Summer is in full swing but this week is not a time to rest as we will get Fed, BoE and BoJ meetings, Treasury Quarterly Refunding Announcement, employment data from the US, GDP data from the Eurozone, inflation data from the Eurozone, Australia and Switzerland and a slew of earnings data.
USD
Advanced reading showed Q2 GDP increase by 2.8% vs 2% as expected and double the 1.4% seen in the first quarter. Personal consumption rose 2.3% and contributed with 1.57pp to the final reading while it did only 0.98pp in the previous quarter. There was a big jump in gross private domestic investment which printed 8.4% vs 4.4% in Q1. Mainly it was through investment in equipment. Net trade was a bigger drag on the reading than in Q1 while government spending contributed with 0.53pp vs 0.31pp in the first quarter. GDP deflator fell to 2.3% from 3.1% in Q1, it fell more than 2.6% as expected.
Headline PCE number ticked down to 2.5% y/y in June from 2.6% y/y in May and 0.1% m/m as expected (0.0788% m/m). Core PCE remained unchanged at 2.6% y/y with a monthly reading of 0.2% m/m (0.188% m/m). Personal income came in at 0.2% m/m vs 0.4% m/m as expected and lower from 0.4% m/m in May. Personal spending also came in at 0.2% m/m, lower than 0.4% m/m the previous month.
The yield on a 10y Treasury started the week at 4.24%, rose to 4.29% and finished the week at around 4.20%. The yield on 2y Treasury started the week at 4.52% and reached the high of 4.53%. Spread between 2y and 10y Treasuries started the week at -27bp then tightened to -16bp 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 fully priced in while there is almost 12% change for a 50bp cut.
This week we will have Treasury Quarterly Refunding Announcement on Monday and Wednesday, ISM manufacturing PMI, FOMC meeting and NFP data. Fed is expected to keep funds rate unchanged while laying ground for the September cut. Headline NFP is expected to be around 190k with the unemployment rate staying at 4.1%,
Important news for USD:
Wednesday:
Fed interest Rate Decision
Thursday:
ISM Manufacturing PMI
Friday:
NFP
Unemployment Rate
EUR
Preliminary July PMI data from the Eurozone showed misses across the board. Manufacturing slid to 45.6 from 45.8 in June while 46.1 was expected. Services dropped to 51.9 from 52.8 the previous month while a 53 reading was expected. Composite barely managed to hang on in expansion with a 50.1 reading, down from 50.9 in June while improvement to 51.1 was expected. The divide between two sectors increases further as manufacturing plunges deeper into contraction while services continue to increase although at a slower pace. Input prices increased in both sectors while output prices showed only a small decline indicating that price pressures are still a cause of concern. German readings saw declines across the board with overall activity, measured as composite PMI, fell into contraction with a 48.7 print. On the other hand, French services returned into expansion with a 50.7 print and composite got closer to the 50 level with a 49.5 print. French recovery is boosted by the incoming Olympic Games. Although data is not encouraging and points to a weak start to second part of the year there are signs that Q3 growth should be positive. ECB vice president De Guindos stated that September is more convenient month for taking decisions alluding to the fact that new projections are published that month. He emphasized the importance of wage growth.
This week we will get first Q2 GDP and preliminary July inflation readings.
Important news for EUR:
Tuesday:
GDP
Wednesday:
CPI
GBP
Preliminary PMI for the month of July showed improvements across the board. Manufacturing rose to 51.8 from 50.9 in June (51.1 was expected). Services printed 52.5, up from 52.1 the previous month which pushed composite to 52.7 from 52.3 in June. The data show much more encouraging start of H2 “… with output, order books and employment all growing at faster rates amid rebounding business confidence, while price pressures moderated.”
This week we will have BoE meeting. Markets are split on their decision for cut or pause while we are leaning more towards a cut.
