Macroeconomics: The Day Ahead for 3 July

The US monthly labour market report (released a day early due to tomorrow’s Independence Day holiday) and Services PMIs/ISM should by rights be the focal point of today’s schedule, but may struggle to contend with the UK government in a potentially existential crisis, the US House of Representatives needing to debate and ratify the Senate amended Tax & Spending Bill, and the US President rattling trade related sabres ahead of next week’s July 9 deadline for reciprocal tariffs to be reimposed. The ECB’s June minutes, and the BoE’s quarterly Bank Liabilities, Credit Conditions and monthly DMP (Decision Maker Panel) surveys and Atlanta Fed’s Bostic’s speech on monetary policy are also on the agenda, along with Swiss and Turkish CPI, and Trade data from Australia, Canada and the USA.

The UK Welfare Bill debacle leaves the Labour government in crisis, with PM Starmer’s seemingly equivocal or worse, mismanaged backing of Chancellor Reeves serving to compound the impression that neither are fit for leadership roles. The backbench revolt against the Welfare Bill had been obvious for months, but both Starmer and Reeves chose to ignore the obvious threat and then were forced to backtrack at the last minute. Leaders that are deaf to the murmurings and recalcitrance of their rank and file members either have to force their will through with a draconian iron fist, or expect that they will end up falling on their own swords. The fact is that the Labour Party is so deeply divided on policy directions, and that Starmer and his cabinet have failed to build a consensus behind their agenda, leaving them looking as inept, incompetent and rudderless as the various Conservative governments that preceded them. The sad part is that there was, and probably still is an opportunity for the UK to steer away from the detritus of the totally mismanaged Brexit process. To some extent there has been some success on the international stage, but with so many domestic challenges, this counts for nothing with a very restive public. While the UK political system has been crying out for change for many a decade, lurching back into the uncertainty of the post-Brexit referendum period is definitely not what the doctor ordered.

** U.S.A. – June labour market report **
– Trying to extrapolate underlying trends on the current state of the US labour market is proving rather difficult. Yesterday’s 33K fall in ADP Employment (generally better correlated with the Household survey rather than the Establishment survey that generates Payrolls, and highlighting a drop in SME hiring) stands in stark contrast to the much stronger than expected and massively revised JOLTs Job Openings, the latter above all boosted by increased hospitality and leisure sector openings. The ADP report justifies expectations of an expected 0.1 ppt uptick in the Unemployment Rate to 4.3%, though it has also prompted some modest downward revisions to the headline Payrolls forecast to 110K and Private to 104K, with Manufacturing expected to shed 3K. Anecdotal evidence suggests earlier and sharper seasonal reductions in education (doubtless related to budget related uncertainties) may drag, with the question being how much of an offset there will be from seasonal hiring in hospitality and leisure. Average Hourly Earnings are seen up a modest 0.3% m/m, which would see the y/y edge down to 3.8%.