Weekly Outlook: July 06 — July 10: RBA Decision and Canada’s Employment Report
This week appears relatively lighter than the previous ones, with only a few events having the potential to prove market movers. One is the RBA decision during the Asian session Tuesday, where focus may be on whether officials will scale back up their QE purchases or not. On Friday, we have Canada’s employment report for June, where a strong report may allow BoC policymakers to stay comfortably on the sidelines for a while more.
On Monday, in the EU trading, we get Eurozone’s retail sales for May and the UK construction PMI for June. Eurozone’s retail sales are forecast to have rebounded 15.0% mom after tumbling 11.7% in April, something that would drive the yoy rate up to -7.5% from -19.6%. The UK construction PMI is expected to have increased to 47.0 from 28.9.
Later in the day, we get the final Markit services and composite PMIs for June from the US, as well as the ISM non-manufacturing PMI. The final Markit prints are expected to confirm their preliminary estimates, while the ISM index is expected to have increased to 50.0 from 45.4. Although this would point stagnation for the sector, it would, at least, be out of the contraction territory and could add to evidence that the US economy is recovering faster than previously thought, despite hitting new daily records with regards to infected cases from the coronavirus.
On Tuesday, during the Asian morning, the RBA meets to decide on monetary policy. When they last gathered, officials of this Bank decided to keep their benchmark rate and the target of their 3-year government bond yields unchanged at +0.25%, noting that they have purchased government bonds on only one occasion since the previous meeting. They also repeated that they are prepared to scale up purchases again if necessary.
Since then, the only top tier economic release we got was the nation’s employment report for May. The unemployment rate rose to 7.1% from 6.2%, while the net change in employment showed that the economy has lost another 227.7k jobs during the month, after losing 594.3k in April. The forecast was for a 125.0k slide. With the participation rate also declining to 62.9% from 63.5%, this means that many people who don’t have a job have been discouraged to sign for unemployment benefits. If they have done, the unemployment rate may have been higher. What’s more, in June we had a new flare-up of infected cases in China, which forced South Australia to cancel its border re-opening. Thus, with all that in mind, it would be interesting to see whether officials are willing toscale back up their QE purchases, or whether they prefer to wait for more data to be released, in order to have a better picture with regards to how the economy is performing.
As for Tuesday’s data, Germany’s industrial production for May, the US JOLTs job openings for the same month, and Canada’s Ivey PMI for June are coming out. The German industrial production is expected to have rebounded 10.0% after tumbling 17.9%, while the US JOLTs job openings are expected to have declined to 4.850mn from 5.046mn. No forecast is available for Canada’s Ivey PMI.
Wednesday appears to be a very light day. The only indicators worth mentioning, although they are not major market movers, are Japan’s current account balance for May and Canada’s housing starts for June. Japan’s current account surplus is expected to have widened to JPY 1.088trln from JPY0.263trln, while Canada’s housing starts are forecast to have increased somewhat.
On Thursday, during the Asian day, we have China’s CPI and PPI for June. The CPI rate is expected to have ticked up to +2.5% yoy from +2.4%, while the PPI rate is anticipated to have risen to -3.2% yoy from -3.7%. Later in the day, Germany’s trade balance for May is coming out and the forecast points to an increasing surplus to EUR 5.0bn from EUR 3.2bn.
Finally, on Friday, during the European morning, Norway’s CPIs for June are coming out. No forecast is currently available for the headline rate, which rose to +1.3% yoy in May from +0.8% in April, while the core one is anticipated to have ticked down to +2.9% yoy from +3.0%.
At their latest meeting, Norges Bank officials kept interest rates unchanged at 0.0%, repeating that they will keep them at that level for some time ahead. That said, they appeared somewhat more optimistic than previously, saying that since the prior meeting, activity has picked up faster than expected, the unemployment has fallen more than anticipated, and oil prices have risen. Thus, with oil prices trading slightly higher than back then, inflation rates near their May prints may allow policymakers to sit comfortably on the sidelines and reiterate their sanguine language.
Later in the day, we get the employment report from Canada for June, but no forecast is currently available for neither the unemployment rate nor the employment change. At its most recent meeting, the BoC kept interest rates unchanged and said that given the improvement in short-term funding conditions, it reduced the frequency of its term repo operations and its program to purchase bankers’ acceptances. Officials also said that the Canadian economy appears to have avoided the most severe scenario presented in the Bank’s April Monetary Policy Report and that the economy is expected to resume to growth in the third quarter. However, with the headline inflation rate for May falling to -0.4% yoy from -0.2%, and the core one sliding to +0.7% from +1.2%, it would need a strong employment report to allow Canadian policymakers to stay comfortably on the sidelines for a while more.
From the US, we have the PPIs for June. The headline rate is forecast to have increased to -0.2% yoy from -0.8%, while the core one is anticipated to have ticked up to +0.4% yoy from +0.3%.
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