US Employment reports and meetings of the BoE and RBA this week
In the UK, the BoE's "Super Thursday" policy meeting will likely become the focus of market attention, amid speculation that the bank could raise interest rates this year.
-in Australia, RBA is expected to decide to stay in wait. The market will probably focus on any statement indicating whether policymakers are comfortable with the latest increase in Australian yields as well as AUD appreciation.
-Employment data in the United States for July are expected to show that the labour market continues to improve. While this could support the expectations of another rise in interest rates in the Fed during this year, analysts believe that inflation data can be the main determinant of the next Fed's move.
-We also obtain key economic data from the United Kingdom, the United States, New Zealand and Canada.
July 31 Economic Calendar
On Monday, preliminary data from the eurozone's CPI for July will be in the spotlight of the market. Without a forecast available yet, experts consider that the figures of both the main rate and the underlying CPI rate have remained constant, with upward-biased risks. The Markit compound PMI of the eurozone showed that prices rose only modestly in July. We must also bear in mind that the monthly CPI data of July 2016, which should be excluded from the annual calculation now, were from-0.6% and-0.7% for the main rate and the underlying rate, respectively. Therefore, all of this implies that even if we now have unpromising monthly data, as long as they are better than the disappointing results produced in July 2016, they could still cause annual CPI rates to increase.
Economic calendar for the rest of the week
On Tuesday, during the Asian day, the RBA will announce its policy decision and the forecast is that the bank will keep the rates unchanged once again. July has been anything but boring for AUD investors and traders. The turmoil began after the minutes of the last meeting showed a debate among politicians about the level of the policy of neutral rates in Australia, which was enough to increase the speculation that the bank might be getting ready to raise interest rates soon. However, a few days later, both Governor Lowe and vice Governor Debelle Viertieron cold water on such expectations, noting that markets should not speculate or draw too much conclusions from these conversations. Lowe made it clear that RBA is likely to remain in wait in the near future.
However, this meeting is likely to be closely monitored for any updated signal on the policy and, in particular, to see if RBA is comfortable with the latest increase in Australian yields, as well as AUD appreciation. In fact, both Lowe and Debelle pointed out that it would be desirable to have a lower AUD, implying a modest risk that the statement accompanying the decision would communicate a similar nuisance with respect to the recent increase of AUD. However, it is likely that the main factor that will determine whether the RBA will become more "hawkish" could soon be the second-quarter wage data, to be published in mid-August, taking into account the most recent concerns of RBA officials regarding wage growth.
In the UK, the manufacturing PMI for July will be in the spotlight of the market. Then, on Wednesday, we will have the index of construction for the same month and later on Thursday, the always important indicator of services will be announced. Although there is no prognosis available for any of these figures, it is quite likely that they will be closely followed by the market in order to have an indicative of how the economy has behaved in the third quarter, after a relatively uninspiring result of GDP for the second quarter.
On Wednesday, from the United States, we have a series of economic data. The underlying price index for June, the personal income and expense data for June as well as the ISM manufacturing PMI for July will be published this week. Starting with the underlying price index PCE for June, without a forecast available, there is a possibility that the annual rate has remained unchanged. Despite the fact that the PMI composite Markit for the month showed that the average prices charged by the companies increased to the faster pace in what goes this year, the underlying inflation rate of the month remained unchanged, increasing the likelihood of a similar reaction in the underlying PCE rate.
On the same day, also from the United States, we will have the ADP employment report for July, two days before non-farm payrolls. The forecast is that the private sector has added 185,000 jobs, notably more than the 158000 in June. Such a strong impression could increase the speculation that Friday's NFP will also meet its forecast of 180000 posts. That said, however, it is important that operators have some precaution. Although ADP is the only important indicator of non-agricultural payrolls, the correlation between the two indicators has declined markedly in recent months.
Thursday is the "Super Thursday" in the UK. In addition to the BoE's interest rate decision and the minutes of the meeting, we will also have the quarterly inflation report, which will be presented by Governor Carney at a press conference after the meeting. At its June meeting, the bank kept its policy unchanged, but the vote to remain on hold was 5-3, much more closed than the 7-1 forecast indicated.
After the meeting, Governor Carney and chief economist Haldane, suggested that an increase in rates could soon be applied soon, generating speculation that the vote could be even more closed and that there might be a rise in interest rates already in this meeting. However, shortly thereafter, the data showed that UK inflation was significantly reduced, generating doubts as to whether the bank in fact will proceed to a rise in the foreseeable future. According to UK's overnight index swaps, the market is betting almost entirely on an increase in 25bps interest rates in December 2018.
We will also have the US ISM non-manufacturing PMI for July, as noted above. Finally on Friday, the U.S. employment report for July will take the center stage. The forecast is that the non-agricultural payrolls ham increased by 180000 posts, less than 222000 posts in June. The unemployment rate is expected to recede to 4.3%, while average earnings per hour are projected to have accelerated in monthly terms. However, this would still cause the annual rate to mark down.
In general, this would be another employment report consistent with an improvement in the labour market, which will be a pleasant news for Fed officials, and can increase market expectations a little with respect to the time of the next increase in rates. While June's "dot plot" points to another rate increase this year, according to the futures of the federal funds, the market only provides a 50% probability for such action. As for the general picture, analysts believe that the main determinants of whether the Fed, in fact, will proceed with another increase in interest rates this year are inflation data. The latest results showed that general inflation slowed for the fourth consecutive month, while the underlying rate remained unchanged after falling for four consecutive months. There is probably a strong upturn in inflation before the expectations of rising rates rise materially and help the dollar to reverse its latest downward trend.
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