RBNZ meeting, inflation data from the US and the UK, retail sales from the US and China, preliminary Q2 GDP from the UK and Japan as well as employment data from the UK and Australia will highlight the news dense week ahead of us.
USD
ISM services for the month of July printed 51.4 vs 51 as expected and thus rebounded back into expansion after surprising 48.8 reading in June. Business activity, employment and new order indexes all rebounded back into expansion as well with new export orders surging to 58.5 from 51.7 the previous month. Supplier deliveries component eased indicating improving conditions. Prices paid index increased again showing that inflation pressures remain persistent. VIX spiked during the week and is still holding above the 20 level. RRP has declined below $300bn during the week indicating that liquidity is getting more scarce but it rebounded and finished the week above the $300bn threshold and the mood in the markets improved with it.
The yield on a 10y Treasury started the week at 3.79%, rose to 4% and finished the week at around 3.94%. The yield on 2y Treasury started the week at 3.89% and reached the high of 4.05%. Spread between 2y and 10y Treasuries started the week at -8bp then managed to disinvert for a very brief period of time and ultimately finishing the week at -11p as curve proceeded to flatten again. The 2y10y is inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 45% while probability of a 50bp rate cut is around 55%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.
This week we will get inflation and retail sales data.
Important news for USD:
Wednesday:
CPI
Thursday:
Retail Sales
EUR
Final services reading for the month of June was unchanged at 51.9 while composite was revised slightly higher (50.2 from 50.1). German readings were revised up while French readings were revised down but still represent improvement from June due to Olympic Games. Economy is slowing down and barely managing to stay in expansion while prices continue to increase, although at a slowest pace in the last 38 months.
GBP
Final July services PMI were revised up to 52.5 from 52.4 as preliminary reported with composite also revised up to 52.8 vs 52.7. Demand for services from the UK remains strong with business confidence rebounding strongly. The report shows that business activity rose somewhat but new business index had a big jump. Price pressures are easing but are still at elevated levels.
This week we will get employment and inflation data as well as preliminary Q2 GDP reading.
Important news for GBP:
Tuesday:
Payrolls Change
Unemployment Rate
Wednesday:
CPI
Thursday:
GDP
AUD
RBA has left the rates unchanged at 4.35% as was widely expected. The statement shows concerns regarding high inflation and dissatisfaction with it coming down slower than expected. Inflation remains too high and it will take some time before the inflation falls back into the targeted range. “Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out“. Restrictive policy is needed until RBA is confident enough that inflation is moving towards the target range. Economic activity has been weak and economic outlook is uncertain.
RBA Governor Bullock stated in the press conference that progress on bringing inflation down has been slow and that there are still risks that moving inflation into target range will take too long. She added that rate cut is not in the cards in the short term and added that markets are pricing rate cuts too soon, that it is not what Board is thinking. Inflation developments remain front and center for RBA decision makers. Speaking later during the week Governor Bullock delivered more hawkish remarks saying that they will not hesitate to hike cash rate if needed and that inflation is not expected to be back in the 2-3% range until the end of 2025.
Caixin services PMI for the month of July increased to 52.1 from 51.2 in June and indicated growing divide between services and manufacturing sector. Composite was dragged down to 51.2 from 52.8 due to weakening manufacturing sector. Trade balance data saw smaller surplus in July for the first time since March as the print reported $84.65bn vs $99.05bn in June. Exports were up by 7%, lower than in June due to a drop in auto exports, while imports were up by 7.2% due to stronger copper and auto parts imports. July inflation data saw CPI rise 0.5% y/y vs 0.3% y/y and up from 0.2% y/y in June on the back of rising food prices (1.2% m/m). PPI was unchanged at -0.8% y/y.
This week we will have employment data from Australia and industrial production and retail sales from China.
Important news for AUD:
Thursday:
Employment Change
Unemployment Rate
Industrial Production (China)
Retail Sales (China)
NZD
Employment report for the second quarter saw employment change up 0.4% q/q after a 0.2% q/q drop in the first quarter. The unemployment rate rose to 4.6% vs 4.7% as expected and at the same time participation rate rose to 71.7% from 71.5% in Q1. Additionally, wages rose 3.6% y/y after rising 3.8% y/y in the first quarter. Wages coming down and labor market hanging better than RBNZ expected should decrease a chance of rate cut and NZD strengthened as a result. Later on during the week RBNZ inflation expectations saw 2-year at 2.03% for Q3, down from 2.33% seen in Q2 while 1-year was at 2.4% for Q3, also down from 2.73% in Q2.
This week we will have RBNZ meeting. No change in policy is expected.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
BoC minutes showed negative view on household spending due to need for people to refinance their mortgages at higher rates which will in turn lower their disposable income. Downsides risks on inflation are now as prominent as upside risks. Wage growth is seen high at around 4% but it is expected to moderate in the future and further rate cuts are likely if inflation continues to decline as projected.
July employment report saw a loss of 2.8k jobs vs increase of 22.5k as expected. June report saw a loss of 1.4k jobs so this is a second consecutive month of job losses. The unemployment rate remained at 6.4% while participation rate plunged to 65% from 65.3% the previous month. Wages have dropped to 5.2% y/y from 5.6% y/y in June which will be welcomed by the BoC as another input that inflation is coming down. Composition of jobs saw 61.6k added full-time jobs and dropped 64.4k part-time jobs. Markets are fully pricing rate cut at the September meeting with some participants seeing even a 50bp rate cut.
JPY
Final July services reading was revised down to 53.7 from 53.9 as preliminary reported still showing a big jump back into expansion after a surprising 49.4 reading in June. The report shows strong domestic demand and increases in new business volumes and employment levels. Firms have been successful in passing out costs to consumers. Composite has printed 52.5, up from 49.7 the previous month. Household spending continued to decline in July with a -1.4% y/y reading but nominal wages rose astonishing 4.5% y/y which helped push real wages into positive territory for the first time in 27 months with a 1.1% y/y increase.
Nikkei has lost 12.4% on Monday for a largest daily decline since Black Monday crash of 1987. On Tuesday, Nikkei managed to rebound 10.2% from the lows created on Monday. On Wednesday BoJ Deputy Governor Uchida stated that they will not continue with rate hikes when markets are unstable and thus brought down JPY as investors sold it heavily. BoJ Summary of Opinions showed hawkish message from July 31 meeting as they see underlying price pressures increasing gradually and the likelihood of achieving inflation target in the second half of fiscal 2025 has increased. Several members see potential to raise “significantly low” policy rate as real rate is at a 25-year low. Additionally, members see neutral rate of “at least around 1%” as medium-term goal.
This week we will get preliminary Q2 GDP reading.
Important news for JPY:
Thursday:
GDP
CHF
SNB total sight deposits for the week ending August 2 came in at CHF453.9bn vs CHF458.2bn the previous week. Sight deposits still within a well-established range. Markets were in full on risk off mode at the beginning of the week with CHF strengthening significantly due to safe haven flows.
