The Week Ahead
This week’s US CPI (Wed) and PPI (Thu) prints will keep markets on high alert. Of equal importance will be the Fed’s updated projections and dot plot, and Powell presser (Wed). Events including the BRICS (Mon-Tue) and G-7 (Thu-Sat) gathering will also garner market attention.
China’s CPI and PPI readings are due on Wednesday, and later we have the US CPI and FOMC decision (no rate change expected). Markets will then look to the US PPI and initial jobless claims on Thursday. We’ll hear from US Treasury Secretary Yellen on Thursday. The BoJ meet on Friday, of interest may be an indication of a reduction in bond purchases. The Uni. of Michigan sentiment and inflation forecasts will be scrutinised at the end of the week.
Central bank chatter includes the ECB’s Holzmann (Mon, Tue), Villeroy de Galhau (Tue), Lane (Tue), Guindos (Wed), Lagarde (Fri). The Fed members speak later in the week; William’s (Thu) and Goolsbee (Fri).
Last week US data was largely mixed, US ISM manufacturing unexpectedly fell further into contraction, to 48.7 in May, against expectations for a marginal recovery. The prices paid components and new orders components fell below expectations, however, the employment figure jumped back into expansion. The ISM services reading also sprung into expansion territory. At the end of the week, US markets received a shock as the employment report reinforced a healthy jobs sector. Ahead of the +272k nonfarm print, which smashed estimates of +180k, other jobs numbers were largely disappointing. Interestingly, unemployment ticked-up to 4% (est. 3.9%), the highest level in two years, driven by a weak household survey. Average hourly earnings also unexpectedly rose to 4.1% (est. 3.9%). Markets quickly repriced rate cut expectations pushing odds for a cut into December.
Although USTs sold-off across the curve following the jobs print, the yield on the 10-year closed 7bps lower at 4.43%. Meanwhile, the S&P Index hit fresh all-time highs intraweek, closing 1.32% higher. The dollar closed marginally higher, helped by the upward momentum following the nonfarm print. Oil suffered its third straight weekly fall, closing 2.45%, at $79.62pb, amid OPEC’s announcement to extend production cuts through September, then gradually unwinding in the third quarter, depending on oil market conditions. Monthly oil market reports, due this week from OPEC (Tue) and IEA (Wed), could provide further colour.
Elsewhere, markets enjoyed the first G-7 rate cuts from the Bank of Canada and the ECB. The ECB’s next move remains unclear, with key members suggesting a pause next month is warranted, given the uptick in inflationary pressures. Over the weekend, European Parliamentary elections were underway; according to reports, 51% of EU citizens voted. The “centre” is holding on to the majority, with the far right not far behind, collectively accounting for almost 25% of the chamber seats. Having suffered a defeat to his rival Le Pen, French President Macron called for a surprise snap election.
China's export growth in May exceeded expectations at 7.6%yoy, while imports rose a weaker than anticipated 1.8%. Despite trade tensions with the US, China's exports have held up and supported economic growth. However, global trade restrictions are increasing, with around 3,000 imposed last year compared to 1,000 in 2019 before the pandemic, according to the IMF. The Caixin China's services PMI showed activity in May grew at the fastest rate in 10 months, with staffing levels also expanding for the first time since January, signalling the country's economic recovery continued to gain momentum in the second quarter. We also heard that China is looking to implement a unified system in 2027 to measure carbon footprints of major products like coal, steel and vehicles. This plan aims to help China meet emissions targets and align with international carbon standards like the EU's Carbon Border Adjustment Mechanism.
If you would like to receive The Daily Update to your inbox, please email markets@epicip.com or click the link below.