Week Ahead – BoE to keep hiking, US jobs and eurozone inflation eyed – MarketPulse

US

With inflation steadily cooling, the Fed’s historic tightening campaign appears to be ending.  The focus on Wall Street won’t just be inflation but now also economic activity. 

The upcoming week will be filled with several economic readings.  On Monday, we will see two Fed regional surveys.  The MNI Chicago PMI is expected to slightly improve while the Dallas Fed manufacturing activity report remains deeply in negative territory.  Tuesday will be busy with the final manufacturing PMI reading, the ISM manufacturing report, and JOLTS job openings.  Wednesday contains the ADP employment change which is expected to show hiring cooled from the 497,000 pace to 185,000. Thursday has initial jobless claims and the ISM services report.  Friday is all about the July nonfarm payroll report, which should show hiring eased from 209,000 to 185,000.  The unemployment rate is expected to remain steady at 3.6%, while average hourly earnings on a monthly basis tick lower to a 0.3% pace.  

Earnings will be massive this week as we get updates from Caterpillar, Pfizer, Uber, JetBlue, Humana, Yum Brands, Apple, and Amazon.  

Eurozone

Next week gets off to a fast start, with eurozone flash HICP data released shortly after the European open. Further progress is expected in the report, albeit the more substantial moves aren’t expected until September. Still, favourable base effects and lower energy prices should ensure inflation continues to fall in the months ahead, alleviating pressure on the ECB to hike again in September.

UK 

Many of the major central banks are now pondering whether further rate hikes are necessary, meaning meetings without them are going to become increasingly common. Unfortunately for the Bank of England, it can’t include itself in that list with at least a couple more hikes likely needed before it can even consider pausing. The inflation data last month was a big step in the right direction and if repeated over the next couple of months could leave the MPC in a much better position in November. For now, 25 basis points is the least we can expect and new forecasts will tell us how close they now feel they are to achieving their mandate. 

Russia

The CBR is expected to release its monetary policy report on Monday which will be keenly eyed as the central bank has started raising interest rates again. There’s also a wide array of data being released next week including GDP, retail sales, unemployment, and PMIs.

South Africa

Next week mainly offers tier two and three economic data with the whole economy PMI on Thursday probably the pick of the bunch. 

Turkey

Inflation is expected to spike again in July, rising 9.1% on the month and 47.3% on an annualized basis. The central bank has started raising rates again after the predictable failure of its pre-election easing program. But it has faced criticism for raising too slowly, something this report may highlight. Whether it will change anything is another thing as the central bank knows the views of President Erdogan and what has happened to previous policymakers that have raised rates faster. 

Switzerland

CPI data on Thursday is expected to provide some comfort for the SNB, with prices seen falling slightly month on month in July. That is expected to take the annualized figure to 1.6% and well within the central bank’s target range, removing the pressure to raise rates again in September.

China

On Monday, we will have July’s NBS manufacturing & non-manufacturing PMIs. The consensus is for another month of contraction for the manufacturing sector at 49.2, slightly above June’s reading of 49. In the service sector, growth is forecast to decline further to 52.9 from 53.2 in June. If these data turn out as expected, it will be a fourth consecutive month of contraction for the manufacturing PMI and a fourth consecutive month of growth slowdown for the non-manufacturing PMI.

On Tuesday, the Caixin manufacturing PMI that includes small and medium-sized enterprises for July will be out. A slight dip in growth to 50.3 is expected, from 50.5. In addition, the Caixin services PMI will be released on Thursday; the consensus is eyeing a dip to 52 from 53.9 in June. If it comes in as expected, it will be the slowest growth in services since January 2023.

If these key PMIs continue to show softness in both external and internal demand, China policymakers are likely to see an increased need to introduce more targeted stimulus to shore up consumer demand and confidence after the recently concluded Politburo meeting that has vowed to introduce “counter-cyclical” measures to negate the current weakness seen.

India

Two key data will be released; the manufacturing PMI on Tuesday and the Services PMI on Thursday. A slight dip in growth in July’s manufacturing to 57 from 57.8 is expected in July. If it turns out as expected, it will be a second consecutive month of growth slowdown in the manufacturing PMI.

The services PMI for July is expected to dip slightly as well to 58 from 58.5 in June. If it turns out as expected, it will be a third consecutive month of growth slowdown in the services sector.

Australia

The key highlight for this week will be the RBA interest rate decision on Tuesday; a 25 basis points hike on the policy cash rate is expected to 4.35% after the RBA left it unchanged during the previous meeting.

Interestingly, data from the ASX 30-day interbank cash rate futures as of 28 July has only priced in an 8% chance of a rate hike of 25 bps on Tuesday which is down significantly from 48% last Friday, 21 July. This reduction in odds is likely due to the recent slowdown in Q2 inflationary growth.

Next up, we will have the balance of trade for June on Thursday.

New Zealand

Two key data points to watch in the coming week. Firstly, ANZ business confidence for July with the forecast calling for another dip to -22 from -18 in June.

Employment data will be out on Wednesday. The consensus for Q2 employment change is for a dip to 0.6% from 0.8% in Q1 while the Q2 unemployment rate is expected to tick up slightly to 3.5% from 3.4%, and the participation rate to hold steady at 72%. 

Japan

Several key data releases in the coming week. On Monday, we will have industrial production, retail sales, and housing starts for June as well as consumer confidence data.

Industrial production is forecast to improve to 5.3% y/y in June from 4.2% y/y in May, the consensus for retail sales is expecting a slight increase to 5.9% y/y in June from 5.7% y/y in May while consumer confidence for July is forecasted to improve further to 36.8 in July from 36.2 in June.

The unemployment rate for June will be released on Tuesday with the consensus eyeing a slight dip to 2.5% from the 2.6% recorded in May.

Lastly, market participants will scan for more clues on further monetary policy normalization in the Bank of Japan’s monetary policy meeting minutes on Wednesday as it just implemented a creative flexible tweak on the upper and lower limits of the Yield Curve Control program for the 10-year JGB yield.

Singapore

The manufacturing PMI for July will be out on Wednesday, a slight improvement to 49.9 from 49.7 in June is being forecasted. Retail sales for June will be released on Friday where a dip is being forecast to 1% y/y from 1.8% y/y in May.

Lastly, the two major Singapore banks; DBS Group, and Oversea-Chinese Banking Corp will release their Q2 earnings on Thursday and Friday, respectively, before the market opens.

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Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.

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