Employment reports out of the United States and Canada will be scrutinized as the Fed eyes a third rate hike and the Bank of Canada moves closer to a tightening cycle. Central bank meetings will include the Reserve Bank of Australia and the Riksbank, while PMI data out of the United Kingdom, the Eurozone, China, Canada, and the United States will also be watched.
RBA set to maintain neutral stance
The Reserve Bank of Australia is expected to hold rates unchanged at 1.5% for the 10th meeting in a row on Tuesday as the central bank attempts to balance low inflation and wage growth with rising household debt. Although the Australian labour market has shown some signs of strength recently, consumer spending has been softer this year. Retail sales data, also due on Tuesday, should indicate if the bounce back in sales seen in April will be sustained. Trade figures released on Thursday should also capture some attention, especially as the Australian dollar tests the key $0.77 level once again.
Canadian jobs in focus as Bank of Canada ponders a July rate hike
The Canadian dollar has enjoyed a strong rally in the past couple of months and strong jobs data out on Friday could fuel the loonie’s gains as it would give the Bank of Canada more reason to consider a rate hike at its July 12 meeting. Recent hawkish remarks from the Bank’s Governor and his deputy have caught markets by surprise as it wasn’t that long ago that the BoC was considering cutting rates. Also to watch out of Canada next week are trade figures on Thursday and the Ivey PMI on Friday.
Quieter week for the Eurozone
It will be a relatively quieter week for the Eurozone with only a handful of key data releases on next week’s calendar. The final readings of IHS Markit’s PMIs for June are not expected to see any revision. The manufacturing PMI is due on Monday and the services and composite PMIs on Wednesday. Monday will also see the release of the euro area’s unemployment rate and retail sales will follow on Wednesday. June’s flash readings had pointed to a slight easing in economic growth in the Eurozone at the end of the second quarter, and the euro’s sharp rally in recent days may threaten to put a damper on the current momentum. German data will also be in focus next week as both industrial orders and industrial output figures are out on Thursday and Friday respectively.
Tankan survey to show growing optimism among Japanese businesses
The Bank of Japan’s quarterly Tankan survey will be the main data release out of Japan next week. The Tankan’s key indices are all expected to improve in the second quarter, with both manufacturing and non-manufacturing companies reporting an increase in business sentiment. More importantly, large and small businesses alike are forecast to up their expectations of capital spending for the fiscal year ending March 2018. A solid Tankan report should help the yen as it would underline Japan’s strengthening economic outlook, though with the Bank of Japan still not satisfied with the performance of prices, any impact would be limited.
UK data in spotlight after Carney U-turn
Recent economic indicators out of the UK have been disappointing. Apart from the labour market, inflation has been the only other bright spot, which has now overshot the Bank of England’s 2% target. However, the UK economy remains fairly resilient under the climate of the Brexit uncertainty and the Bank of England has signalled it may consider a rate hike within the coming months. Even the Bank’s Governor, Mark Carney, who until last week had resisted calls for a rate rise, appears to be aligning himself closer to the hawks in the MPC, driving the pound back above $1.30. Incoming data in the next few months will therefore be analysed carefully for more clues on the strength of the economy. The Markit/CIPS manufacturing PMI will start the week on Monday. It’s expected to ease slightly to 56.4 in June. The construction and services PMIs, due on Tuesday and Wednesday, respectively, are also forecast to drop slightly. More data will follow on Friday with industrial and manufacturing production figures. Both industrial and manufacturing output are forecast to rise by 0.3% month-on-month in May.
ISM PMIs and NFP to be week’s highlight
The US will have a busier week despite the 4th of July Independence Day holiday on Tuesday. As the markets continue to question the Fed’s rate hike path that currently projects one more increase later this year, major data releases next week could shed more light on the state of the US economy. The closely watched ISM manufacturing PMI due on Monday will be the first big number of the week. The index is forecast to edge up slightly to 55.0 in June. Also out on Monday, is IHS Markit’s manufacturing PMI. The next batch of data will come on Thursday, which will include the ADP Employment reports, the goods trade balance, the Markit services PMI and the ISM non-manufacturing PMI. The ISM’s non-manufacturing PMI is expected to moderate from 56.9 to 56.6.
After a disappointing set of figures in May, June’s headline non-farm payrolls number is not expected to overwhelm either. The US economy is forecast to add 183k jobs in June, compared with 138k previously. The unemployment rate is expected to remain at 4.3% and average hourly earnings growth is forecast to quicken slightly to 0.3% m/m in June. Another poor report could spell more trouble for the US dollar, which has not only come under pressure from fading hopes of a fiscal stimulus anytime soon, but also from rising expectations of higher interest rates in other parts of the world.
Other notable events next week will include PMI figures from China and a monetary policy meeting by Sweden’s central bank. China’s Caixin manufacturing and services PMIs are due on Monday and Wednesday, respectively, and are expected to yet again show a divergence from the official PMIs in June. Meanwhile, Sweden’s Riksbank will meet on Tuesday and will likely sound less dovish given recent stronger-than-expected inflation data and an easing of upside pressure on the krona.
