BoC meeting, Q2 GDP from the US and PCE coupled with preliminary July PMI data from Eurozone and the UK will highlight the week ahead of us.
USD
Retail sales for the month of June came in flat vs -0.3% m/m as expected. Consumption declined compared to 0.3% m/m reading posted last month but at a smaller pace than expected. Control group, it excludes volatile components and is used for GDP calculation, rose by 0.9% m/m vs 0.4% m/m increase in May. This was the largest increase in over a year. Gasoline stations sales recorded the biggest drop followed by motor vehicles and parts while nonstore retailers, online, saw biggest increase in sales. Ex autos rose 0.4% m/m vs flat as expected and ex autos and gas rose by 0.8% m/m vs 0.3% m/m as expected. The report showed consumers going strong as all readings beat expectations on top of positive revisions to previous month’s numbers.
After assassination attempt on former President and current presidential candidate Donald Trump the so-called “Trump trade” could be observe in the previous week. It showed possibility of how markets would react if Trump becomes the new president. We could see a huge jump in Rusell 2000 index as funds have gone out of technology sector and rotated into the smaller companies comprising Rusell 2000 index as Trump presidency is seen to deliver lower rates and tax cuts which would in turn prop up domestic companies. Lower rates would be negative for USD and we saw it weakening with safe havens gaining (JPY, CHF and Gold). Additionally, AUD and NZD had a bad week as their proximity to China is seen as detriment to them as Trump would be very hawkish on China, increasing tariffs. Trump also seems to be pro crypto which will help BTC price and he is also against CBDC The biggest IT outage occurred on Friday when issue with Microsoft systems occurred. They stated that the issue was caused by a recent CrowdStrike update. Media outlets, bank applications, airports, trading desks all had disruptions in their business with some US states reporting that even 911 service was down. Gold has reached new all time high during the week only to give it all back and finish the week lower from where it started.
The yield on a 10y Treasury started the week at 4.19%, rose to 4.24% and finished the week at around 4.25%. The yield on 2y Treasury started the week at 4.46% and reached the high of 4.48%. Spread between 2y and 10y Treasuries started the week at -27bp then tightened to -24bp as curve proceeded to steepen. The 2y10y is inverted for over two years. FedWatchTool sees the probability of no change at July meeting at around 95% while probability of a rate cut is around 5%. Probability of a September rate cut is seen at around 98%.
This week we will get preliminary Q2 GDP reading as well as Fed’s preferred inflation measure PCE.
Important news for USD:
Thursday:
GDP
Friday:
PCE
EUR
ECB has left key rates unchanged as was widely expected. The statement shows determination to bring inflation down to the 2% target and to keep policy restrictive for as long as necessary to reach its goal. Members accessed that monetary policy is keeping financial conditions restrictive and have acknowledged that “domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year.” They refused to pre-commit to a rate cut path and will stay data-dependent making their decisions meeting-by-meeting.
At the press conference ECB President Lagarde stated that growth in the second quarter will likely be lower than the one in the first quarter as risks to growth are tilted to the downside. She reiterated that they are not pre-commited to rate cuts and that they are data-dependent. Additionally, she confirmed that today’s decision on rates was unanimous adding that wages are still rising but wage growth is expected to decline next year. Inflation is seen fluctuating around current levels and is expected to go down to target in H2 of 2025.
This week we will get preliminary July PMI data.
Important news for EUR:
Wednesday:
S&P Global Manufacturing PMI (Eurozone, Germany, France)
S&P Global Services PMI (Eurozone, Germany, France)
S&P Global Composite PMI (Eurozone, Germany, France)
GBP
June inflation numbers saw both headline and core CPI remain unchanged at 2% y/y and 3.5% y/y respectively. Additionally, services inflation stayed unchanged at a very high level of 5.7% y/y. August is still seen as the time for a rate cut, but this report will not raise chances of it happening. The jobs report showed June payrolls change increase by 16k. May ILO unemployment rate remained at 4.4% while wages declined with both bonus and ex bonus categories printing 5.7% 3m/y.
This week we will get preliminary July PMI data.
Important news for GBP:
Wednesday:
S&P Global Manufacturing PMI
S&P Global Services PMI
S&P Global Composite PMI
AUD
June employment report showed a very strong labour market as economy added 50.2k jobs vs 20k as expected. The unemployment rate ticked to 4.1% but it was done on the back of improvement in the participation rate which ticked up to 66.9%. A great majority of jobs added were full-time (43.3k) which is a great sign for the economy as those are better paid jobs. Part-time jobs rose by 6.9k.
Q2 GDP missed expectations as it came in at 0.7% q/q and 4.7% y/y vs 1.1% q/q and 5.1% y/y and down from 1.5% q/q and 5.3% y/y in the Q1. Weak consumption and property sector were great drags and if China plans to reach its growth target of 5% they will need to step up with stimulus. Industrial production for the month of June came in at 5.3% y/y, down from 5.6% y/y in May, but higher than 5% y/y expected. On the other hand, retail sales rose 2% y/y, a huge drop from 3.7% y/y the previous month and a big miss from 3.3% y/y expected. PBoC has left 1-year MLF rate unchanged at 2.5% as was expected.
NZD
CPI data for the Q2 saw inflation at 0.4% q/q and 3.3% y/y, lower than 0.5% q/q and 3.4% y/y as expected and down from 0.6% q/q and 4% y/y in the Q1. Additionally, RBNZ’s sectoral model, their preferred inflation measure, showed a decline to 3.6% y/y from 4.2% y/y in the previous quarter. RBNZ has stated at their last meeting that inflation will fall within their 1-3% range in the second part of the year and this report vindicates them. One concern is that non-tradable inflation, a good measure of domestic demand, is still high at 0.9% q/q and 5.4% y/y, although down from 5.8% y/y in the previous quarter. Analysts are moving rate cuts back into 2024 after the report. Second auction in July saw dairy prices increase by 0.4% after falling for previous two.
CAD
June inflation report saw another decline for headline CPI as it printed 2.7% y/y from 2.9% y/y in May while a print of 2.8% y/y was expected. Monthly figure printed deflationary -0.1%. Core measures saw trim unchanged at 2.9% y/y while common and trim measures declined to 2.6% y/y and 2.3% y/y from 2.7% y/y and 2.4% y/y respectively. BoC has stated that core inflation is most watched metric and with it coming down it cements the case for a rate cut next week.
This week we will have BoC meeting. After a further drop in core inflation we see BoC continuing with rate cuts and delivering another 25bp rate cut at next week’s meeting.
Important news for CAD:
Wednesday:
BoC Interest Rate Decision
JPY
National inflation data for the month of June showed headline CPI come in unchanged at 2.8% y/y vs 2.9% y/y as expected, but increases were seen in core components with ex fresh food printing 2.6% y/y vs 2.5% y/y in May and ex fresh food, energy printing 2.2% y/y vs 2.1% y/y the previous month. BoJ data hinted that they have intervened on Friday July 12 with JPY2.14tn. This was a much less efficient intervention than one done after the US CPI report on Thursday.
CHF
SNB total sight deposits for the week ending July 12 came in at CHF458.9bn vs CHF453.4bn the previous week. This is the third consecutive week of increases in deposits as they are moving up from the bottom of the range.
