ECB meeting will be the highlight of the week followed by inflation data from the UK, New Zealand and Canada, employment data from the UK and Australia as well as Q2 GDP from China.
USD
Fed Chairman Powell testified in front of the Senate and in the prepared statement said that inflation data was not encouraging in the Q1 but since then “The most recent inflation readings, however, have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2 percent.”He added that “…elevated inflation is not the only risk we face.” Powell reiterated that more good data is needed to strengthen confidence in inflation coming down and that Fed remains data-dependent making decisions meeting-by-meeting. The likely direction is to loosen monetary policy and he did not want to give any information on the timing.
CPI report for the month of June showed headline number drop to 3% y/y from 3.3% y/y in May while expectations were for a 3.1% y/y print. This is the lowest print since April of 2021. Monthly figure showed deflation as it printed -0.1%. Core inflation ticked down to 3.3% y/y from 3.4% y/y the previous month. “Super core”, services ex shelter, print also declined as it printed 4.65% vs 4.8% in May. Shelter came in at 0.2% m/m and 5.2% y/y, down from 5.4% y/y the previous month. This report will strengthen Fed’s confidence that inflation is sustainably on the way to their 2% target and markets are pricing in two rate cuts for 2024. Gold has risen over $2400 and stayed above it as the week ended.
The yield on a 10y Treasury started the week at 4.29%, rose to 4.32% and finished the week at around 4.18%. The yield on 2y Treasury started the week at 4.61% and reached the high of 4.64%. Spread between 2y and 10y Treasuries started the week at -33bp then tightened to -27bp as curve proceeded to steepen after CPI report. The 2y10y is inverted for two years. FedWatchTool sees the probability of no change at July meeting at around 93% while probability of a rate cut is around 7%. Probability of a September rate cut jumped to almost 93% after CPI report.
This week we will have consumption data.
Important news for USD:
Tuesday:
Retail Sales
EUR
Member of the ECB executive board Fabio Panetta stated that if disinflationary process continues they are prepared to gradually reduce interest rates. Wage growth is expected to ease in time and he added that ECB is prepared to quickly act in both directions if situation demands it. Final German and Spanish June CPI were unchanged at 2.2% y/y and 3.4% y/y respectively while French reading was revised up to 2.2% y/y from 2.1% y/y as preliminary reported.
This week we will have ECB meeting. No change to the rate is expected as ECB will likely emphasize their data-dependent and meeting-by-meeting approach.
Important news for EUR:
Thursday:
ECB Interest Rate Decision
GBP
BoE Chief Economist Huw Pill stated that incoming data regarding services inflation and wage growth point to an uncomfortable strength in inflation. He added that it is hard to argue against inflation proving to be persistent in the UK and added that it is more appropriate to speak of “when” rather than “if” in regards to rate cuts. He added that uncertainty around wages is likely to stay. Markets, rightfully, took these comments as hawkish and propelled GBP higher.
May GDP rose by 0.4% m/m vs 0.2% m/m as expected and up from being flat in April. Services rose 0.3% m/m and were the biggest contributor to the reading. Production and construction also expanded printing 0.2% m/m and 1.9% m/m respectively. This reading will push rate cuts further into the future.
This week we will have inflation and employment data.
Important news for GBP:
Wednesday:
CPI
Thursday:
Payrolls Change
Unemployment Rate
AUD
Chinese CPI data for the month of June showed headline number come in at 0.2% y/y vs 0.4% y/y as expected and tick down from 0.3% y/y in May. Food prices, particularly non-pork food prices were the main reason for weak inflation print. Core CPI was unchanged with 0.6% y/y. PPI has continued to climb with -0.8% y/y vs -1.4% y/y the previous month, but it is still in deflation. Trade balance data for the month of June saw widening of surplus to $99.05bn as exports rose 8.6% y/y while imports declined 2.3% y/y causing concerns about weak domestic demand.
This week we will have employment data from Australia as well as Q2 GDP and economic activity data from China.
Important news for AUD:
Monday:
GDP (China)
Industrial Production (China)
Retail Sales (China)
Thursday:
Employment Change
Unemployment Rate
NZD
RBNZ has left the cash rate unchanged at 5.5% as was widely expected but the tone of the statement was less hawkish/more dovish than expected. The statement showed that high interest rates managed to significantly reduce consumer price inflation and that “Committee [is] expecting headline inflation to return to within the 1 to 3 percent target range in the second half of this year.” Additionally, the “The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.” Markets saw RBNZ moving rate cuts closer, two cuts are getting priced in by the end of the year, so they reacted to it by selling NZD.
This week we will have inflation data.
Important news for NZD:
Friday:
CPI
CAD
May building permits plunged 12.2% after being up 23.4% in April. In addition Canadian home sales dropped 9.4% y/y in June. CAD had a rough week. It managed only to hold its own against the USD while it made new yearly lows against GBP.
This week we will have inflation data.
Important news for CAD:
Tuesday:
CPI
JPY
Nominal wages in May rose 1.9% y/y after 1.6% y/y increase in April making it the highest reading since June of 2023. Real wages, adjusted for inflation, came in negative at -1.4% y/y. This is the 26 consecutive month of declining real wages. Without increases in real wages there cannot be sustainable inflation according to BoJ, as falling wages have negative impact on consumption, therefore they will have a hard time normalizing monetary policy further.
BoJ has introduced new tactic when it comes to intervention. They have used a weak US CPI print as a moment to buy JPY and push USDJPY pair down around 400 pips. The fundamental picture is still not good for JPY so we can expect any dips to be bought but staying or going long USDJPY during US news event seems to be very dangerous.
CHF
SNB total sight deposits for the week ending July 5 came in at CHF453.4bn vs CHF452bn the previous week. Sight deposits have bounced back from lows and posted a second consecutive week of increases.
