Market Outlook for the week of 14th-18th July
A busy week lies ahead in terms of economic events, even though Monday starts off slowly with no significant scheduled releases affecting the FX market.
On Tuesday, the main focus will be on inflation data from both Canada and the U.S. Additionally, the U.S. will release the Empire state manufacturing index.
On Wednesday, the U.K. will publish its inflation figures, while in the U.S., we'll see the release of both core PPI m/m and PPI m/m.
Thursday brings Australia’s employment change and unemployment rate, while in the U.S., retail sales m/m and weekly unemployment claims will be released.
Finally, on Friday, Japan will publish its National Core CPI y/y, and the U.S. will release preliminary figures for the UoM consumer sentiment and UoM inflation expectations indexes.
In Canada, the consensus for CPI m/m is 0.2%, compared to the previous 0.6%. Median CPI y/y is expected to remain unchanged at 3.0%, as is trimmed CPI y/y. Common CPI m/m is forecasted to edge up slightly to 2.6% from the prior 2.7%.
This week’s inflation data will be closely watched, as it could influence market expectations ahead of the next BoC meeting. The key focus will be on core inflation. After falling to 3.0% in May, it will be important to see whether the trend continues or declines further in June.
There are signs that inflationary pressures are easing as economic conditions cool, wage gains soften, and services inflation shows signs of moderation. Despite this, the BoC may hold off on a rate cut at the next meeting, partly due to the continued resilience of the labor market. However, if inflation data surprises to the downside, a July rate cut would be on the table.
Wells Fargo analysts suggest that if core inflation prints at 2.8% or lower, it would strengthen the case for a July cut. If inflation remains sticky, markets are more likely to anticipate a cut in the autumn.
In the U.S., the consensus for core CPI m/m is 0.3%, compared to the previous 0.1%. Headline CPI m/m is also expected at 0.3% vs. 0.1% prior, while CPI y/y is forecast to rise to 2.6% from 2.4%.
Expectations are for inflation data to show an uptick, driven by recent price pressures in both goods and services. If this materializes, annualized core inflation over the past three and twelve months would rise to 2.4% and 2.9%, respectively, still well below the peaks of the recent years, but enough to potentially worry policymakers.
Markets will be watching closely to determine whether this is merely a temporary rise or the beginning of renewed stickiness in core price pressures.
In the U.K., the consensus is for CPI y/y to remain unchanged at 3.4%, with core CPI y/y also expected to hold steady at 3.5%.
While food prices remain elevated and oil costs briefly spiked late last month, the broader picture suggests easing inflationary pressures, particularly within the services sector. Private sector wages are projected to have cooled to 4.8% in the three months to May, reinforcing expectations that the BoE will deliver a 25 bps rate cut at its next meeting in August.
That said, unless inflation and wage growth slow more decisively or the economy weakens significantly, additional rate cuts are likely to proceed at a cautious, quarterly pace rather than in back-to-back moves, Wells Fargo analysts noted.
Australia’s June labour force report is expected to show a rebound in job creation following May’s surprise dip. Employment fell by 2.5K last month, which was largely viewed as a correction after April’s sharp 87.6K gain, but analysts anticipate a return to growth, with forecasts generally ranging between a 20K and 30K increase.
Westpac is forecasting a 30K rise, citing continued strength in the underlying trend. On a three-month average basis, employment growth is running at a healthy 2.3% y/y, consistent with the pace seen at the end of 2023. June's figures are expected to reflect this resilience, supported in part by a slight increase in labour force participation.
While monthly figures remain volatile, the labour market continues to show signs of stability. The unemployment rate is expected to hold steady at 4.1% in June, aligning with analyst consensus. In May, the drop in employment was offset by a similar decline in the labour force, which pushed the participation rate slightly lower to 67.0%, Westpac said.
For June, a modest rebound in participation to 67.1% is anticipated. Combined with expected job gains, this should keep the unemployment rate unchanged. Overall, the labour market remains broadly stable, with the jobless rate hovering near levels seen consistently over recent months.
In the U.S., the consensus for core retail sales m/m is a 0.3% increase, compared to the previous -0.3%. Headline retail sales m/m are expected to rise by 0.2%, following a sharp -0.9% decline in the prior month.
The recent drop in consumer spending was concentrated in categories excluded from the control measure, which actually rose by 0.4%. This means the control measure may be presenting an overly optimistic picture, according to Wells Fargo analysts. Only about half of retailers reported higher sales, suggesting that tariffs could be starting to weigh on consumer behavior.
Auto dealership sales, a key component of retail, have declined in four of the first five months of the year and May’s drop, in particular, significantly pulled overall sales lower. That said, there are early signs of a potential rebound in auto sales. Meanwhile, e-commerce continues to perform well, helping to offset weakness in other areas.
Looking ahead, June retail sales are expected to be largely unchanged, with a modest 0.3% gain anticipated in the control measure. Consumers are still spending, but the pace of growth appears to be slowing.
This article was written by Gina Constantin at www.forexlive.com.
