Or further to go?
The focus has shifted in recent weeks from how far central banks are going to go in their tightening cycles to how much of an economic slowdown we are facing and if a recession is still avoidable.
There’s no easy answer to that question and while there are signs that markets are starting to price in a recession, there is no consensus. Of course, the fate of some countries looks more certain than others but in most cases, it’s far from a foregone conclusion. For this reason, the economic data over the next week, as well as the views of policymakers, could be huge in determining how markets will behave.
The bank holiday on Monday means it’s a late start for the US but the rest of the week is anything but quiet. The US jobs report and Fed minutes are the obvious standouts but there’s plenty more on top that will ensure it’s another fascinating week.
US
A shortened trading week on Wall Street will have traders focusing on the FOMC minutes, a few Fed speakers, and the June nonfarm payroll report. The Fed’s minutes to the last meeting will likely bolster the case for another massive rate hike as inflation remains stubbornly high. The June nonfarm payroll report is expected to show the economy added 250,000 jobs in June, a deceleration from the 390,000 jobs added in the prior month. The unemployment rate is expected to remain steady at 3.6% and average hourly wages might maintain the same 0.3% pace from a month ago.
A couple of Fed hawks, Bullard and Waller will likely make the case for the Fed to be aggressive with the tightening of monetary policy. Fed’s Williams will also speak and has recently noted that 50 or 75 bps will be the debate at the July FOMC meeting.
EU
I don’t think there’s any such thing as a quiet week for Europe at the moment but next week is probably as close as it gets. The bulk of the week is made up of tier two and three data like final services PMIs which are typically not subject to large revisions.
The ECB meeting accounts will naturally be of interest although I’m not sure what we’ll get from them considering how explicit the central bank has been in its intentions. What’s happened since has probably been more significant as it could influence how aggressive they’ll be with the lift-off in a few weeks. For this reason, comments from President Lagarde and her colleagues will be more significant.
UK
A light week on the data front, with the highlight being the final services PMI on Tuesday. But there are a number of BoE policymakers appearing next week including Governor Bailey on Tuesday, with traders keen to know if the MPC will finally join the super-sized club or continue with the slow and steady approach.
Russia
Inflation and PMI data next week, with the former of particular note. That said, the central bank has made clear its intention to continue cutting rates as inflation falls. The Key Rate has already fallen back to 9.5% from 20% where it was hiked to after the invasion. But further cuts could follow in an attempt to support the economy and offset the strength of the rouble.
South Africa
The whole economy PMI on Tuesday is the only notable release next week.
Turkey
Restrictions on lira lending last week had the desired effect on the currency, seeing the USD/TRY fall more than 8% over the next couple of days before pulling back. It’s now only 3.5% from the highs, suggesting the government has more to do. A 25% increase in the minimum wage announced on Friday will neither tame inflation nor make people’s lives dramatically easier. Further pain ahead. CPI data on Monday is expected to show annual inflation jumped to 78.35% in June from 73.5% in May.
Switzerland
Inflation data on Monday could support the argument for further rate hikes from the SNB. They do love to spring a surprise on the markets, in contrast to every other central bank, so we can’t ignore the possibility of an inter-meeting decision, even if it appears unlikely at the moment.
China
China continues to have relatively low inflation, in sharp contrast to skyrocketing inflation in most major economies. The June inflation report will be released on Friday. The estimate stands at 2.2% YoY, a notch higher than the 2.1% gain in May. The modest inflationary pressures have allowed the PBOC to continue to inject more stimulus into the economy in order to boost growth.
India
Services PMI is the only release of note next week.
Australia
The RBA holds its policy meeting on Tuesday. In June, the RBA raised rates by 0.50%, surprising the markets which had expected a much smaller increase. Still, with the cash rate currently below 1%, the central bank will have to press the rate pedal to the floor in order to curb soaring inflation. Another 0.50% increase is widely expected at the upcoming meeting, which would bring the cash rate to 1.35%.
New Zealand
It’s a quiet week out of New Zealand, with Wednesday’s Reserve Bank of New Zealand Statement of Intent the only tier-1 event. The RBNZ will present its objectives for the next three years and the markets will be looking for insights into the Bank’s future rate policy. The cash rate is currently at 2.0% and the Bank is expected to raise rates when it meets on July 13.
Japan
Japan releases household spending on Friday. Japan’s inflation of 2.1% has been much more moderate than in the UK or the US, where inflation is close to double digits. Still, consumers are not used to prices rising, after 15 years of very low inflation. A weaker yen has made imports more expensive, and the Japanese consumer is holding tighter to their purse strings. Household spending is expected to fall by 0.9% in May, after a decline of 1.7% in April.
Singapore
Singapore releases retail sales on Tuesday. The May release came in at 12.1% YoY, pointing to a sharp gain in consumer spending.