Weekly Market Outlook (01-05 July)

UPCOMING EVENTS:

• Monday: China
  Caixin Manufacturing PMI, Swiss Retail Sales, US ISM Manufacturing PMI.
• Tuesday: RBA
  Meeting Minutes, Eurozone CPI, Eurozone Unemployment Rate, Canada
  Manufacturing PMI, US Job Openings, Fed Chair Powell.
• Wednesday:
  Australia Retail Sales, China Caixin Services PMI, Swiss Manufacturing
  PMI, Eurozone PPI, US ADP, US Jobless Claims, US ISM Services PMI, FOMC
  Meeting Minutes.
• Thursday: US
  Holiday, Swiss Unemployment Rate, Swiss CPI, ECB Meeting Minutes, Canada
  Services PMI, UK General Election.
• Friday: Eurozone
  Retail Sales, Canada Labour Market report, US NFP.

Monday

The US ISM Manufacturing PMI is expected
at 49.0 vs. 48.7. We got a great S&P
Global US Manufacturing PMI which increased
to 51.7 vs. 51.3 prior and overall the data highlighted the fastest economic
expansion for over two years, hinting at an encouragingly robust end to the
second quarter while at the same time inflation pressures have cooled.

The survey also brought welcome news in
terms of job gains, with a renewed appetite to hire being driven by
improved business optimism about the outlook. Selling price inflation has
meanwhile cooled again after ticking higher in May, down to one of the
lowest levels seen over the past four years. Historical comparisons
indicate that the latest decline brings the survey’s price gauge in line
with the Fed’s 2% inflation target.

Tuesday

The Eurozone CPI Y/Y is expected at 2.5%
vs. 2.6% prior, while the Core CPI Y/Y is seen at 2.8% vs. 2.9% prior. This
report won’t change anything for the ECB as they want to see the data
throughout the summer before deciding on a rate cut in September.

Nonetheless, a faster easing in inflation
during the summer or some quick deterioration in the economy should see the
market pricing in more rate cuts by the end of the year. At the moment, the
market sees 46 bps of easing by the end of the year assigning 61% probability of no
change at the July meeting and 83% chance of a cut in September.

The US Job Openings are expected to fall
to 7.850M vs. 8.059M prior. The last
report missed expectations by a big margin
with job openings falling to the lowest level since February 2021 and now
getting close to the pre-pandemic level.

This is good news for the Fed as the
labour market continues to rebalance via less jobs availability rather than
more layoffs, and inflationary pressures should keep abating. On the other
hand, the labour market is a spot to keep an eye on carefully in this part of
the cycle.

We will also hear from Fed Chair Powell
who’s speaking at the European Central Bank Forum on Central Banking 2024 in
Sintra, Portugal. I don’t expect him to signal anything and just maintain the
usual neutral stance.

In my opinion, a lot will depend on the
next inflation data. I think the Fed will be more dovish if we get a good
inflation report in July. Then, if we get some more good figures in August,
Powell will likely pre-commit to a rate cut in September at the Jackson Hole
Symposium.

Wednesday

The US Jobless Claims
continue to be one of the most important releases to follow every week as it’s
a timelier indicator on the state of the labour market. Initial Claims keep on
hovering around cycle lows, while Continuing Claims have been on a sustained
rise recently with the data setting a new cycle high last week. This is
something to keep an eye on. This week Initial Claims are expected at 235K vs.
233K prior, while there’s no consensus for Continuing
Claims at the time of writing.

The US ISM Services PMI is expected at 52.5
vs. 53.8 prior. This survey hasn’t been giving any clear signal lately. As previously
mentioned, the S&P
Global US PMIs surprised to the upside
with the Services measure in particular showing a strong rise. The focus
will likely be on the employment sub-index ahead of the NFP report but the data
we got until now suggests that the US economy is doing well, and the labour
market remains resilient.

Thursday

The Swiss CPI Y/Y is
expected at 1.4% vs. 1.4% prior, while the M/M measure is seen at 0.1% vs. 0.3%
prior. As a reminder, the SNB cut interest
rates by 25 bps to
1.25% at the last meeting and lowered its inflation forecasts. The SNB also
added the line that says “will be ready to intervene in the FX market if needed
and as necessary”, so if inflation surprises to the upside in Q3 or they see
risks of inflation overshooting their projections, then we will likely get some
interventions.

For context, the central
bank expects inflation to pickup slightly and average 1.5% in Q3, so this is
going to be the baseline and if inflation were to surprise to the downside,
then the market will price in higher chances of another rate cut in September.
At the moment, the market expects just one more rate cut in 2024 and the
probability of a rate cut in September stands at 62%.

Friday

The US NFP is expected to
show 180K jobs added in June vs. 272K in May
and the Unemployment Rate to remain unchanged at 4.0%. The Average Hourly
Earnings M/M is expected at 0.3% vs. 0.4% prior. The Fed at the moment is
very focused on the labour market as they fear a quick deterioration.

As a reminder, they
forecasted the unemployment rate to average 4% in 2024, so I can see them
panicking a bit and deliver a rate cut if unemployment rises to 4.2% in the
next couple of months. For now, the data suggests that the labour market is
rebalancing via less hires than more layoffs and overall, there are no material
signs of deterioration.

The Canadian labour market
report is expected to show 25K jobs added in June vs. 26.7K in May and the Unemployment
Rate to tick higher again to 6.3% vs. 6.2% prior. The last
report surprised to the upside although we got another uptick in the unemployment
rate. The key part was wage growth jumping to 5.1% vs. 4.7% prior, which is
what the BoC is most focused on.

As a reminder, the last
week the Canadian
CPI surprised to the upside, with the underlying inflation measures rising
but remaining within the 1-3% target band. This made the market to pare back
rate cuts expectations with the probabilities now standing around 50%. We will
get another inflation report before the next BoC policy decision, but if we see
another jump in wage growth, then the central bank will likely need very good
CPI figures to deliver a rate cut in July.