Important news for GBP:
Thursday:
BoE Interest Rate Decision
AUD
PBoC has started cutting rates. First they reduced 7-day repo rate by 10bp to 1.70%. This bank seems to want for this rate to be the main rate. Next, there was a decision to lower collateral on MLF loans. Ultimately, 1-year and 5-year LPR rates were also cut by 10bp, they are now at 3.35% and 3.85% respectively. Later in the week PBoC continued with easing measures and cut 1-year MLF rate by 20bp to 2.3%. This has caught market by surprise because PBoC left 1-year MLF unchanged at the start of the month. Additionally, the cut was 20bp, while cuts to other rates were 10bp and collateral needed for these loans will be reduced. These moves will bring more liquidity into the market, reduce the funding costs and are intended to give push to growth.
This week we will get all important Q2 inflation reading from Australia as well as official PMI data from China.
Important news for AUD:
Wednesday:
CPI
Manufacturing PMI (China)
Services PMI (China)
Composite PMI (China)
NZD
Consumer confidence for the month of July has improved to 87.9 from 83.2 in June. The reading above 100 indicates optimism among consumers while reading below indicates pessimism so consumer is getting less pessimistic. NZD has had a terrible week, due to rotation out of high yielding currencies, as it lost ground against all of the majors with biggest losses seen in the NZDJPY.
CAD
BoC proceeded with its rate cutting cycle and gave us second 25bp rate cut in a row. The rate is now at 4.5%. The accompanying statement acknowledges weakness in household spending and slack in the labour market. GDP is seen increasing in H2 of 2024 through 2025 with new projections showing 2024 GDP at 1.2%, 2025 at 2.1% and 2026 at 2.4%. Broad inflation pressures are easing and “The Bank’s preferred measures of core inflation are expected to slow to about 2½% in the second half of 2024 and ease gradually through 2025. The Bank expects CPI inflation to come down below core inflation in the second half of this year, largely because of base year effects on gasoline prices. As those effects wear off, CPI inflation may edge up again before settling around the 2% target next year“. Shelter and “some other services” are holding inflation up and “Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook“.
Governor Macklem stated in an opening statement that decision was influenced by three main considerations. “First, monetary policy is working to ease broad price pressures. Second, with the economy in excess supply and slack in the labour market, the economy has more room to grow without creating inflationary pressures. Third, as inflation gets closer to the 2% target, the risk that inflation comes in higher than expected has to be increasingly balanced against the risk that the economy and inflation could be weaker than expected”. He emphasized that focus should be turned towards growth and downplayed concerns regarding widening of rates compared to the USA. He added that if inflation continues to ease as expected further rate cuts could be expected but policy remains data dependent and decisions will be made meeting-by-meeting.
JPY
Preliminary PMI data for the month of July saw manufacturing slide into contraction with a 49.2 print vs 50 in June. Expectations were for it to move further up in expansion with a 50.5 print but drops in output and new orders pushed the reading into contraction. Additionally, there was an increase in input costs indicating further inflation pressures. Services rebounded back into expansion with a 53.9 print after surprising drop below 50 in June (49.4). Services output and new orders showed growth and unlike manufacturing input prices declined but output prices increased indicating stronger inflation pressures. July inflation for the Tokyo area saw headline number at 2.1% y/y vs 2.2% y/y in June. Ex fresh food, energy component also declined as it printed 1.5% y/y vs 1.6% y/y as expected and down from 1.8% y/y the previous month. Ex fresh food component ticked up to 2.2% y/y from 2.1% y/y in June. JPY had a monster week as unwinding of a carry trade helped it gain massive strength.
This week we will have BoJ meeting. Markets are pricing in around 65% chance of a 15bp rate hike and BoJ is seen embarking on QT by lowering JGB purchases.
Important news for JPY:
Wednesday:
BoJ Interest Rate Decision
CHF
SNB total sight deposits for the week ending July 19 came in at CHF461.3bn vs CHF458.9bn the previous week. Sight deposits continue to increase, rising for four consecutive weeks, indicating that 450bn is the bottom of the range.
This week we will get inflation data.
Important news for CHF:
Friday:
CPI
