Services PMIs, raft of US data, final day of ECB Sintra Forum, FOMC minutes make for busy schedule; politics casts long shadow, as SCO summit kicks off: German 10-yr; Constellation Brands earnings
– Services PMIs: weak China & Japan contrast with India strength; Eurozone seen posting solid growth; politics and rates weighing on UK? US ISM expected to retreat after May jump, but still expanding
– U.S.A.: job market indicators continue to send mixed signals on extent of labour market loosening; focus on balance of risks, and real rates discussion in FOMC minutes
EVENTS PREVIEW
Services PMIs/ISM and a raft of US data, some front loaded ahead of the Independence Day holiday tomorrow, along with the final day of the ECB’s Forum on Central Banking and the June FOMC minutes will make for a busy schedule. The US run of statistics includes ADP Employment, Challenger Layoffs, Weekly Jobless Claims, Trade Balance and Factory Orders. Politics will also remain to the fore, as efforts to block Le Pen’s RN at Sunday’s run-off elections intensify, tomorrow’s UK general election as the annual summit of the Shanghai Cooperation Organization (SCO) gets underway. Germany sells 10-yr, while Constellation Brands heads a very modest run of corporate earnings.
** World – Services PMIs/ISM **
– While Asian Manufacturing PMIs offered positive signals, Services PMIs ex-India were weak, with China’s Caixin taking a tumble, echoing the official NBS, within which business expectations fell to their lowest since the height of the pandemic in an ominous signal, while Japan’s PMI was revised slightly lower from flash readings, but India recorded very robust growth driven above all by export demand. Eurozone services readings are expected to remain rather divergent, with a robust expansion in Spain contrasting with a contraction in France, and solid readings from Germany & Italy, the latter broadly in line with an expected unrevised 52.8 for the region as a whole. Notably the flash Services estimate saw Input Prices at a 38-month low, suggesting that stubbornly high Services CPI should start to ease once the summer travel season is over. The second consecutive monthly dip in the UK Services PMI to 51.2 is expected to be confirmed, it remains to be seen whether this is due to do with the election putting spending plans on hold, or the impact of high interest rates. Over in the US, the Services is expected to dip back to 52.5 after an unexpected jump to 53.8 in May, while the PMI is seen confirmed at a robust 55.1, overall suggesting solid growth momentum.
** U.S.A. – Labour market indicators & FOMC minutes **
– Following on from the unexpected uptick in JOLTS Job Openings to 8.14 Mln (vs. downwardly revised 7.919 Mln), which was heavily concentrated in govt and manufacturing jobs, with other sectors mostly shedding positions, and ahead of Friday’s official monthly labour market report, the focus turns to today’s ADP Employment. This has been a fairly reliable guide to the household data (that generates the Unemployment Rate) and is seen improving marginally from 152K to 165K. Challenger Layoffs have been very volatile for quite some time, with emergent trends in a given sector quite frequently snuffed out after a few months, in principle echoing the high level of uncertainty about the medium-term economic outlook. Weekly Jobless Claims have ticked high in trend terms, but as with layoffs, a more protracted upturn to the sort of levels that would suggest the Unemployment Rate was headed high at a faster pace, and thus tip the scales in terms of the Fed rate outlook is yet to emerge. The June FOMC minutes will reveal the rationale for the reduction in 2024 rate cut expectations, and the discussion around whether rates are genuinely ‘sufficiently restrictive’, and the extent to which some argue that there is simply a greater time lag in rates hikes having an impact. Of note will be the evaluation of the labour market, and how much further labour demand would need to loosen before it starts to balance out lingering inflation concerns. Also of note is whether the discussion on inflation revived a point made by Goolsbee yesterday, that as inflation falls real rates will start to climb, and the Fed will need to adjust nominal rates lower to avoid a sharper tightening in real rates. This was topical around Q4 2023, but withered on the Q1 uptick in inflation, but may well move back front and centre during Q3.
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