By Jessica Fleetham and Fabiana Negrin Ochoa
Below are the most important global events likely to affect FX and bond markets in the week starting July 15.
U.S. economic data will continue to be scrutinized as investors speculate whether the Federal Reserve could start cutting interest rates as early as September. Focus will also center on a European Central Bank decision, where rates are expected to be left on hold after a first rate cut in June, as well as inflation data from the U.K. and Canada, and a rate decision in South Africa.
China steals the spotlight in Asia, as an economic-reform-themed summit gets underway and a stream of key data shows how the world's second-largest economy is holding up. Observation will be on China's second-quarter growth figures plus June activity releases to gauge the effectiveness of policymakers' economic revival push.
Focus is also on a Japan inflation print, as well as a Bank Indonesia meeting. Other releases include Australian jobs data, New Zealand's second-quarter inflation print, Singapore exports, and flash second-quarter growth estimates for Malaysia.
U.S.
Investors will continue to scrutinize U.S. economic data--including retail sales figures for June on Tuesday, industrial production data for June on Wednesday, and weekly jobless claims on Thursday--as they gauge when the U.S. Federal Reserve is likely to start cutting interest rates.
Recent weaker U.S. inflation data combined with comments from Fed Chair Jerome Powell have increased the perceived likelihood that the central bank could start cutting interest rates as soon as September, weighing on the dollar and U.S. Treasury yields.
In his latest testimony before lawmakers, Powell said a cooling labor market diminishes prospects of persistently high inflation and suggested any further weakening in the job market would be unwelcome.
However, investors will need to see evidence of further weakening in the economy to have greater conviction that rates will fall in September.
Data on the U.S. housing market will also be watched, with June housing starts figures due on Wednesday.
The U.S. will auction $13 billion in 20-year bonds on Wednesday and $19 billion in 10-year Treasury inflation-protected securities, or TIPS, on Thursday.
CANADA
Canadian inflation data on Tuesday will be a key indicator which could decide whether or not the Bank of Canada follows up June's rate cut with a second rate cut at its meeting on July 24.
Recent weak labor-market data present "a compelling case for the Bank of Canada to embark on a back-to-back cut this month, conditional on core inflation pressures snapping back in June as we expect," Simon Harvey, head of FX Analysis at Monex,said in a note.
There have been signs of weakening inflationary pressures recently, with rents in Canada growing in June at their slowest pace in 13 months, according to data from Urbanation. Shelter has been the biggest upward driver of inflationary pressure in Canada.
Other Canadian data due include retail sales for May and producer prices for June on Friday.
EUROZONE
The European Central Bank is expected to leave interest rates on hold on Thursday after announcing its first rate cut in this cycle last month, particularly after ECB president Christine Lagarde said that the central bank needed more evidence to be sure that the inflation threat had passed.
"We expect the ECB to leave rates unchanged at the July meeting," economists at Nomura said in a note, adding that recent comments from ECB policymakers have "underscored a need for more time and data before rates can be cut again."
Focus will center on any comments on the outlook for interest rates beyond July, particularly on when the next cut can be expected and how fast rates will fall after that.
"Whilst a July cut would appear off the table, further easing this year remains a distinct possibility, the question being when and by how much," Investec economists said in a note.
The health of the eurozone economy will also be key to determining the path for interest rates.
The coming week's batch of economic data include German retail sales figures and eurozone industrial production, both for May, on Monday, as well as the forward-looking German ZEW economic sentiment survey for July on Tuesday. Final eurozone inflation figures for June are due on Wednesday, followed by German June producer price data and eurozone May current account figures on Friday.
Germany will conduct two government bond auctions, launching new October 2029-dated federal notes, or Bobl, with a volume of EUR4 billion on Tuesday, and tapping August 2052- and August 2054-dated Bunds for EUR1 billion each, on Wednesday. Greece has scheduled an auction for Wednesday and Spain for Thursday. France will hold separate auctions for conventional and inflation-linked bonds on Thursday.
U.K.
As the dust settles after the recent U.K. election--where the Labour Party won a parliamentary majority as expected, resulting in limited reaction on financial markets--focus turns back to economic data.
