Key Events: –
Monday: Eurozone CPI (Jul, P), China Official PMIs (Jul)
Tuesday: RBA MonPol Decision, Eurozone GDP (Q2, Initial)
Thursday: BoE MonPol Decision, Meeting Minutes & Quarterly Inflation Report
Friday: US Labour Market Report (Jun), Canadian Labour Market Report (Jun), RBA SoMP
North America: –
June’s US Labour Market Report headlines the docket next week. Analysts expect the Nonfarm Payrolls headline to print at 187,000, with the unemployment rate expected to tick down to 4.3%, while hourly earnings are expected to remain subdued. The H1 average for the Nonfarm Payrolls release sits at 180,000. Following its latest statement, the Federal Reserve noted that “job gains have been solid, while household spending and business fixed investment have continued to expand.” The main worry is wage growth, which has remained muted, and is perhaps keeping a lid on the Federal Reserve’s hiking cycle at present, as inflation has been kept in check.
Friday will also bring the Canadian labour market report for July. Analysts looks for 14,500 jobs to have been added, although they do expect that the unemployment rate will remain steady at 6.5%. Following a string of hot labour market reports the Bank of Canada stated that “the robust labour market” was underpinning economic growth, as it hiked its key interest rate by 25bps at its most recent decision. In front of this specific print, RBC highlight that “July numbers have traditionally been affected by large fluctuations in the education sector; however, these swings have been smaller in the last two years and we assume little impact from education hiring this month.” Looking forwards RBC suggest that “broadly speaking, employment growth is expected to moderate alongside slower – albeit still above-trend – GDP growth.”
Other releases of note during the week: Tuesday US ISM manufacturing survey (Jul) Wednesday US ADP Employment Report (Jul) Thursday US ISM manufacturing survey (Jul) Friday Canadian Trade Balance (Jun)
The Eurozone flash CPI release for July is due on Monday with analysts looking for a steady 1.3% Y/Y headline, while core inflation picked up to 1.1% over the same horizon last time out. It is worth noting that the German national reading provided an upside surprise for July. HSBC suggest that “the unusually dry weather in June might exert some upward pressure on fresh food prices, and we don’t expect the spike in tourism prices to unwind until after the holiday season.” In terms of the bigger picture for policy, despite murmurings of hawkish leanings within the European Central Bank (ECB) before the most recent decision, the central bank stuck largely to script, with various members of the governing council noting that the ECB’s accommodative stance remains appropriate in the interim, although Nowotny (head of the Bank of Austria) has suggested that January may be an opportune moment for the ECB to begin to slow its QE programme.
Tuesday brings the release of the initial Eurozone GDP data for Q2, with analysts looking for a steady 0.6% Q/Q, and a moderation to 2.1% Y/Y from the prior 2.3%. Survey data have pointed to an upswing in eurozone growth, and consumer confidence has experienced a notable improvement, industrial production has also been supportive of growth.
Other releases of note during the week: Monday Eurozone Unemployment Rate (Jun)
The Bank of England (BoE) convenes for its quarterly ‘Super Thursday’ event this week, where it will issue its latest monetary policy decision, the minutes from the meeting, and its quarterly inflation report. While almost all of those surveyed expect the BoE to stand pat, analysts at Nomura are looking for a 25bps hike, although they do assign a 40% probably of the Bank remaining on hold. The last decision yielded a surprising 5-3 vote, although Forbes’ (a hawkish dissenter) term has now come to an end. Analysts expect dissenters McCafferty and Saunders to vote for a 25bps hike once again, with focus falling on chief economist Andy Haldane following a hawkish intra-meeting speech. As a result, analysts will focus on whether the vote split is 6-2, or 5-3, with newcomer Tenreyro expected to side with the majority this time out. With UK consumers’ pockets feeling the squeeze of higher inflation Barclays remain “confident that the bank will maintain the monetary status quo over the foreseeable future.” It is probably fair to say that the Bank’s most recent inflation report was a little optimistic, and that the UK’s economic condition has deteriorated in Q2. As a result eyes will fall on the Bank’s growth projections, while the inflation outlook could be driven by a lower trade weighted sterling and a modest recovery in oil prices. The Bank’s assessment of the labour market will also be key as it grows ever tighter, with wage growth remaining subdued.
