Key events to watch in the week ahead: 3-7 July 2023

This week’s overview

A series of stronger-than-expected economic data out of the US this week has calmed some nerves around recession concerns, with the US Economic Surprise Index surging to its highest level in almost three months. As the end of the second quarter nears, Wall Street remains on track to conclude with another quarter of gains, with the S&P 500 up a stellar 10.7% during the quarter.

The upcoming week will bring focus to the Reserve Bank of Australia’s (RBA) interest rate decision with market pricing out any rate hike, at least for the upcoming meeting. The Fed’s rate outlook will remain on watch as well, with attention on the Federal Open Market Committee (FOMC) minutes and key US non-farm payroll report to determine the Fed’s next move in end-July.

Here are three events to watch next week:

4 July 2023 (Tuesday, 12.30pm SGT): RBA interest rate decision

The RBA has delivered an unexpected 25 basis-point (bp) hike in the previous meeting, but follow-up minutes stated that the recent rate decision was “finely balanced”, which pointed to some reservations among policymakers. Along with a new 13-month low in recent monthly inflation data, the case is made for a rate pause at the upcoming meeting.

That said, rate expectations remain split on how far the peak rate will eventually have to go. Reaction from policymakers to the recent downside surprise in inflation data will be on watch, with any softer tone around tightening likely to drive a dovish recalibration in expectations to price for a more prolonged rate pause.

6 July 2023 (Thursday, 2.00am SGT): FOMC minutes

The Fed has delivered a hawkish surprise at its previous meeting, guiding for 50 bp worth of additional tightening by the end of this year. Clues around that guidance will be highly sought in the upcoming minutes, given that market expectations continue to price for a less hawkish rate outlook as compared to the Fed’s dot plot.

Rate expectations thus far have remained firm despite a series of hawkish Fed comments, seemingly more sensitive to economic data instead. Therefore, it may have to take much more from the Fed minutes to convince markets of its hawkish outlook.

7 July 2023 (Friday, 8.30pm SGT): US non-farm payrolls

Past US recessions tend to be preceded by a period of decline in the US non-farm payroll and despite ongoing chatters of a potential recession in the US, recent read in the US non-farm payrolls has been suggesting otherwise.

Over the past one year, the US job report has outperformed market expectations on 11 out of 12 occasions, with a notable reacceleration viewed over the past two months. Unemployment rate last stood at 3.7% in May, overall signifying some labour market resilience.

Following last month’s increase of 339k, forecasts for June are for a 200,000 increase, with unemployment rate remaining unchanged at 3.7%. Another set of better-than-expected readings may reinforce hopes of a soft landing but could also pressure the Fed to do more by anchoring a 25 bp hike next month and pushing back against the timeline for rate cuts.

Expectations for average hourly earnings stands at a 0.3% increase month-on-month. Barring any significant upside surprise, keeping it within the 0.3%-0.4% range could see some shrugging off.