U.K. consumer-price inflation data for June are due on Wednesday and could be decisive in whether or not the Bank of England opts to start cutting interest rates in July.
U.K. annual CPI fell to the 2.0% target in May but it could still push higher again. BOE chief economist Huw Pill said more evidence of a sustained fall in inflation was needed before cutting interest rates, and emphasized that annual services price inflation and wage growth continue to show "uncomfortable strength".
Stronger-than-expected U.K. gross domestic product data for May also cast further doubt on prospects of an August rate cut.
"This may mean the bank doesn't need to rush to cut interest rates," Capital Economics economist Ashley Webb said, although he still expects a rate cut will happen in August.
Another decisive set of data will be Thursday's U.K. jobs and wages data, especially given that U.K. wage growth has stayed high of late.
Producer price data for June will be released alongside the CPI numbers on Wednesday, while Friday will see the release of retail sales and public sector borrowing numbers for June. Also on Friday, the GfK consumer confidence survey for July will provide a more up-to-date indication of the health of the U.K. economy.
The U.K. will auction 4.75% 2043-dated gilts on Tuesday and 4.125% 2029-dated gilts on Wednesday.
SOUTH AFRICA
The South African Reserve Bank announces a rate decision on Thursday.
Comments from SARB Gov. Lesetja Kganyago suggested that with the election out of the way and a government of national unity formed, the door for an interest-rate cut before the end of the year is now open, Capital Economics emerging markets economist Jason Tuvey said in a note.
However, a rate cut isn't imminent, he said.
"We still think that the SARB is in no rush to start easing policy. We think that it will want to see more evidence that inflation and inflation expectations are moving in the right direction."
Capital Economics expects a rate cut in early 2025 but acknowledges a risk that this could happen earlier.
South African retail sales data for May are due on Wednesday.
THIRD PLENUM
On Monday, Chinese President Xi Jinping and other top Communist Party officials gather for the Third Plenum, a once-in-five-years meeting to chart a fresh course for the world's second-largest economy. The four-day summit comes as China's recovery from a property-sector collapse and pandemic-fueled slowdown remains in doubt. The meeting had also been delayed without explanation, raising speculation about what policy might be unveiled to drive growth in the next five years.
Analysts will watch the event closely to learn how leaders aim to rebuild confidence among households and the private sector, with possible policies ranging from changing the retirement age to opening more sectors up to foreign investment. A reform of the consumption tax is also on the table, analysts said. Although expectations for new major stimulus are low, careful attention will be paid to the tone of policy communications.
CHINA
A flood of data on Monday will likely give broadly downbeat signals about China's economic recovery.
Economic growth is tipped to have declined to 5% from a year earlier in the second quarter, and compared with 5.3% in the first three months of the year, according to the median forecast of economists surveyed by The Wall Street Journal.
The protracted property-market slump likely took a toll on growth despite Beijing's renewed efforts to prop up the sector, economists said. Despite the slowdown, analysts widely expect that China is on track to achieve the around 5% annual growth target it has set for this year.
Growth in industrial output, consumption and investment likely all slowed in June, according to the WSJ poll. Growth in retail sales--a proxy for domestic consumption--might have slowed to 3.4% on year in June from May's 3.7%, while industrial production growth is projected to have decelerated to 4.8% from 5.6%. Fixed-asset investment likely rose 3.9% on year in the first half of the year, down from the 4% expansion recorded in January through May.
Home price and property investment data is also due Monday.
"The 70-city property prices will also be watched closely to see if there are signs of stabilization after May saw the steepest month-on-month decline of any month in this current downturn," ING economists said.
The People's Bank of China will also set its one-year medium term lending facility rate on Monday morning, which markets expect to remain at 2.5%, they added. Weak inflation and credit data continue to back the case for further monetary policy easing.
NEW ZEALAND & AUSTRALIA
All eyes will be on New Zealand's second-quarter inflation release on Wednesday, which could be a potential trigger for interest-rate cuts.
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07-12-24 0639ET