July’s PMI releases will also garner interest. The manufacturing survey is due on Tuesday, while its services counterpart is scheduled to be released on Thursday. In the wake of last month’s surveys Markit noted that “a slowing in services sector growth completed a triple-whammy of disappointing PMI survey readings. Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it’s clear that the economy heads into the third quarter losing momentum. The indications are that the economy’s resilience is being tested. There are pockets of growth, notably in financial services and business services, but the overall picture is one of business spending, investment and exports failing to provide sufficient impetus to fully offset the consumer slowdown. Given the deterioration in the forward-looking indicators, such as business optimism and order book growth, the risks are tilted towards the economy slowing in the third quarter.”
The Chinese docket will be dominated by the PMI releases for July. Monday sees the release of the official surveys, with analysts looking for the manufacturing metric to hit 51.7, against 51.5, as ever there are no expectations for the non-manufacturing release, and June’s survey hit 54.9. The Caixin manufacturing PMI will be released on Tuesday, with analysts looking for a steady 50.4, while the Caixin services PMI is due on Thursday, and stood at 51.6 last time out. While fears over a hard-economic landing in China have receded, some expect the economy to slow in the second half of the year as the effects of stimulus wane.
The Reserve Bank of Australia’s (RBA) decision headlines the region’s risk events next week, with the central bank set to issue its decision on Wednesday. All of those surveyed expect the RBA to stand pat, which would leave its cash rate sitting at 1.50%. The minutes from the July meeting reaffirmed labour and housing markets as particular areas of interest, with both leaving many questions unanswered. The most interesting note to take from the minutes was the discussion surrounding the neutral interest rate, which some market participants deemed as hawkish. In his most recent address RBA Governor Lowe has rejected this view, with Westpac suggesting that he reinforced the Bank’s ‘firmly on hold’ stance. Despite rhetoric from Lowe and his deputy Guy Debelle the AUD has continued to rally, so any language pertaining to the domestic currency will be closely scrutinised. The Bank’s Statement on Monetary policy (SoMP), due Friday, will supplement the decision. No material revisions are foreseen within the economic projections.
In terms of the bigger picture, ANZ posit that Lowe’s most recent rhetoric suggests that “financial stability seems to rule out further rate cuts. This is not necessarily the case, in our view. Importantly the current choice is against the backdrop of an expected improvement in the economy. Should this improvement falter then the trade-offs facing the RBA will change significantly.”
Thursday will bring the release of Australia’s June Trade Balance, with analysts expecting to surplus to moderate to AUD 1.80bln, from the AUD 2.47bln seen in May. June was a poor month for commodity prices, and this could outweigh the export backlog stemming from the floods, while imports should have benefitted from a stronger AUD. Retail sales data, due on Friday, rounds off the tier 1 docket in Australia. Real retail sales are expected to have risen by 1.2% Q/Q in Q2 following 0.1% in Q1 (supported by a bump in consumer sentiment), with the M/M release seen at 0.2% in June, moderating from May’s 0.6%. Westpac believe that Q2 update is shaping as a strong one, although the bank does note that retail measure remains a problematic indicator for the broader spending estimates in the national accounts, while retail price inflation is expected to remain subdued.
Across the Tasman, the Q2 labour market report will dominate proceedings. Employment levels are expected to have risen by 0.7% Q/Q, with the unemployment expected to edge down to 4.8% from 4.9%. On the wages front, the labour cost index excluding bonuses is expected to print a steady 0.4% Q/Q. Wage growth remains anaemic despite surveys suggesting that skilled employees are difficult to find, although ASB expect “wage pressures to pick up shortly as NZ’s robust growth outlook continues to boost the labour market.”
The dairy auction falls on Tuesday, with futures pointing to a 5% rise in WMP prices. This would be a timely bump in prices as TD Securities note that “prices need to pick up strongly to justify Fonterra’s generous upgrade to the farmer’s estimated pay-out.”
Other releases of note during the week: Monday Japan Industrial Production (Jun, P), Australia Melbourne Institute Inflation (Jul) Tuesday Australia House Prices (Jul)