Weekly Market Outlook (July 1-5)

Upcoming events:

• Monday: China Caixin Manufacturing PMI, Swiss Retail Sales, US ISM Manufacturing PMI.
• Tuesday: RBA meeting minutes, Eurozone CPI, Eurozone unemployment rate, Canadian manufacturing PMI, US jobs report, Fed Chairman Powell.
• Wednesday: Australian Retail Sales, China Caixin Services PMI, Swiss Manufacturing PMI, Eurozone Producer Price Index, US ADP, US Jobless Claims, US ISM Services PMI, FOMC Minutes.
• Thursday: US Holidays, Swiss Unemployment Rate, Swiss Consumer Price Index, ECB Minutes, Canadian Services PMI, UK General Election.
• Friday: Eurozone retail sales, Canadian labour market report, US NFP.

Monday

The U.S. ISM Manufacturing PMI is expected to be 49.0 versus 48.7. The S&P Global U.S. Manufacturing PMI is expected to be 51.7 versus 51.3. The economy is expanding at its fastest rate in more than two years, and strong growth is expected to end the second quarter, while inflationary pressures are easing..

The survey also brought good news in terms of job growth, Resurgence in hiring enthusiasm This comes as businesses become more optimistic about their prospects. Meanwhile, sales price inflation is falling again after rising in May. It fell to its lowest level in the past four years. Based on historical comparisons, the recent decline in survey price indexes In line with the Federal Reserve's 2% inflation target.

Tuesday

The euro area Consumer Price Index (CPI) is expected to increase 2.5% year-on-year compared to 2.6% last year, while the core Consumer Price Index (CPI) is expected to increase 2.8% year-on-year compared to 2.9% last year. This report will change nothing for the ECB They want to see data through the summer before deciding on a rate cut in September.

Still, if inflation eases too quickly over the summer or the economy weakens sharply, markets would likely price in further rate cuts by the end of the year. Currently, markets expect a 46 basis point cut by the end of the year, with a 61% chance of rates remaining unchanged at the July meeting and an 83% chance of a cut in September.

U.S. job openings are expected to fall to 7.85 million from the previous 8.059 million. The last report was much weaker than expected, with job openings falling to their lowest level since February 2021 and now approaching pre-pandemic levels.

This is good news for the Fed. As the labor market continues to rebalance through fewer job opportunities rather than more layoffs, inflationary pressures should continue to ease.Meanwhile, at this stage of the cycle, the labor market is an area to monitor closely.

We will also hear from Fed Chairman Powell, who will be speaking at the European Central Bank Forum 2024 in Sintra, Portugal. We do not expect him to give any signals and will simply maintain his usual neutral stance.

In my opinion, a lot will depend on the next inflation data: a good inflation report in July will make the Fed more dovish, and an even better number in August will likely see Chairman Powell pre-commit to a September rate cut at the Jackson Hole Symposium.

Wednesday

US unemployment claims are one of the most important releases to watch each week as they are a timely indicator of the state of the labor market. New claims are hovering near cycle lows, while continuing claims have been increasing sustainably recently and hit a cycle high last week. This is something to watch. New claims are expected to be 235,000 this week versus 233,000 last time, but there is no consensus on continuing claims at the time of writing.

The US ISM Services PMI is expected to be 52.5 versus the previous reading of 53.8. This survey hasn't given clear signals lately. As mentioned above, the S&P Global US PMI rose more than expected. In particular, service indicators show a significant increaseWhile attention will be focused on the employment sub-index ahead of the NFP report, data so far suggests that the US economy is doing well and the labor market remains strong.

Thursday

The Swiss Consumer Price Index (CPI) is expected to grow by 1.4% year-on-year (previously 1.4%) and 0.3% month-on-month (previously 0.1%). For reference, the SNB cut interest rates by 25 basis points to 1.25% and lowered its inflation forecast at its last meeting. The SNB also added the phrase “stands ready to intervene in the foreign exchange market if necessary,” meaning some intervention is likely if inflation in the third quarter turns out to be higher than expected or if it is deemed there is a risk of inflation growing higher than expected.

By way of background, the central bank expects inflation to rise slightly, averaging 1.5% in the third quarter. This will be the baseline, and if inflation turns out to be weaker than expected, markets will likely price in a higher probability of further rate cuts in September.Currently, the market is expecting one more rate cut in 2024, with a 62% chance of a cut in September.

Friday

The US NFP forecasts that employment will increase by 180,000 in June, up from 272,000 in May, and the unemployment rate will remain unchanged at 4.0%. Average hourly earnings are expected to increase from 0.4% to 0.3% month-on-month. The Federal Reserve is currently very focused on the labor market. They fear a rapid deterioration.

Just to be clear, they are projecting unemployment to average 4% in 2024. So I think they will panic a bit and cut rates if unemployment rises to 4.2% in the coming months. For now, the data shows that the labor market is rebalancing with more layoffs than hires, and overall there are no significant signs of a deterioration.

The Canadian Labour Market Report indicates that employment will increase by 25,000 in June (up from 26,700 in May) and the unemployment rate is expected to rise again to 6.3% from the previous 6.2%. The last report showed the unemployment rate rising again, but this time it was stronger than expected. Importantly, wage growth has jumped to 5.1% from the previous 4.7%. This is the Bank of Canada's main focus..

Canada's CPI rose more than expected last week, and the underlying inflation measure rose It's rising, but remains within the 1-3% target range.This has led to market expectations of a rate cut being reduced, with the probability of this now standing at around 50%. A new inflation report will be released before the Bank of Canada's next policy decision, but the central bank will likely need very positive CPI numbers to cut rates in July if wage growth picks up again.