The Macro Outlook for w/c 1 July 2024
Key events this week – US – Independence Day, non-farm payrolls, Fed Chair Powell, FOMC minutes, ISM surveys; Europe – ECB Forum on Central Banking, ECB minutes, prelim CPI Jun; Canada labor market; Aus – RBA minutes & retail sales; Global S&P PMIs
Recap from last week
The latest US PCE inflation report marked further progress on inflation for the FOMC, showing an important moderation in inflation for May. PCE inflation measures came in as expected with core PCE slowing to +2.6% – and is below the latest FOMC projection of +2.8% over the year. The trimmed mean inflation rate has now slowed to below 3% for two months in a row. This is likely to be seen as another step in the right direction for the FOMC as it considers when to start easing policy.
However, the decision to start easing policy will be made in the context of the broader US growth and labor market conditions. US growth indicators showed some moderation last week. The final update of Q1 GDP growth was revised slightly higher to +1.4% annualized, however, personal consumption expenditure was revised lower – suggesting a slower pace of consumer spending through Q1.
Data feeding into the Atlanta Fed GDPNowcast for Q2 GDP indicated a moderation in growth from +3% to +2.2% by the end of the week. Personal spending data for May was lower than expected at +0.2% in nominal terms. Spending increased by +0.3% in real terms. Durable goods shipments (ex volatile non-defense aircraft) were flat in May, the first zero-growth month this year. The full Factory Orders (May) release this week will provide a further update on manufacturing activity. Initial claims stayed at +233k, with continuing claims drifting higher. This week’s labor market data will be important in providing a broad update on conditions ahead of the FOMC meeting at the end of the month..
Outside the US, inflation data was firmer. Canadian CPI for May rose to +2.9%, driven by services inflation. Australia’s CPI for May was higher than expected at +4%, up from 3.6% in April. The RBA’s preferred trimmed mean measure rose to +4.4%, highlighting persistent inflation concerns. The upcoming RBA minutes this week will shed more light on inflation and interest rate debates.
Outlook for the week ahead
It will be a shortened US week with the 4th of July Independence Day holiday falling on Thursday.
It’s also a week of substantial data flows.
The focus will be on the broad update of US labor market conditions for Jun and how it impacts the FOMC outlook for rates amid moderating inflation and growth. One of the burning questions is whether the recent, albeit modest, rise in initial claims will be reflected in this report. Non-farm payrolls are expected to increase by +189k in Jun after the notable +272k increase in May. The unemployment rate is expected to stay unchanged at 4%. The JOLTS release for May is expected to show a further moderation in the number of job openings to 7.85m from 8.06m in Apr. Average weekly hours are expected to be unchanged at 34.3. Growth in average hourly wages is expected to be little changed at +4.1%.
US data will provide a further update on Q2 growth with both the ISM manufacturing and services PMIs for Jun. The manufacturing PMI is expected to remain little changed at 49 while services growth is expected to moderate slightly. US Factory Orders for May are expected to moderate to +0.3% over the month, slowing from +0.7% in Apr.
The FOMC minutes of the June meeting will be released this week. The updated projections from the June meeting raised questions about the timing of rate cuts, and the minutes may offer more insight into the conservative inflation projections.
The ECB forum on central banking at Sintra will commence on Monday and close on Wednesday 3 July. US Fed Chair Powell will take part in a panel discussion at the forum.
The ECB minutes of the June meeting will be released this week and should provide more detail about the decision to cut rates at the last meeting. The prelim Euro Area CPI for Jun is expected to continue to moderate. Headline inflation is expected to slow to +2.5% in Jun from +2.6% in Jun, and core CPI is expected to slow to +2.8% in Jun from +2.9% in May.
Finally, the broader suite of S&P global PMIs for Jun will be released this week. The prelim release for Jun was disappointing across the Eurozone, Japan, and Aus. The US was the exception with PMIs indicating a further, modest acceleration in activity in Jun.
Political headline risk continues to simmer this week. The fallout from last week’s Biden and Trump debate may still affect the US election landscape. The UK will hold parliamentary elections this week on 4 July. In Europe, attention is on the first-round results of the French legislative elections and the lead-up to the second round this weekend on 7 July.
The French political world is now embarking on an intense two-day period of horse trading as each party tries to maximize its chances in the final ballot next weekend. Source: Bloomberg
This week, the US Treasury will auction and settle approx. $619bn in ST Bills, Notes, and Bonds, raising approx. $100bn in new money.
QT this week: Approx $9.4bn in ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
