Despite the shortened trading week in the US due to the Independence Day holiday, there are still some key tier one data points to look out for. ISM Services PMI will be a key driver for major markets on Wednesday before jobs take the focus with the ADP on Thursday and Nonfarm Payrolls on Friday. Elsewhere, the Reserve Bank of Australia is expected to hike rates by +25 basis points, whilst final PMIs come for the Eurozone and UK. In Latin America, there is crucial inflation data for all the key economies.
- North America – ISM Services and Nonfarm Payrolls along with Canadian Unemployment
- Europe & Asia – RBA interest rates and final Composite PMIs for the Eurozone and the UK
- LatAm – Inflation for Colombia, Mexico, Chile and Brazil
North American data:
Trading USD strength has been a successful strategy throughout Q2. But will this continue into Q3? Despite a trend of negative data surprises in recent weeks, this has been seen as good news for the safe-haven USD. Reaction to this week’s data will be an early indication of whether this will continue.
The ISM Services PMI will be watched for a continuation of the negative economic trends of recent months. Another small decline is expected in the Non-Manufacturing survey. However, the key for the week will be Friday’s Nonfarm Payrolls. In recent weeks there has been plenty of anecdotal evidence of increasing layoffs and rescinded job offers, especially at tech companies. It will be interesting to see if this begins to feed into the payrolls data that covers up to the first two weeks of June. Forecast headline jobs growth of 295,000 is still strong, but a negative surprise may be seen. Wednesday’s ADP employment change will be watched for any indications. Traders will also be watching earnings growth which is expected to remain steady at 5.2% and the jobless rate which is also expected to stay at 3.6%.
- Negative surprises to US data have driven a safe haven flow which has helped to support the USD in recent weeks. We watch for a continuation of this into Q3.
- CAD will see elevated volatility from the Canadian unemployment data.
Europe & Asia:
The PMIs for Eurozone and the UK are final numbers, so may only see a limited impact with the main reaction already having been factored in a couple of weeks ago. However, the China Caixin PMIs may drive market sentiment on Tuesday. Markets did not react to the upside surprises in the official government PMI. However, if this is also reflected in the unofficial Caixin data (arguably less open to manipulation) then markets may respond. A better than expected composite reading (above 50) would be encouraging for risk appetite.
The Reserve Bank of Australia is expected to hike by 50 basis points (bps). This would be the second consecutive +50bps hike after the larger-than-expected hike in its June meeting. It is difficult to see a 75bps hike coming, so traders will be watching the forward guidance for any potential upside surprises that could drive AUD higher.
- Broad risk appetite may react to the Caixin PMI data. Positive surprises would be positive for risk appetite.
- AUD will be volatile to the RBA decision. A +50bps hike is fully expected.
Inflation is expected to pick up strongly once more across the LatAm region. Data for all the main economies will be released this week, with Colombia, Mexico, Chile and Brazil all due. As can be seen in the comparative chart below, the trends of inflation are followed closely by the trends of rate increases by the respective central banks.
It is interesting to see the Brazilian Central Bank has its interest rate ahead of the inflation trend, although at an eye-watering 13.25%. Brazilian inflation is only expected to increase a shade, so there will be some hope that finally the bank is getting a handle on price pressures. Colombia and Chile are expected to see over a half per cent jump in prices. This will continue to fuel rate hike expectations.
- Can the CLP continue its strong performance of the past month if inflation continues to soar?
- Signs of inflation finally settling down may help the BRL performance
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.