US stock markets ended the best month since November 2020 on bets the current rate hike cycle might have reached a peak. The Fed’s less aggressive tone further boosted risk appetite. According to the CME FedWatch Tool, the odds for a 50 basis points rate hike in September is 77%, and 25 basis points in November is at 68%. Major tech company earnings reports were mixed but most of them have given a positive outlook for the third quarter. The market relief rally may sustain till at least September when the Fed provides further guidance in its monetary policy.
This week’s employment data from a few major economies will provide clues for the labor market’s trajectory, in which the US non-farm payroll data for July will possibly point to a slowdown in employment.
- A possible end of the rate hike cycle may start pressuring the US dollar, in turn lifting other major currencies. See the latest technical analysis.
- It might be the time to pick bargains in growth stocks with most mega-cap tech companies expecting better results in the second half of the year. See big techs' movements
- Crude oil may continue to elevate amid the weakening US dollar and ongoing supply issues. Check on crude prices
- Cryptocurrencies could be set going into another spring along with the broad risk assets. Trade cryptocurrencies now
Key economic data and events (31 July – 7 August)
US – ISM manufacturing and services PMI (July), non-farm payroll (July)
The ISM manufacturing and services PMI will be released this Tuesday and Thursday, respectively. Due to the economic headwinds, such as elevated inflation and rate hikes, economic activities have been drastically slowed down, with both US manufacturing and services PMI weakening to the lowest levels in June this year.
After two consecutive negative quarterly growth in GDP, the outlook for the US economy is certainly not rosy. Slow hirings and layoffs will be translated to a drop in the upcoming non-farm payroll data. The forecast for an increase in the new job is 255,000, which may be the weakest number since January, while the unemployment rate is expected to stay at 3.6%. While the growth in job numbers is on a downbeat trend, the earnings increase could lose momentum too, forecasted at 5% year on year following a 5.1% in June.
China – Caixin manufacturing PMI (July)
China’s economic activities are expected to continue to recover from Covid-lockdowns. Since June, when Shanghai eased the health restrictions, the country is on a rapid pace of recovery in manufacturing PMI. The official PMI will be released this coming Sunday and the Caixin data will be announced on Monday. The consensus is 50.5 versus 50.2 in June for the official data, and 51.5 for the Caixin PMI versus 51.5 in the prior month.
Australia – RBA cash rate decision
It is almost certain the reserve bank will raise the official cash rate by another 50 basis points to 1.85%. The inflation runs hotter to 6.1% in the second quarter and is on pace to hit over 7% towards the end of the year. The strong employment data will not hold back the Reserve Bank on its pace for rate hikes. But less aggressive rhetoric from the Fed last week could encourage a slowdown by the RBA after September.
UK – BOE policy meeting
The Bank of England is widely expected to raise the interest rate by 25 basis points to 1.5%, which is more conservative compared with the other central banks as the country’s inflationary pressure is worse than its peers, running at 9.4% in June.
New Zealand – Employment change (Q2)
The New Zealand labor markets may be further tightening in the second quarter due to an almost 2-year immigration halt. The unemployment rate stays at a record low of 3.2% for two consecutive quarters. According to the consensus of Thomson Reuters, the second quarter unemployment rate may further drop down to 3.1% and the participation rate could reach as high as 71%. This will support the RBNZ to rate the cash rate by another 50 basis points in August.
Canada – employment change (July)
The Canadian labor market may stay robust in July, with the unemployment rate forecasting at 5% versus 4.9% in June. Consensus also calls for 15,000 new jobs have been added in July.