Key events for the week ahead – US CPI & retail sales, RBNZ & BoC policy decisions, and US Q2 earnings
Recap from last week
The pace of inflation, the strength of the labour market, and growth remain key barometers for central banks in this tightening cycle. The FOMC minutes reflected the hawkish tilt at the June meeting following the May CPI report. A key change was the shift from ‘expeditiously to neutral’ to restrictive policy, and, possibly to an ‘even more restrictive stance’ if elevated inflation pressure persists. At this stage, it’s likely the FOMC will raise the FFR target by another 75bps at the Jul meeting. Since the last meeting and CPI report, the market narrative has shifted to growth and recession concerns if the Fed maintains this hawkish angle. The FOMC has done little to dampen this narrative.
US labour force data continued to confirm robust conditions for May and Jun. Non-farm payrolls for Jun were higher than expected at +372k, but with -72k revisions for the two prior months.
The US labour market started the year on a strong note, but the pace of momentum has eased since Mar. This is evident across slower (yet still high) payroll and household employment growth and a slightly rising trend in initial jobless claims since Mar. The peak (so far) in job openings was in Mar, the peak in hires was in Feb, and quits peaked back in Nov 2021. US layoffs and discharges reached a low in Dec 2021.
The US ISM reports highlight slower growth momentum since late 2021 also. Manufacturing conditions eased more notably by Jun – especially new orders (confirmed by the S&P PMI and regional surveys). The ISM services momentum also eased, but the headline expansion remains at the average 2019 pre-pandemic level. There is some sign of slowing services new orders/demand growth (especially in the US S&P Services PMI).
Global S&P PMIs for Jun was stronger – led by broader expansion from the reopening of China. Ex China highlights slower growth momentum in manufacturing – led by the Eurozone (including Germany) and the US. Eurozone services also slowed notably. The PMIs summarise the different headwinds facing many nations; including the roll-off of significant covid-era stimulus, high inflation impacting consumption, a war on the doorstep of Europe, an energy crisis, and rising rates.
Outlook for the week ahead
There are several important US reports out this week in the lead-up to the Jul FOMC meeting. The first is US CPI. Inflation is expected to accelerate to +8.8% for the year (expectations for up to +9%), up from +8.6% in May. Monthly CPI is also expected to remain high at +1.1% in Jun (versus +1% in May). Core CPI is expected to increase at a constant +0.6% for the month and +5.8% for the year, down from +6% in May.
The second is US retail sales growth, which is expected to rebound to +0.8% in Jun after a fall in nominal sales in May of -0.3%.
RBNZ monetary policy decision – markets are expecting a 50bps increase.
BoC monetary policy decision – and the expectation is for a 75bps increase. Headline CPI in Canada remains elevated. The employment decline in Jun was offset by a fall in participation, so the unemployment rate fell to 4.9%. Wage growth was stronger than expected.
Aus labour market report for Jun will be another important barometer for the RBA. Employment growth is expected to slow but the unemployment rate is also expected to fall to a record 3.8%.
The highly anticipated US Q2 earnings reports will commence later this week.
The US Treasury will auction and settle approx. $317bn in ST Bills, Notes, and Bonds raising approx. $10bn in new money this week.
Approx. $36bn in ST Bills, Notes, Bonds, and TIPS (incl compensation) will mature on the Fed balance sheet this week and will be rolled over. Approx. $13.6bn in Notes, Bonds, and TIPS (incl compensation) will roll off the balance sheet.
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
