Outlook for This Week’s Most Important Economic Events


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Key points to watch out for:

  • The June US payrolls report is anticipated and the Fed is not budging
  • Eurozone CPI, Fed minutes and the ECB forum the main topics of interest for investors this week.
  • France and the UK vote: will the elections bring terror or order?

Macron’s move may turn out to be a shot in the dark

Political risks again weighed on the euro during June, as a resurgence in popularity of far-right political parties caused jitters in financial markets. France has been at the center of this resurgence, where the party led by Marine Le Pen, the Rassemblement National, is on course to repeat its success from the European elections in the upcoming legislative vote. The first round of the elections will be held on Sunday, June 30, while the second round will take place one week later.

Most polls indicate that President Macron’s decision to call early elections in the hope of possibly forming a new coalition against the far-right will not succeed, although the markets are no longer as worried about a government with a far-right approach as they were immediately after learning the results of the European elections. The National Rally party seems to have shifted into the mainstream in its attempt to attract more voters and gain the guarantee of an absolute majority, stepping back from some of its more radical promises. The party has even mentioned that it will abide by European Union fiscal rules, which has been welcomed by investors.

A bigger problem for markets is the possibility of the left-wing alliance leading the next government, which is more likely to spend recklessly and trigger a Liz Truss-style debt crisis. The leftist alliance has overtaken Macron’s La République En Marche coalition in the polls, so, should it come in second place after the National Rally, it could be on track to form the next government.

Markets seem equally concerned about the prospect of political paralysis in the event of a hung parliament. Moreover, if the main parties put aside their differences and manage to agree on a unity government to end a stalemate or keep the far right out of power, there is a danger that it may not survive for long, which is why markets are nervous.

Will the CPI encourage the ECB’s cut forecasts?

A good result for the National Rally could cause the euro to fall along with French stocks and bonds on Monday, July 1, as a possible knee-jerk reaction before recovery, while a better-than-estimated result for the other parties could be seen as positive at first, before caution sets in.

Uncertainty regarding the French elections, as well as concerns about political stability in other Eurozone countries, have already begun to weigh on business confidence and, should this begin to affect growth expectations, it is less likely that the European Central Bank will hesitate to cut interest rates again.

In this regard, policymakers will be paying close attention to the Eurozone CPI data on Tuesday, July 2, following the surprise rebound in May’s headline figure of 2.6% year-on-year. Estimates point to a slight drop to 2.5% in June, which, if true, could put slight pressure on the currency as traders increase their bets on a September cut.

But investors will be equally interested to hear what Lagarde and colleagues have to say about price estimates during the ECB’s three-day central banking forum in Sintra, Portugal. Federal Reserve officials, led by Jerome Powell, will also participate in a roundtable discussion with President Lagarde on Tuesday, July 2.

A landslide victory for the British Labour Party expected

On the other side of the English Channel, there is less uncertainty regarding the outcome of the British general election on Thursday, July 4. The Prime Minister, Rishi Sunak, has not been able to change the fortunes of the ruling Conservatives despite a very tight campaign. Labour, which is in opposition, is very well positioned in the opinion polls and has a good chance of winning a supermajority.

As interesting as a stable government may be for sterling at this time, given the tumultuous years under the Conservatives, a fragile government may unsettle some investors. There is a risk that the Conservatives could plummet and lose to the far-right Reform UK party, led by Brexiteer Nigel Farage.

However, it is equally possible that the Conservatives will do better than the polls suggest, giving Labour a tighter victory, which may prove positive for British equities. However, the real test for sterling will surely come when Keir Starmer has settled into Number 10 and the new finance minister, likely to be Rachel Reeves, has begun to outline more details of Labour’s economic agenda.

Will the NFP and ISM PMI ruin the dollar’s upward trend?

With the euro and the pound overshadowed by domestic politics, investors are increasingly turning their attention to the upcoming US presidential election in 2024, and monetary policy continues to be the dominant theme for the US dollar. Recent positive inflation data, as well as signs of a slowdown in consumer spending and the housing market, have served to reinforce hopes for a September rate cut by the Federal Reserve, although policymakers appear to be unconvinced at this stage.

The continued tightness in the labor market is possibly the main reason why the Fed has not yet abandoned its hawkish bias, and the employment report due on Friday, July 5 may not change all of this. Nonfarm payrolls are expected to increase by 180,000 jobs in June, down from 272,000 last month, but still expected to be robust.

The unemployment rate is expected to have remained unchanged at 4.0% in June, while average hourly earnings are expected to have increased by about 0.3% month-on-month compared to 0.4% in May.

Prior to the release of the NFP, there will be other labor market indicators, such as the JOLTS job openings and Challenger layoffs on Tuesday, July 2, as well as the ADP employment report on Wednesday, July 3. In addition, the minutes of the June Federal Open Market Committee (FOMC) meeting on Wednesday could give more signals about the thoughts of policy makers, as most of them set a single rate cut for 2024.

In case investors do not get much clarity from employment indicators, they will focus more on ISM PMIs. The manufacturing PMI will be released on Monday, July 1 and the services PMI on Wednesday, July 3.

The former is expected to increase from 48.7 to 49.0 points, while the latter is expected to fall from 53.8 to 52.0 points. A weaker services PMI would be positive for Wall Street, as long as it does not fall more than estimated. More importantly, though, markets expect to see a slowdown in inflation.

The dollar is vulnerable to a massive sell-off in the event of weak incoming data, after continued gains in the previous month.

The Loonie and Kiwi Watch Data Ahead of July Rate Decisions

Employment data will also be released on Friday, July 5, and could be decisive for the Bank of Canada’s July monetary policy decision. Hopes for a rate cut next month were dampened considerably in the wake of the higher-than-estimated May CPI numbers. Wage growth is also a cause for concern, as it jumped to 5.2% year-on-year in May. A moderation in June could increase the likelihood of a successive rate cut, leading to a fall in the Canadian dollar.

Overall, the Canadian labor market has been gradually cooling, with the unemployment rate rising from its 2022 lows, despite a healthy increase in employment.

In New Zealand, the Kiwi will be watching the NZIER business confidence indicator on Tuesday, July 2, as the July 10 RBNZ policy decision approaches, and its Australian cousin will be keeping an eye on China’s PMI numbers.

The official manufacturing PMI, due to be released on Monday, July 1, is expected to come in unchanged slightly below 50 at 49.5 in June, although the Caixin equivalent is forecast to have declined slightly to 51.2.

Adding to this eventful start to the week will be the Bank of Japan’s quarterly Tankan survey. The business outlook is expected to be similar to the previous survey, but it does not reflect the sluggish growth seen in recent economic data. Therefore, signs of continued optimism could provide a helping hand to the battered yen.

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