Key events to watch in the week ahead: 1 – 7 July 2024

This week’s overview

A bounce in the second half of the US trading session managed to keep major US indices in the green overnight, but greater market cue is likely to come from the upcoming US Personal Consumption Expenditures (PCE) price data release.

The data will determine if market pricing for two Federal Reserve (Fed) rate cuts by the end of this year is overly dovish, given that the upside surprises seen in Canada and Australia’s inflation numbers earlier this week seem to call for more patience in policy easing.

Into the new week, here are five things on the radar.

1 July 2024 (Monday, 9.45am SGT): China’s Caixin manufacturing Purchasing Managers' Index (PMI) / 3 July 2024 (Wednesday, 9.45am SGT): China’s Caixin services PMI

Both the Caixin manufacturing and services PMI have beaten expectations in May. In the previous month, the manufacturing sector has turned in its seventh straight month of expansion at 51.7, which is its fastest pace since June 2022 amid rising new orders. The services segment has been resilient as well, with its 17th straight month of expansion at 54.0 reflecting its fastest pace since July 2023.

That said, some fizzling in momentum is expected for the upcoming June read, with consensus for the Caixin manufacturing PMI to come in at 51.2, down than the previous 51.7.

The recent run in mixed data out of China has raised concerns of an uneven recovery picture, with stronger retail sales being offset by weaker-than-expected inflation data, fixed asset investment and industrial output. Thus far, authorities remain confident of achieving the 2024 growth target of around 5%, with any easing of recovery momentum likely to drive expectations for more supportive policies into the second half of the year.

2 July 2024 (Tuesday, 9.30am SGT): Reserve Bank of Australia (RBA) meeting minutes

At its June Board Meeting, the RBA kept its official cash rate on hold at 4.35%, as widely expected. In the accompanying statement, the RBA noted that high rates are continuing to work to rebalance demand and supply and that the “persistence of services price inflation is a key uncertainty.”

The Board retained its neutral-sounding forward guidance that it’s “not ruling anything in or out”; however, the return of the comment that the RBA will do “what is necessary” to return inflation to target was viewed as a hawkish development.

RBA Governor Bullocks comments in the press conference that "a lot needs to go our way if we want to get inflation back to the target", and confirmation that the board discussed the option to hike rates but not the option to cut rates added to the hawkish tone.

Following this week’s hotter-than-expected May inflation data, the minutes will be closely scrutinised to see how close the RBA was to raising rates in June and for any clues as to whether May's hot inflation data will be enough to trigger a rate hike at the August meeting.

2 July 2024 (Tuesday, 5pm SGT): Eurozone’s annual inflation rate flash

The Eurozone’s core inflation for May has seen an uptick to 2.9% from 2.7% prior, which marked its first increase in ten months. The headline inflation has headed higher as well, from 2.4% in April to 2.6% in May.

Despite so, the European Central Bank (ECB) followed through with its pledge to cut its interest rate by 25 basis point (bp) in the June meeting, previously signalling greater confidence that inflation is on track to return to its 2% target. That said, policymakers did warn that any further reductions will be dependent on inflation easing.

With rate expectations pricing a 35% chance for another rate cut from the ECB in the July meeting, markets will be watching the upcoming inflation data for validation that the May uptick is just a blip. Any further pick-up in inflation could see markets pricing out a July rate cut amid concerns that it will take longer for inflation to return to target.

Current consensus is for Eurozone’s June headline inflation to come in at 2.5% year-on-year from the 2.6% prior. The core read is expected to come in at 2.8% from the 2.9% prior.

4 July 2024 (Thursday, 2am SGT): Federal Open Market Committee (FOMC) minutes

At its meeting in June, the FOMC left the target range for the Feds Funds unchanged at 5.25%—5.5%, as widely expected for a seventh straight meeting. Fed Chair Jerome Powell noted the recent improvement in inflation. However, he said, “We’ll need to see more good data to bolster our confidence that inflation is moving sustainably toward 2%.” Providing a hawkish surprise, policymakers signalled via the median “dot” that they now expect to cut rates only once this year, compared to projections for three rate cuts in March.

Fed officials have repeatedly said that interest rates will stay higher for longer. This week, we heard from Fed Governor Bowman, who said she does not expect any rate cuts in 2024 and reiterated a willingness to hike rates if progress on inflation stalls or reverses. Nevertheless, the minutes will be closely analysed for clues on the timeline for the Fed’s cuts and policymakers’ views on the inflation and growth outlook.

5 July 2024 (Friday, 8.30pm SGT): US non-farm payrolls

Last month (May), the US economy added 272,000 jobs, the most in five months, rebounding from a downwardly revised 165k in April and exceeding forecasts of an increase of 185k.

Providing some offset to the hot establishment survey, the household survey was soft, with the unemployment rate increasing 0.1pp to 4.0%, driven by a 408k decrease in household employment. All the decline in household employment and the increase in the unemployment rate were accounted for by workers under 25 years old. The participation rate fell to 62.5% from 62.7%.

In the lead-up to next week’s Nonfarm payroll (NFP) report, initial jobless claims recently hit a 10-month high of 243,000, while continuing claims this week rose by 18,000 to 1,839,000, the highest since November 2021, adding evidence to cooling in the labour market.

This month, the preliminary expectation is for the US economy to add 180k jobs and for the unemployment rate to remain stable at 4.0%. The participation rate is expected to rebound to 62.7%, and average hourly earnings are expected to fall to 3.6% YoY from 4.1 YoY% prior.