Key events to watch in the week ahead: 15 – 21 July 2024

This week’s overview

This week, downside surprises in US consumer price index (CPI) data seemed to match the “good data” that the US Federal Reserve (Fed) was looking for, which further anchored the case for a September rate cut. Market rate expectations are now looking at a 85% probability for a 25 basis point (bp) cut in September, up from the 70% prior to the data release.

US equity markets were more mixed however, with market participants taking the opportunity to unwind some of their outperforming tech holdings, while rotating into laggards. Small-caps have been one of the beneficiaries, with the Russell 2000 index seeing a 3.8% upmove overnight.

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

US 2Q earnings season

With the major US banks’ earnings releases underway, the upcoming week will also see attention revolving around Netflix, which may set the stage for tech earnings ahead. Subscriber growth numbers will remain in focus for Netflix to gauge if its lower-priced, advertising-supported service as well as its crackdown on unpaid account sharing can continue to bear fruits.

15 July 2024 (Tuesday, 10am SGT): China’s 2Q gross domestic product (GDP), retail sales, industrial production, fixed asset investment

A mixed set of Purchasing Managers' Index (PMI) numbers and lower-than-expected inflation data this week continue to reflect the growth challenges that China is facing, as services activities ease alongside weak domestic demand. The release of 2Q GDP and its monthly 'data dump' next week will likely carry more significance with the underway of the Third Plenum session from 15-18 July, in which long-term economic reforms and policies are usually announced.

In 1Q, China’s GDP came in higher-than-expected at 5.3%. The upcoming 2Q GDP is expected to register a 5.1% growth rate, with some fizzling in growth momentum raising doubts on whether the authorities’ 2024 GDP growth target of around 5% can still be met. Quarter-on-quarter, 2Q GDP is expected to grow 1.1%, down from the 1.6% in 1Q.

The other metrics may also show further easing in recovery momentum. Retail sales is projected to ease to 3.4% from previous 3.7%, industrial production may ease to 5.0% from 5.6% prior and fixed asset investment may ease to 3.9% from 4.0% prior. While hopes have been raised for more supportive measures to be announced in the Third Plenum to support the economy, China authorities have recently downplayed hopes of a strong remedy, which may leave the risks of any disappointment on watch.

18 July 2024 (Thursday, 9.30am SGT): Australia’s employment change/unemployment rate

Last month (May), the Australian economy added 39.7k jobs, marginally stronger than the 30k gain the market expected. The unemployment rate eased to 4.0% in May from 4.1% prior, despite a rise in the participation rate to 66.8% from 66.7%.

Bjorn Jarvis, the Australian Bureau of Statistics (ABS) head of labour statistics, said: "In April, we saw more unemployed people than usual waiting to start work. Some of the fall in unemployment and rise in employment in May reflects these people starting or returning to their jobs."

The May labour force report confirmed that the Australian labour market remains tight; However, a softening in forward indicators and the trend higher in the unemployment rate show that rebalancing in the labour market is underway.

At this early stage, the market expects the economy to add 10k jobs in June and for the unemployment rate to remain stable at 4.0%. The rates market is pricing in an 18% chance of a 25 bp Reserve Bank of Australia (RBA) rate hike in August.

18 July 2024 (Thursday, 8.15pm SGT): European Central Bank (ECB) interest rate decision

At its last meeting in June, the ECB delivered on a pre-signalled interest rate cut, reducing all its policy rates by 25 bp.

The rate cut wasn’t without controversy after core inflation reaccelerated in May to 2.9% YoY from 2.7%, and wages ticked up in Q1. The decision to ease monetary policy was further clouded by the staff forecasts, which revised up estimates for inflation and wage growth in 2024 and 2025.

The tone of the communique was cautious and non-committal on the future path of rate cuts. ECB President Lagard indicated that future decisions will be data-dependent and that there will be further bumps along the inflation road towards 2%.

As such, the ECB is expected to keep its monetary policy settings unchanged in July, with the most likely window for follow-up cuts being September and December.

19 July 2024 (Friday, 7.30am SGT): Japan’s June CPI

Japan has experienced an upswing in both wages and prices over the past months, which seem to offer some confidence for the Bank of Japan (BoJ) on its lookout for “sustainable inflation”.

In May, Japan’s nominal wage growth grew 1.9%, accelerating from April’s 1.6% and registering its highest level since January this year. Its May inflation has also seen an uptick in both the headline and core inflation to 2.8% and 2.5% respectively, although the core-core read (ex. food and energy prices) continues to ease.

The upcoming inflation read will be on watch to validate if the wage-price spiral that the BoJ seeks is in the works. Further increases in pricing pressures may likely give room for the BoJ to move ahead with further policy normalisation at its next meeting on 31 July.

The Tokyo’s CPI, which is widely considered to be a leading indicator for the nationwide inflation, showed an uptick in both headline and core inflation for June. This may set the stage for an upward build in pricing pressures in the nationwide readings next week as well.