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by Charalambos Pissouros

Weekly Outlook: July 15 – July 19: RBA Minutes, AU and UK Jobs Data, NZ, UK and Canada CPIs

We don’t have any central bank meetings on this week’s agenda, but we get the minutes from the latest RBA meeting, in which we will look for clues as to when the RBA may deliver another rate cut. Given the Bank’s emphasis on the labor market, Australia’s employment data on Thursday could also shape expectations on that front. In the UK, GBP traders are likely to focus on the jobs data for May, as well as the CPIs and retail sales for June, as they try to figure out whether the BoE will indeed abandon its hike plans soon. New Zealand’s and Canada’s CPIs will also be in the limelight.

On Monday, the EU and US sessions appear to be light in terms of economic events and indicators, with the only one worth mentioning being the New York Empire State manufacturing index for July, which is expected to have returned back above zero, to +1.6 from -8.6.

On Tuesday, during the Asian morning, the RBA releases the minutes of it latest gathering, when officials decided to cut rates for the 2nd time in a row, and noted that they will continue to monitor developments in the labor market closely and adjust policy “if needed” to support sustainable growth and the achievement of the inflation target. In June, the guidance was the same but without the “if needed” part. So, in our view, its addition means that, although the door for further action is not closed, the RBA is not in a rush to cut again when it meets next. Market participants appear to hold the same view, as according to the ASX 30-day interbank cash rate futures implied yield curve, they almost fully pricing in the next quarter-point cut is to come in December. Having all these in mind, we will scan the minutes to see whether the statement was interpreted correctly, namely that the RBA is in no hurry to cut for the third consecutive time, or whether officials remained willing to hit the cut button again when they meet in August.



From New Zealand, we get inflation data for Q2. The qoq CPI rate is anticipated to have risen to +0.6%, after staying for two consecutive quarters at +0.1%, something that is likely to drive the yoy rate up to +1.7% from +1.5%. At its latest meeting, the RBNZ kept interest rates steady at +1.50%, but signaled that more easing may be underway, with investors increasing their bets with regards to a rate cut at the Bank’s upcoming gathering, scheduled for August 7th.

Even though inflation is expected to accelerate, something like that could help the Kiwi somewhat at the time of the release, a yoy CPI rate of 1.7% will be in line with the RBNZ’s latest projections and still below the midpoint of its 2-3% target range. In our view, this is likely to keep the door for an August cut wide open. For the chances of such an action to narrow down, a stronger-than-expected acceleration may be needed.

During the European day, the UK employment report for May is due to be released. The unemployment rate is expected to have remained at its 45-year low of 3.8%, while average earnings including bonuses are anticipated to have risen +3.1% yoy, the same pace as in April. The excluding-bonuses rate is forecast to have ticked up to +3.5% yoy from +3.4%. According to the IHS Markit/KPMG & REC Report on Jobs for the month, the rate of starting salary inflation was the softest in just over two years and thus, we would consider the risks surrounding the earnings forecasts as tilted somewhat to the downside.

In Germany, the ZEW survey for July is coming out. The current conditions index is expected to have declined to 5.0 from 7.8, while the economic sentiment one is anticipated to have slid further into the negative territory, to -22.1 from 21.1. Eurozone’s trade balance for May is also coming out but no forecast is currently available.

Later in the day, from the US, we get retail sales, industrial and manufacturing production, all for June. Headline and core retail sales are forecast to have slowed to +0.2% mom and +0.1% mom respectively, after both rising to +0.5% in May. IP is expected to have slowed to +0.1% mom from +0.4%, while MP is anticipated to have risen +0.2%, the same pace as in June.

On Wednesday, during the European morning, the UK CPIs are scheduled to be released. The headline rate is forecast to have held steady at the BoE’s inflation target of +2.0% yoy, while the core rate is expected to have ticked up to +1.8% yoy from +1.7%.  Following some soft UK data, including the disappointing PMIs for June, and BoE Governor Carney’s recent dovish remarks, we doubt that just an uptick in the core CPI rate would be enough for investors to reduce bets with regards to a BoE dovish shift soon. On the contrary, a small disappointment could prompt them to add to those bets, especially if wage growth disappoints the day before.

Eurozone’s final CPIs for June are also due to be released and as it is always the case, they are expected to confirm their preliminary estimates, namely, that the headline rate held steady at +1.2% yoy, and that the core one rose to +1.1% yoy from +0.8%.

We get inflation data for June from Canada as well. The headline rate is expected to have declined to +2.0% yoy from +2.4%, while no forecast is available for the core rate, which stood at +1.8% yoy in May. Despite the potential slide, a headline CPI rate of +2.0% yoy would be just a tick below the BoC’s latest projections and thus we doubt that it could materially alter policymakers’ view with regards to monetary policy. At their meeting last week, they kept interest rate unchanged and noted that the degree of accommodation provided by the current rate remains appropriate, thereby staying among the very few major central banks that have not turned their eyes to the cut button yet.

On Thursday, during the Asian day, Australia’s employment report for June is due to be released. The unemployment rate is anticipated to have held steady at 5.2%, while the net change in employment is forecast to reveal a slowdown to 9.1k from 42.3k in May. As we already noted when discussing the RBA minutes, Australian policymakers have been placing extra emphasis on the labor market lately and thus a slowdown in job gains will keep the door with regards to further rate cuts open.

During the European morning, we get the UK retail sales for June. Both the headline and core rates are expected to have risen somewhat, but to have stayed within the negative territory. Specifically, the headline rate is forecast to have risen to -0.3% mom from -0.5%, while the core rate is anticipated to have ticked up to -0.2% mom from -0.3%. Something like that would drive both the yoy rates up to +2.6% and +2.7%, from +2.3% and +2.2% respectively. Although the forecast are pointing to better numbers than in May, still they suggest declines in monthly terms, which in our view could add to speculation that the BoE may soon decide to abandon its hike bias.

Later, in the US, the Philly Fed manufacturing index for July is anticipated to have risen to 5.0 from 0.3.

Finally, on Friday, during the Asian morning, Japan’s National CPIs for June are coming out. The headline rate is expected to have stayed unchanged at +0.7% yoy, while the core one is forecast to have declined to +0.6% yoy from +0.8%. The case for an unchanged headline rate and a sliding core print is supported by the Tokyo CPIs for the month, which moved in a similar fashion.

At its latest policy meeting, the BoJ kept its ultra-loose policy and forward guidance unchanged, but at the conference following the decision, Governor Kuroda said that extra stimulus would be considered if momentum towards reaching the inflation aim is lost. His remarks were echoed a couple of weeks ago by Deputy Governor Amamiya, who said that officials are ready to ramp up stimulus if needed and will consider all policy options, including cutting rates further into the negative territory. Thus, slowing inflation, especially in underlying terms could strengthen the case for additional accommodation by the BoJ in the not-too-distant future.

During the EU session, Eurozone’s current account balance for May is coming out and expectations are for the bloc’s surplus to have increased to EUR 21.2bn from EUR 20.9bn.

From Canada, we get retail sales for May, while from the US, the preliminary UoM consumer sentiment index for July is coming out. With regards to Canada’s retail sales, both the headline and core rates are expected to have risen to +0.3% mom from +0.1%, entering the basket of data allowing the BoC maintain its neutral stance with regards to monetary policy.As far as the UoM index is concerned, expectations are for a small rise to 98.6 from 98.2.

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