UPCOMING EVENTS:
- Monday: US Holiday Early Close, Swiss CPI,
US ISM Manufacturing PMI. - Tuesday: US Independence Day, RBA Policy
Decision. - Wednesday: China Services PMIs, FOMC
Meeting Minutes. - Thursday: EZ Retail Sales, US ADP, US
Jobless Claims, US Job Openings, US ISM Services PMI. - Friday: US NFP, Canada Jobs Report.
Monday:
US Markets will close early as the US is celebrating Independence Day on Tuesday.
Unfortunately, we have the US ISM Manufacturing PMI on such a day, which is
expected to increase to 47.2 vs. 46.9 prior. The manufacturing sector has been
in contraction across the globe for quite some time as tighter monetary
conditions and slowing demand weigh on activity. If the S&P Global
Manufacturing PMI is to be used as a proxy, the sentiment may be skewed to the
downside for the ISM report.
ISM Manufacturing PMI
Tuesday:
The markets expect the RBA to keep rates unchanged at this meeting. The recent
meeting minutes revealed that the RBA considered both a rate hike and no change
for the cash rate as the arguments were “finely balanced”. Given the miss in
the recent monthly CPI report we can expect the RBA to keep the cash rate
unchanged, although the central bank is not afraid of surprising the markets.
RBA
Wednesday:
The FOMC kept interest rates unchanged at 5.00-5.25% at the last meeting but
delivered a hawkish surprise via the Dot Plot which showed two more rate hikes
expected for this year. This was seen more like a jawboning move since they
decided to pause/skip at this meeting and probably didn’t want the markets to
price in cuts. The recent Fedspeak leant on the hawkish side and Fed Chair
Powell has reiterated that most of the members expects two or more rate hikes
for this year. The economic data since the last FOMC meeting has been
surprising on the upside and the markets are pricing an 86% chance on a 25-bps
hike at the July meeting. A lot will depend on the next NFP and CPI reports
though.
Interest Rates Pricing
Thursday:
US Jobless Claims beat forecasts by a big margin last week causing a hawkish
repricing in interest rates expectations as the labour market remains very
tight. For this week Initial Claims are expected at 245K vs. 239K prior, while Continuing
Claims are seen at 1751K vs. 1742K prior.
US Initial Claims
The US Job Openings surprised to the
upside the last time and although it’s a lagging indicator, given that it’s
May’s data, it can still be market moving. The expectations are for a decrease
to 9.94M vs. 10.10M prior. The stock market generally leads Job Openings for the “wealth
effect”.
S&P 500 and US Job Openings Correlation
The US ISM Services PMI is expected to
tick higher to 50.5 vs. 50.3 prior. The markets will be especially focused on
the prices sub-index as core inflation remains sticky and elevated. The S&P
Global Services PMI beat expectations recently accompanied by some worrying
comments on the wages side such as: “service sector firms registered a
quicker rise in input prices at the end of the second quarter. The rate of cost
inflation was the steepest for five months, as companies stated that greater
wage bills in particular placed further pressure on business expenses.
Conversely, companies sought to remain competitive and drive sales which led to
a slower uptick in output charges during June”.
ISM Services PMI
Friday:
The US NFP is expected to show 200K jobs added vs. 339K prior and the
unemployment rate to remain unchanged at 3.7%. The Average Hourly Earnings M/M
is seen at 0.3% vs. 0.3% prior, while there’s no expectation for the Y/Y
reading at the moment. The Average Weekly Hours are expected to remain
unchanged at 34.3. The last NFP report surprised to the upside, but we saw
misses in the unemployment rate rising by 0.3%, the most since the start of the
pandemic, average hourly earnings and average weekly hours. Average weekly
hours are seen as a leading indicator as employers generally cut back on hours
before cutting back on employees.
US Average Weekly Hours
This article was written by Giuseppe Dellamotta.