Ahead of the game: 15 July 2024

This week provided a twist for US equity markets. A sharp sell-off in mega-tech stocks weighed on the Nasdaq and the S&P 500, despite a cooler-than-expected inflation update that saw the probability of a 25 basis points (bp) Fed rate cut rise to almost 100% for September.

Locally, the ASX 200 soared to a new record high of 7969.1, supported by expected US interest rate cuts and solid gains for consumer-facing property and financial stocks. It has a good chance of testing and breaking through 8000 next week.

• Fed Chair Powell sounded dovish in his semi-annual testimony to Congress The Fed Chair said that while the Fed sought further confirmation inflation was returning to target, the labour market "appears to be fully back in balance"
• US Headline consumer price index (CPI) fell by -0.1% month-over-month (MoM) in June, allowing the annual rate to fall to 3.0% year-over-year (YoY) from 3.3% prior
• US core CPI rose in June by 0.1% MoM, with the annual rate falling to 3.3% YoY from 3.4% prior
• In the UK, Bank of England (BoE) Chief Economist Huw Pill's comments that services inflation and wage growth remain too high, weighing on expectations of BoE rate cuts
• China's annual inflation rate edged lower to 0.2% in June, falling short of market estimates of 0.4%
• China producer prices index (PPI) fell by 0.8% YoY in June, less than market estimates of -1%
• In Australia, Westpac's consumer sentiment index fell 1.1% in July to 82.7, remaining within the "deeply pessimistic" range
• National Australia Bank’s (NAB) Australian Business confidence index surged to 4 in June from an upwardly revised -2 the previous month
• The Reserve Bank of New Zealand (RBNZ) left the official cash rate unchanged at 5.50%; however, the accompanying statement was dovish
• Crude oil eased 0.44% this week to $82.79 per barrel, snapping a four-week winning streak
• Gold gained 0.70% this week to $2408
• Wall Street's gauge of fear, the volatility index (VIX), increased to 12.91 from 12.47 prior.

• AU: Labour Force Report (Thursday, 18 July at 11.30am AEST)
• NZ: Q2 2024 Inflation (Friday, 19 July at 8.45am AEST)

• CN: Q2 GDP, IP, Retail Sales, FIA and Employment (Monday, 15 July at 12.00pm AEST)
• JP: CPI (Friday, 19 July at 9.50am AEST)

• US: Retail Sales (Tuesday, 16 July at 10.30pm AEST)
• US: Building Permits (Wednesday, 17 July at 10.30pm AEST)

• UK: Inflation Rate (Wednesday, 17 July at 4.00pm AEST)
• EU: ECB Interest Rate meeting (Thursday, 18 July at 10.45pm AEST)

• CN

Q2 GDP, IP, retail sales, FIA and employment

Date: Monday, 15 July at 12.00pm AEST

China continues to face growth challenges this week, as services activities ease alongside weak domestic demand. This is reflected by a mixed set of purchasing managers' index (PMI) numbers and lower-than-expected inflation data. The release of second quarter (Q2) GDP and its monthly 'data dump' next week will likely carry more significance alongside the Third Plenum session from 15 to 18 July, in which long-term economic reforms and policies are usually announced.

In the first quarter (Q1), China’s GDP came in higher-than-expected at 5.3%. The upcoming Q2 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. Q2 GDP is expected to grow 1.1% quarter-on-quarter (QoQ), down from 1.6% in Q1.

Other metrics show further easing in recovery momentum. Retail sales are projected to ease to 3.4% from a 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, Chinese authorities have recently downplayed hopes of a strong remedy, resulting in possible disappointment.

CN retail sals and industrial production chart

• AU

Labour force report

Date: Thursday, 18 July at 11.30am AEST

In May, the Australian economy added 39,700 jobs, which was marginally stronger than the 30,000 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, 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 10,000 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 RBA rate hike in August.

AU unemployment rate chart

• EU

ECB interest rate meeting

Date: Thursday, 18 July at 10.45pm AEST

At its last meeting in June, the European Central Bank (ECB) delivered on a pre-signalled interest rate cut, reducing all its policy rates by 25 bps.

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 communiqué was cautious and non-committal on the future path of rate cuts. ECB President Lagarde 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.

EU deposit rate chart

• JP

Inflation and wage growth trends

Date: Friday, 19 July at 9.00am AEST

Japan has experienced an upswing in both wages and prices over the past months, which offers some confidence for the Bank of Japan's (BoJ) outlook for sustainable inflation.

In May, Japan’s nominal wage growth increased to 1.9% from April’s 1.6%, registering its highest level since January. May's inflation also saw an uptick in both the headline and core inflation to 2.8% and 2.5% respectively, although the core-core read (excluding food and energy prices) continued to ease.

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

Tokyo’s CPI, considered to be a leading indicator for nationwide inflation, showed an uptick in both headline and core inflation for June. This may set the stage for an upward trend in next week’s national pricing pressure readings.

JP inflation rate chart

• US

Q2 2024 earnings

US Q2 2024 earnings season picks up the speed with earnings reports scheduled from companies including Bank of America, Blackrock, Netflix and many more.

Earnings date chart