Weekly Market Outlook (15-19 July)

UPCOMING EVENTS:

• Monday: New
  Zealand Services PMI, PBoC MLF, China Industrial Production and Retail
  Sales, Eurozone Industrial Production, BoC Business Outlook Survey, Fed
  Chair Powell.
• Tuesday:
  Eurozone ZEW, Canada CPI, US Retail Sales, US NAHB Housing Market Index.
• Wednesday: New
  Zealand Q2 CPI, UK CPI, US Housing Starts and Building Permits, US
  Industrial Production and Capacity Utilization, Fed’s Waller, Fed Beige
  Book.
• Thursday:
  Australia Labour Market report, UK Labour Market report, ECB Policy
  Decision, US Jobless Claims.
• Friday: Japan
  CPI, UK Retail Sales, Canada Retail Sales.

Monday

The PBoC is expected to keep the MLF rate
unchanged at 2.50%. Reuters reported
that market participants believe the significance of the MLF rate will
gradually diminish as the PBoC tries to improve the effectiveness of its
interest rate corridor. The PBOC introduced a new cash management mechanism last
week and Governor Pan Gongsheng said recently that the seven-day reverse repo
rate “basically fulfils the function” of the main policy rate.

Tuesday

The Canadian Trimmed Mean CPI Y/Y is
expected at 2.8% vs. 2.9% prior, while the Median CPI Y/Y is seen at 2.7% vs.
2.8% prior. The BoC will likely need benign data to deliver a back-to-back rate
cut in July given that wage growth jumped to 5.6% in the last labour
market report. The market is assigning
a 78% chance of a rate cut in July and with an upside surprise in the data that
might fall to roughly 50%.

The US Retail Sales M/M is expected at
0.0% vs. 0.1% prior, while the Ex-Autos M/M measure is seen at 0.1% vs. -0.1%
prior. Consumer spending has been pretty stable which is something you would
expect given the positive real wage growth and resilient labour market. We’ve
been also seeing some weakness in the UMich
Consumer Sentiment which could suggest that
consumer spending is likely to soften a bit.

Wednesday

The New Zealand Q2 CPI Y/Y is expected at
3.5% vs. 4.0% prior, while the Q/Q measure is seen at 0.6% vs. 0.6% prior. As a
reminder, the RBNZ kept the OCR unchanged at 5.5% in July but softened
the language a bit, which prompted
the market to increase the expectations of rate cuts by the end of the year.
The first rate cut is seen in October.

The UK CPI Y/Y is expected at 2.0% vs.
2.0% prior, while the M/M measure is seen at 0.1% vs. 0.3% prior. The Core CPI
Y/Y is expected at 3.4% vs. 3.5% prior. The market was assigning a 60% chance
of a rate cut in August but that went down to 50% following some hawkish
comments from BoE’s
Pill.

The central bank chief economist said that
it was an open question of whether the time for a rate cut was now or not and
added that more data will come before the next policy decision, but they had to
be realistic about how much any one or two releases could add to their
assessment.

This suggests that there’s not much
willingness to deliver the first cut in August unless the inflation data comes
out extremely good or the jobs data shows an extremely ugly picture.

Thursday

The Australian Labour Market report is
expected to show 20K jobs added in June vs. 39.7K in May and the Unemployment
Rate to remain unchanged at 4.0%. The data shouldn’t change anything in terms
of policy expectations as everyone is waiting for the Australian Q2 CPI report
on July 31^st.

The UK Labour Market report is expected to
show 45K jobs added in June vs. -140K in May and the Unemployment Rate to
remain unchanged at 4.4%. The focus will be on wage growth with the Average
Earnings including Bonus expected at 5.7% vs. 5.9% prior and the Average
Earnings ex-Bonus seen at 5.7% vs. 6.0% prior.

The data shouldn’t influence that much the
expectations for the August BoE decision, but softening in wage growth or ugly
jobs figures should increase the expectations for more easing with the market
pricing in 49 bps of cuts by year-end.

The ECB is expected to keep interest rates
unchanged at 3.75%. The central bank speakers said countless times that they
are not going to do anything in July as they want to wait for more data.
Therefore, this is going to be a non-event and the next truly open meeting is
in September. The market is seeing an additional 46 bps of easing by year-end.

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 remain
pretty much stable around cycle lows and inside the 200K-260K range created
since 2022. Continuing Claims, on the other hand, have been on a sustained rise
recently with the data printing new cycle highs every week (although last week
we saw a pullback).

This shows that layoffs are
not accelerating and remain at low levels while hiring is more subdued. This is
something to keep an eye on. This week Initial Claims are expected at 235K vs.
222K prior, while there’s no consensus for Continuing Claims at the time of writing although the prior reading saw a drop from 1856K to 1852K.

Friday

The Japanese Core CPI Y/Y is expected at 2.7%
vs. 2.5% prior.Inflation
in Japan is basically at target and there are no strong signals that point to a
reacceleration. It’s hard to see a rate hike given that Japan strived to
achieve inflation for decades and it might ruin this accomplishment by
tightening policy.

The data shouldn’t change much for the BoJ
which is expected to trim bond purchases by a “substantial” amount at the upcoming
policy meeting where the market assigns also a 58% probability of a rate
hike.