Inflation data from the UK, Canada, New Zealand and Japan followed by retail sales data from the US, Q2 GDP from China and employment data from Australia will highlight the week ahead of us.
USD
Headline CPI in June plunged to 3% y/y vs 3.1% y/y as expected, down from 4% y/y in May. Monthly rise was 0.2% vs 0.3% as expected. Core reading slid to 4.8% y/y vs 5% y/y as expected and down from 5.3% y/y the previous month. Monthly core also increased by 0.2% vs 0.3% as expected. Shelter component, making more than 34% of the entire CPI index, rose by 0.4% m/m and 7.8% y/y which is slower increase from 0.6% m/m and 8% y/y increase we saw in May. Used cars and trucks saw biggest declines. The report shows “The energy index rose 0.6 percent in June after falling 3.6 percent in May. The gasoline index increased 1.0 percent in June, following a 5.6-percent decrease in the previous month.” The energy index declined by almost 17% y/y. Core services ex shelter has continued to decline and printed 3.2% y/y. July rate hike probability remained unchanged but probability of future rate hikes has diminished significantly. Still, food and rent prices stay very high.
Fed Board Governor Weller stated that he will vote for a rate hike at the July meeting and stated that September meeting will be a “live” meeting. He added that Fed will likely need two more 25bp rate hikes this year. He acknowledged that CPI coming down is a very welcoming situation but it is yet to be seen if it can be sustained. According to him, rate hikes so far have already impacted the economy, therefore more hikes are needed to further cool inflation down.
The yield on a 10y Treasury started the week and year at around 4.09%, fell to 3.76% and finished the week at around the 4.02% level. The yield on 2y Treasury reached the high of around 4.96% and then tumbled post CPI. Spread between 2y and 10y Treasuries started the week at -86bp then tightened to -85bp as the curve flattened. The 2y10y is has now been inverted for over a year. FedWatchTool sees the probability of a 25bp hike at 95% while probability of no change in July is at 5%.
This week we will have consumption data.
Important news for USD:
Tuesday:
Retail Sales
EUR
July German ZEW survey, a survey of financiers, showed that current conditions continue to deteriorate but at slightly slower pace than expected (-59.5 vs -60). On the other hand, outlook for German economy is very bleak as it printed -14.7 vs -10.5 as expected and down from -8.5 in June. Sentiment for the EU has declined for the fifth straight month and printed -12.2, down from -10 the previous month.
ECB policymaker Villeroy, neutral member with hawkish leanings, stated that the bank is getting closer to the peak interest rates. He emphasized that once the peak is reached they will need to stay there for a prolonged period of time. His statement is adding to uncertainty around September meeting hike.
GBP
June employment report saw payroll change decline 9k vs positive 20k in May. ILO unemployment rate for May moved higher to 4% from 3.8% the previous month. Average weekly earnings rose again to 6.9% 3m/y from upwardly revised 6.7% 3m/ in April. Weekly earnings ex bonus were unchanged at 7.3% 3m/y but expectations were for them to decline to 7.1% 3m/y. Due to high inflation real wages are still negative, however strong wage pressures will keep inflation pressures to the upside and will move BOE towards a 50bp rate hike in August. GDP for the month of May came in at -0.1% m/m vs -0.3% m/m as expected showing that economy contracted less than expected and that economy can sustain high rates.
This week we will have inflation data for the month of June and headline number is expected to ease to 8.3% y/y.
Important news for GBP:
Wednesday:
CPI
AUD
RBA Governor Lowe stated that we could see more rate hikes in order to return inflation back to its target. It is still uncertain whether monetary policy has more work to do. There will be new updated economic projections at the August meeting. He is confident that monetary policy is working adding that there are variable lags to it. Governor Lowe will be stepping down in September and Michelle Bulloch has been named as his successor. She is a current deputy governor. Additionally, from 2024, there will be reduction in board meetings as the board will meet eight times a year, rather than 11 times as it is the case now.
Inflation data from China run in stark contrast to the rest of the world. June CPI was flat vs 0.2% y/y in May. PPI has continued to decline and printed -5.4% y/y vs -4.6% y/y the previous month. Absence of inflation opens the door for new stimulus measures. Trade balance data for June showed improvement in surplus $70.2bn vs $65.81bn the previous month. However, exports data have plunged 12.4% y/y as weak international demand hurts Chinese exporters. Imports were down 6.8% y/y indicating that domestic demand is declining fast.
This week we will get employment data from Australia and Q2 GDP data from China combined with production and consumption data.
Important news for AUD:
Monday:
GDP (China)
Industrial Production (China)
Retail Sales (China)
Thursday:
Employment Change
Unemployment Rate
NZD
RBNZ has kept its official cash rate at 5.5% as was widely expected. They have noted that tighter monetary conditions are putting constraints on inflation and spending as was intended. Inflation is still too high and that is why the Committee sees it necessary to keep the rates at restrictive levels for the foreseeable future, until inflation returns to the 1-3% targeted range. The Committee sees inflation coming down and expects it to return to the targeted range in the second half of 2024.
This week we will have inflation data.
Important news for NZD:
Wednesday:
CPI
CAD
BOC has decided to raise rate by 25bp and bring it to 5%. Inflation is seen coming down globally but price pressures remain particularly in services sector. Inflation has come down fast since its peak due to drop in energy prices. Getting it further down will prove more challenging. CPI inflation is projected to be at 3.7% for 2023 (it was at 3.5% previously), then falling to around 3% in 2024 and then gradually declining toward 2% by mid-2025. Economic growth has been resilient and stronger than expected. New bank’s projections see it at around 1.8% for 2023, 1.2% for 2024 (both are higher than previous projections) and then economy picks up with 2.4% growth in 2025. There was no clear forward guidance as statement said “Governing Council will continue to assess the dynamics of core inflation and the outlook for CPI inflation. In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the 2% inflation target.”
BOC Governor Macklem stated that the bank remains data dependent with paying special attention to the outlook for inflation. He added that monetary policy is working but that underlying inflation pressures remain stubborn and that bank is prepared to raise interest rates further. Governing Council has debated whether to leave rates unchanged but decision for rate hike was made due to persistence in excess demand and inflationary pressures as well as cost of pausing being judged to be too high.
This week we will have inflation data.
Important news for CAD:
Tuesday:
CPI
JPY
Core machinery orders, a good proxy for capex spending 6-9 months into the future, came down hard in May. They fell 7.6% m/m and 8.7% y/y while expectations were for an increase of 1% m/m and 0.1% y/y. The series can be volatile but the reading here is a rather concerning.
CHF
SNB total sight deposits for the week ending July 7 came in at CHF486.6bn vs CHF491.9bn the previous week. SNB continues to sell USD and EUR in order to successfully conduct its monetary policy.
