. Monetary policy decisions operate with a time lag, necessitating a
wait-and-see approach to observe their effects over a longer period. Moreover,
while job growth is experiencing some slowdown, the labor market as a whole
continues to remain very tight which further contributes to the complexity of
the Fed’s decision-making process.
A 25bps hike at Wednesday’s meeting is fully priced in by the market, making it
more likely to see a reaction to any guidance in Chair Powell’s press
conference regarding future rate increases than to the hike itself.
The inflation data for the eurozone continues to stay elevated, requiring
further attention and action from the ECB. The Bank has already indicated the
possibility of another 25bps rate hike, and it appears probable they will
implement it at this meeting. Additionally, there is potential for an additional
rate hike at their September meeting, and any indications or hints regarding
this matter will be carefully observed by market participants and analysts. The
ECB’s decisions in the coming months will play a crucial role in managing
inflationary pressures and shaping the region’s economic outlook.
It’s anticipated that new home sales in the U.S. will drop from the previous
figure of 763K to 721K. So far, the data has been surpassing expectations, with
new home sales experiencing a more substantial increase over the year when
compared to existing home sales, for example.
Until last
week, the market’s expectation for the BoJ meeting on Friday included a
potential adjustment in YCC policy. However, the odds have now shifted in favor
of no changes being made to the current monetary policy, including YCC.
Nevertheless, analysts from Citi have emphasized the possibility that the
policy board member median projections in the July Outlook Report could
indicate three years of inflation above 2%, starting in FY22.
The BoJ’s
approach seems to lean towards caution, as they would rather favor being behind
the curve if inflation stays above 2% in the coming year. This cautious stance
is preferred over risking an early tightening cycle that could hinder economic
recovery and prolong periods of low inflation. While a change in monetary
policy is expected next year, the path ahead remains uncertain, making it
difficult to predict how the situation will evolve.
In Japan,
inflation is currently above the BoJ’s target, but not as elevated as in other
developed countries. The GDP saw a rise of 2.7% quarter-on-quarter in Q1, and
the Tankan survey for Q2 indicated an improvement in confidence among both
manufacturers and non-manufacturers.
It is expected that the Personal Income and Personal Spending data for June
will show a slight increase. Personal income data is likely to rise by 0.5%
m/m, and personal spending is also anticipated to increase by 0.4%.
Additionally, the Core PCE is expected to rise by 0.21% m/m.
This article was written by Gina Constantin.