This week kicked-off with the China Caixin manufacturing PMI which climbed to a three-year high of 51.8 last month. In contrast, the official figures showed no change in the manufacturing PMI, at 49.5, while the non-manufacturing PMI fell to 50.5 in June. Later today we have PMI prints for June from the eurozone, and the UK. The ECB forum (through to July 3rd) will be watched closely by markets, as will the Euro Finance Summit. Eurozone CPI on Tuesday and US job openings will garner market focus, China Caixin services PMI and US ISM services will be scrutinised on Wednesday as will the FOMC minutes from the June meeting. Thursday, US Independence Day, sees the UK elections, and EU tariffs on Chinese electric vehicles commence. Eurozone retail sales and the all-important US employment report will keep markets on their toes on Friday. Early estimates for nonfarm payrolls stand at +190K jobs added in June, unemployment sticking at 4.0% with average hourly earnings easing to 0.3%mom and 3.9%yoy. The French elections and US presidential campaign will also garner much interest this week.
A busy week at the ECB Forum in Sintra, sees the Fed’s Powell (Tue) and Williams (Wed), and the ECB’s Lagarde (Tue and Wed), Schnabel (Tue), Guindos (Tue and Wed), Elderson (Tue), Cipollone (Wed), and Lane (Wed) speak.
Markets last week grappled with key US inflation data and mixed Fed rhetoric. The yield on the 10-year UST rose 14bps to 4.40%, while the 2-year was up 2bps to 4.76%. The S&P Index closed marginally lower over the week, the dollar was slightly higher, and Brent crude gained 1.37% closing the week at $86.41pb. The Japanese yen also came into sharp focus as it hit a 38-year low, closing above 161 against the dollar, and a record low against the euro.
In terms of Fed speak, Goolsbee discussed the effects on the real economy from remaining “extra restrictive for too long”. He cited rising unemployment insurance claims, a rise in credit card delinquencies and a pullback in consumer spending as reasons he does not believe the real side of the economy is overheating. Later, Bowman emphasised the need to maintain elevated borrowing costs due to potential upside risks to inflation. She cited factors like limited supply improvements, immigration policy changes, labour market tightness, and fiscal stimulus as potential price pressures. Bowman warned against premature rate cuts and reflected on the Fed’s delayed inflation response in 2021. She also criticised proposed bank capital regulations, suggesting they could negatively impact banking services and market liquidity. Barkin stated that the inflation battle has not been won, adding that the US economy will likely remain resilient as long as employment remains low and asset valuations high. Bostic maintained one rate cut in Q4 stating that inflation is “moving in the right direction”.
Later we had some mixed key data prints. US Q1’24 GDP edged up marginally to 1.4%qoq, however, the third reading of personal consumption dropped from 2% to 1.5%. The GDP price index emphasised the price pressures, ticking up to 3.1% while the core PCE price index rose to 3.7%. In contrast, the core PCE index advanced by 0.1% in June, the smallest rise in six months, with the year-on-year figure increasing at the slowest since early-2021, at 2.6%. The Fed’s Daly said the PCE report, the Fed’s preferred inflation metric, is further evidence that policy is working. Elsewhere, China bond yields headed for record lows amid sluggish economic growth, anticipated interest rate reductions, and excess liquidity in the financial system caused by weak loan demand. Despite increased government borrowing for fiscal stimulus, investors remain attracted to these bonds. The People’s Bank of China is pushing back against the ongoing bond rally, considering selling its holdings to cool the market. This comes amid persistent economic challenges, with recent data showing continued factory contraction and declining home sales. Meanwhile, attention turns to the upcoming Third Plenum, where details of fiscal and tax reforms may be unveiled, following hints from Chinese leaders at a December economic meeting.
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