Employment data from the US and Canada, inflation data from the Eurozone and Switzerland as well as ISM PMIs will highlight the week ahead of us. Thursday is Independence Day and US markets will be closed so liquidity will be thin.
USD
Final Q1 GDP reading was revised up to 1.4% annualized from 1.3% annualized in the second reading. Looking into the details contribution of personal consumption was down with increasing 1.5% vs 2% in the previous reading, but it was covered by investment and government spending. Net exports were a lower drag on the final reading than they were on the second reading.
Headline and core PCE numbers for the month of May came in at 2.6% y/y as expected and down from 2.7% y/y and 2.8% y/y respectively in April. Monthly increase of 0.1% was recorded on core while headline monthly figure was flat. Fed can be satisfied with the report and rate cut chances are increasing as USD is weakening. Personal income rose 0.5% m/m which could prove troublesome for inflation as people have more money to spend, but personal spending rose just 0.2% m/m.
The yield on a 10y Treasury started the week at 4.26%, rose to 4.40% and finished the week at around 4.39%. The yield on 2y Treasury started the week at 4.74% and reached the high of 4.77%. Spread between 2y and 10y Treasuries started the week at -48bp then tightened to -35bp as curve proceeded to steepen. The 2y10y is inverted for almost two years. FedWatchTool sees the probability of no change at July meeting at 90% while probability of a rate cut is around 10%. Probability of a September rate cut sits at around 68% while November is at around 79%.
This week we will have ISM PMI data, FOMC minutes and NFP. Headline number on Friday is expected to be around 180k with the unemployment rate staying at 4%.
Important news for USD:
Monday:
ISM Manufacturing PMI
Wednesday:
ISM Services PMI
FOMC Minutes
Friday:
NFP
Unemployment Rate
EUR
ECB Chief Economist Lane stated that if data continues to confirm their base case scenario there will be more cuts. ECB policymaker Kazimir added that we can expect one more rate cut by the end of the year. He hinted that July will not bring rate cut so September seems to be the most likely time for the next rate cut. French inflation dropped to 2.1% y/y in June from 2.3% y/y in May. Spanish inflation ticked up to 3.4% y/y from 3.3% y/y the previous month. Italian inflation reading saw it unchanged at 0.8% y/y while expectations were for a 1% y/y reading.
This week we will have preliminary June inflation data.
Important news for EUR:
Tuesday:
CPI
GBP
Final Q1 GDP reading saw revision up to 0.7% q/q and 0.3% y/y from 0.6% q/q and 0.2% y/y as preliminary reported. Household spending and net trade contributed positively to the reading while business investment was a drag on the reading. Services and production sectors increased in the first quarter while construction sector declined.
AUD
May monthly inflation data surprised to the upside printing 4% y/y vs 3.6% y/y in April, while an increase to 3.8% y/y was expected. Inflation is moving further away from the RBA’s target, third straight increase in monthly reading, and with them already discussing rate hikes at the last meeting chances of it are increasing. AUD has strengthened on the back of the data. Before the next RBA meeting (August 6) we will get June monthly inflation data and much more important Q2 inflation data on July 31. As a reminder, monthly inflation does not capture all of the items that go in the inflation basket, therefore much greater emphasis is put on quarterly reading. During the week, RBA deputy governor Hauser stated that it would be a mistake to set monetary policy on the basis of one number and thus dampened the AUD strength as he indicated that they will keep their options open at the August meeting.
NZD
May showed further widening of trade surplus to NZD204m from NZD3m in April with both exports and imports increasing. Treasury has warned that economic weakness is threatening their forecasts and that they are considering additional spending and revenues. Business confidence continued to decline as June reading printed 6.1 after 11.2 in May. This is the lowest reading since September of 2023 and it showed a big drop in residential construction and drops in export intentions and investment. On the positive side, inflation expectations eased further with pricing intentions softening.
CAD
BoC Governor Macklem delivered dovish leaning comments stating that the likelihood of reaching inflation target is increasing. He added that BoC members no longer see the need for higher unemployment rate in order to bring inflation to target and added that wage growth is moderating. April GDP printed 0.3% m/m as expected with May projection revised lower to 0.1% m/m from 0.3% m/m as previously seen.
Inflation surprised to the upside in May with headline number printing 2.9% y/y vs 2.6% y/y as expected and up from 2.7% y/y in April. Inflation increased 0.6% m/m. BoC stated that core inflation will be the main focus and we had trim and median measures of core inflation increase while common measure declined. Chances of a July rate cut have been pared down as markets do not feel that BoC will be comfortable with increases in inflation.
This week we will get employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
BoJ Summary of Opinions from June meeting showed disagreement between members on the rate hike path as some want to see underlying inflation develop as projected before hiking while others think that the best path is to continue with monetary easing. Agreement was struck on the need for balance sheet normalization with reducing the BoJ influence in the bond market and trimming bond buying in predictable fashion.
Retail sales for the month of May showed growth of 1.7% m/m and 3% y/y vs 1.2% m/m and 2% y/y in April. Tokyo area inflation data showed headline number tick up to 2.3% y/y from 2.2% y/y in April with ex fresh food component increasing to 2.1% y/y from 1.9% y/y the previous month coming in stronger than 2% as expected. USDJPY has crossed the 160 level and is now trading at highest level since 1990. If consumption continues to increase following rising wages and inflation stays persistently above 2% talks about normalization of monetary policy will grow louder.
CHF
SNB total sight deposits for the week ending June 21 came in at CHF451.8bn vs CHF453.5bn the previous week. Deposits have been declining every week since the week ending April 19 and they are at the lowest levels for the year. Martin Schlegel will be the new SNB Chairman and will take over from Jordan on October 1.
This week we will have inflation data.
Important news for CHF:
Thursday:
CPI
