In a bleak economic backdrop, the US stock markets had ended the worst first half in 50 years. According to the US Federal Reserve Bank of Atlanta’s GDPNow model, the US GDP may have contracted by 1% in the second quarter after a revised negative growth of 1.6% in the first quarter, which implies that the world-largest economy has probably fallen into a technical recession. The US non-farm payroll for June will provide clues for the labor markets, where a possible slowdown in new hires will add more pessimism to the economic trajectory.
By contrast, the Chinese economy signals a rapid recovery from the strict covid-lockdowns. Opposite to most of the western economies, China’s stimulus monetary policy fuels the local equity markets’ rally, with CSI 300 up 5% in the last three months versus a 16% drop in the S&P 500.
Comparison of CSI300 (+4.88%), SPX(-16.45), DAX (-11.31%), and ASX 200 (-12.95) from 1 April to 31 July
Key Instruments
- The US benchmark yield on the 10-year Treasury Note fell to the lowest level since late May on Friday, suggesting that the bets of less aggressive rate hikes by the Fed are growing. See the US Treasury pricing
- USD/JPY faced downside pressure due to sharp drops in the US bond yields, implying that an improved bond market liquidity may buffer the selloff in the broad equity markets. See USD/JPY's movements
- Crude oil markets may continue to be under pressure as the US refineries are running at nearly full capacity. OPEC + has also decided to increase the crude output by 50% in both July and August. Check on oil prices
- Cryptocurrencies have been whipsawed by the USDT’s collapse, risk-off shatters, liquidity crunch, and withdrawal halts. But there may be a chance for the crypto markets to stabilize since the worse might have passed. Trade bitcoin now
Key economic data and events (July 4 – July 8)
US – FOMC meeting minutes, non-farm payroll (June)
The FOMC meeting minutes for June will be released on Thursday. The Fed outsized the rate hike by 75 basis points in the June meeting amid hotter-than-expected US CPI data in May, which printed at 8.6% year on year. Fed Chair Jerome Powell repeatedly vows to curb inflation by more aggressive rate hikes. According to the CME FedWatch Tool, the chance for the Fed to raise interest by another 75 bps in the July meeting is 80%, and the fund’s rate will rise to 3.5% by the year-end. Hence, a 50-bps hike may offer a sharp relief rally to the US equity markets.
With companies signaling to slow hiring, the non-farm payroll data tends to be a crucial economic gauge for the labour market. Consensus calls for 290,000 new jobs added in June vs. 333,000 in May. It is expected the unemployment rate will stay at 3.6% unchanged.
China – Caixin service PMI, official CPI, and PPI (June)
China’s official service PMI jumped to 54. 7 in June from 47.8 in May. Usually, the Caixin data will follow a similar trend, with a forecast of 46.00 for June vs. 41. 40 in May. The data will be released on Tuesday. The positive Chinese economic data suggest that the world’s second-largest economy is on the course of fast recovery from its multi-month covid lockdowns. China’s CPI and PPI data will be also released Saturday.
Australia – RBA rate decision, MI inflation gauge
The Reserve Bank of Australia is going to announce its rate decision on Tuesday. It is widely expected that the reserve bank is going to raise the cash rate by another 50 basis points to pin down inflation. The RBA governor Phillip Lowe expects Australian inflation to hit 7% by the year-end from the current 5.1% in the first quarter. He also warns of higher rates to come.
A quarterly report of the CPI data is not frequent enough for the RBA to assess the inflation trajectory, which makes the MI inflation gauge an import monthly outlook for the consumer price.
New Zealand – ANZ commodity prices change (June), GDT data
The ANZ World Commodity Price Index tracks the average price of the country’s main commodity exports, including Diary, meat, horticulture, forestry, and aluminum. The price index fell 2.8% in May due to the negative impact of China’s lockdowns. The Global Dairy Trade (GDT) index had also fallen 6 times in the last 7 auctions. It is expected to see an improvement in the data since China has eased the health restrictions since June. Both data will be released on Tuesday.
Canada – employment change (June)
It is expected that Canada has added 22,500 new jobs in June, down from 398,000 in May. And the employment rate may stay unchanged at 5.1%. The robust Canadian labor markets will be most likely to promote the Bank of Canada to increase the interest rate by 75 basis points in the July meeting.
Europe Week Ahead
- EU and UK service PMIs (June)
- J Sainsbury Q1 results
- Persimmon Q2 results
