Major highlights for the coming week
This week is heavy on economic data coming out from several corners of the world – here’s what to look for:
- UK Jobs Report
- US CPI
- RBNZ Policy Decision BoC
- Policy Decision
Starting with the UK jobs report, Tuesday’s highly anticipated data release for May, a critical source of unease for policy maker.
Unfortunately, it is expected to show signs of resilience to the dismay of policymakers, as opposed to easing conditions favoured by the continuing tightening cycle by the BoE. Looking at the metrics, April wage growth touching 7.2% outperformed the banks forecasts, which has added fuel to inflationary concerns.
As labour and wages continue to rise, this is a real headache for the BoE right now. Money markets are forecasting a terminal rate of 6.35%, which is another 135bps of hiking over the next 7 months.
The trend will undoubtedly continue should the labor market fail to cool down. While the rising rates have been good for the pound, some analysts believe increased private sector pay growth will fuel concerns of a wage-price spiral.
The focus will mostly be on wages now, especially after the robust data in June for April. The data will contribute to the decision-making process for the BoE’s meeting on August 3rd, where wage figures and June’s CPI (coming up on 19 July) will play a vital role in determining the next rate hike.
Junes CPI report due to be released on Wednesday is forecasted to show a drop to 3.0% YY from 4.0% in May with a MM increase to 0.2%.
Core CPI is forecasted to rise 0.3%MM and fall to 5.0% YY.
Credit Suisse is suggesting there could be a further dip in inflation due to a fall in used auto prices and stable goods categories could provide the relief the FED are seeking considering the monthly rate of 0.4% earlier in the year.
Despite the strong US economy nearing a 2% growth, a booming housing market and a labour market to match the USD did struggle against its peers in Q2.
The upcoming CPI report could potentially break this stalemate, with predictions suggesting a considerable inflation deceleration. Producer prices data will also be revealed on Thursday, which, together with the CPI report, could impact the market’s inflation and interest rates outlook.
Amidst signals that Europe and China may be slowing down, the resilient US economy could widen the gap, offering potential for growth differential trading, which could favour the dollar. Moreover, possible shifts in global risk appetite and a correction in risk assets could attract safe haven flows.
RBNZ Policy Decision
The RBNZ is forecasted by money markets to hold rates with over 90% of the market expecting this. This comes following Mays 25bps hike and the dovish shift signalling and end to their hiking cycle. The hold is justified by the restricted spending from consumers due to the increased interest rates, inflationary data and a downturn in growth for Q2 and Q3 GDP growth.
However, recent data on migration flows and house prices has not entirely aligned with the RBNZ’s predictions, bringing additional uncertainty to the inflation outlook. Considering these factors, the central bank is expected to unanimously hold the OCR at 5.5%.
Future adjustments may depend heavily on Q2’s inflation and labour market reports due for release on July 19th and August 2nd, respectively.
BoC Policy Decision
The BoC is expected to increase rates by 25bps to 5% this Wednesday: could this be the last hike of the tightening cycle ?
BoC had paused for 4 months but due to increased inflationary pressures the markets have 67% prediction on the BoC raising rates.
It appears to be set on its path whereas we are seeing mixed signals from around the globe. The direction stems from shift in official views to combat any persistence in inflation. This is why the market is expecting the BoC to raise rates 25bps this month a a buffer to any potential resurgence in inflation in Q3.
This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
All trading carries risk.