By Deepta Bolaky
It was a fully-charged week for the financial markets- a trade truce, tariffs threats on Europe, interest rate expectations, and EU top jobs. However, the main catalyst was the Nonfarm Payrolls.
The US payrolls surprised to the upside with a 224k jobs versus 160k expected for the month of June. Investors scaled back expectations of interest rate cuts. Wall Street snapped three-day winning streak to end lower on Friday.
The payrolls numbers will likely be the dominated factor at the start of the week as investors contemplate their positions and re-assess the interest rate outlook ahead of several Fed speeches on Tuesday and key economic releases which will provide further insights on the health of the global economy.
The Federal Reserve (Fed)
After the strong jobs report seen on Friday, this week Fed speeches will be of utmost significance. Investors will expect more clues from the Fed’s chair, Jerome Powell’s two-day testimony on Tuesday and Wednesday respectively. Even though a July rate cut expectations have scaled back, market participants still expect some sort of cutting. The figures show that the labour market remained a strong spot in the economy, but there are also economic signs of deceleration and global uncertainties that are expected to remain the significant concerns for the Fed.
Source: Bloomberg Terminal
Bank of Canada (BoC)
In the light of dovish central banks, the attention will switch to the BoC. The Canadian economy is doing quite well with a series of stellar economic releases recently. Inflation has exceeded expectations, and GDP growth has accelerated. Even though there was a dip in the employment data which can overshadow the recent buoyant data, the strength in wages and hours will likely compensate for the slight drop in the jobs report.
While we do not expect the BoC to be hawkish given the slowing global economy, we think the BoC will likely refrain from echoing other major central banks easing policy and maintain its key interest rate on hold at 1.75% through the end of the year.
We will see the inflation data on Wednesday with the releases of the Producer and Consumer Price Index. The highlight will be the trade balance on Friday as new figures on exports and imports will confirm the extent of the damages on the latest round of tariffs.
Chinese exports rose to 1% YoY in May mostly due to frontloading. Exports are expected to drop by 2.0% in June. A more significant drop can fuel fears about the economy. With a trade truce in place, the trade balance figures will be heavily eyed as it can determine the path of the trade negotiations.
The extension of Brexit had exacerbated the impact of slowing global growth and caused the UK economy to have contracted in the second quarter of 2019 for the first time in seven years. Even with the ongoing Brexit chaos, the UK economy was somewhat resilient but postponing Brexit reignited no-deal fears.
June PMIs figures released last week saw further contraction and revealed a significant fall in the construction markets from 49.3 to 43.1. Across the week, we will expect the economic releases to provide more clues on the UK economy to gauge the path of interest rates:
Tuesday: Like-for Like Retail Sales
Wednesday: Industrial and Manufacturing Production, GDP and BoE’s Tenreyro Speech
Thursday: Financial Stability Report
Among a series of Fed speeches, the FOMC and the CPI figures will be in the limelight. The interest rate path saw a major shift in June, and we expect the minutes to reveal the views of the FOMC members.
We note that the Fed viewed the soft readings of inflation as due to “transitory influences” which means that it might not be the immediate factor that will help to price-in a rate reduction at the end of this month. If inflation remained on the weak side, it would reinforce the view of easing policies.
|Tuesday, 09 July 2019
Indicative Index Dividends
Dividends are in Points
Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs. Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.