Market Outlook for the Week of 8th – 12th July

July 8, 2024 7:40 am

Monday has no significant events scheduled, but Tuesday, all eyes will be on Fed Chair Powell, who is set to testify on the Semi-Annual Monetary Policy Report before the Senate Banking Committee in Washington DC. His testimony will continue Wednesday and other FOMC members are also expected to deliver their remarks throughout the week.

Last week at Sintra, Powell mentioned the progress on inflation but emphasized the need for further improvements and a general cooling in activity before considering rate cuts. This week he is expected to reiterate this dovish message, but traders will want to see if he mentions the latest jobs report.

Last week the NFP printed above expectations at 206K vs 191K consensus, but this slight improvement followed two downward revisions over the prior months. Coupled with the unemployment rate rising to 4.1%, there are signals the jobs market is softening.

The highlight on Wednesday will be the RBNZ monetary policy announcement and Thursday will bring the GDP data for the U.K. and inflation prints for the U.S., along with the unemployment claims.

Finally, on Friday, the U.S. will release the Core PPI m/m, PPI m/m, preliminary UoM consumer sentiment, and preliminary UoM inflation expectations.

At this week’s meeting the RBNZ is expected to keep its monetary policy unchanged at 5.5% and to reiterate that “monetary policy needs to remain restrictive to ensure inflation returns to target to a reasonable timeframe.” As a reminder at the May meeting the Bank hinted that a first rate cut will likely not happen until August next year. Since then there hasn’t been any significant progress on inflation, economic activity has continued to stall and labor market conditions have seen some easing.

The consensus for the U.K. GDP m/m is 0.2% vs prior 0.0%, suggesting a 0.5% increase in April-May GDP over Q1, pointing to solid growth in Q2. The services sector has seen solid growth, but the industrial output will struggle to recover after the 0.9% drop in April.

The U.S. CPI data is widely anticipated, as everyone wants to see if there is continued progress in controlling inflation. Last month, the core CPI m/m finally printed at 0.2%, following previous prints of 0.4% and 0.3%. These earlier prints posed a challenge for the Fed, as they suggested inflation was decreasing more slowly than expected.

However, if the low 0.2% prints continue, the Fed will gain confidence that inflation is heading toward the desired 2.0% target. Wells Fargo expects that falling energy and food prices will continue to keep the CPI in check.

The consensus for the U.S. core PPI m/m is 0.1%, compared to the previous 0.0%, and for the PPI m/m, it is 0.1% vs -0.2% prior. Analysts at Wells Fargo noted that the 0.2% drop in the headline PPI last month, which measures the selling prices received by domestic producers, indicated a renewed cooling trend in inflation pressures. A key aspect to monitor will be the components that offer insights into how the CPI results will translate to the PCE deflator.

Wish you a profitable trading week.

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