Ahead of the game: 22 July 2024

• Fed Chair Powell sounded dovish, stating that the three latest US inflation readings "add somewhat to confidence inflation is returning to 2%"
• US retail sales excluding autos increased by 0.4% in June, surpassing the 0.0% expected. The Retail Control group, which contributes to gross domestic product (GDP), exceeded expectations, rising by 0.9% versus the 0.2% anticipated
• Initial jobless claims surged to 243,000 last week, surpassing market expectations of 225,000
• In the UK, the headline inflation number for June was 2%, marginally higher than the 1.9% expected. The annual rate of core inflation was 3.5% year-on-year (YoY), aligning with expectations
• The European Central Bank (ECB) maintained their three key interest rates unchanged as anticipated
• China's Q2 2024 GDP rose by 4.7% YoY, below the estimated 5.1%, marking the slowest growth rate since Q1 2023
• China's housing prices declined by 4.5% YoY in June, following a 3.9% decrease the previous month, marking the 12th consecutive month of declines
• Japanese core inflation increased by 2.6% YoY in June, accelerating for a second month from a low of 2.2% in April
• The Australian economy added 50,200 jobs in June. The unemployment rate rose to 4.1% as the participation rate ticked higher to 66.9%
• Crude oil fell 1.72% this week to $80.80 per barrel, snapping a four-week winning streak. Gold gained 1.39% this week to $2444 after hitting a fresh record high of $2483
• Wall Street's gauge of fear, the volatility index (VIX), surged to 15.92 from 12.45 previously.

• NZ: Balance of Trade (Monday, 22 July at 8.45am AEST)
• AU: Judo Flash PMIs (Wednesday, 24 July at 9.00am AEST)

• CN: Loan Prime Rate 1y and 5y (Monday, 22 July at 11.15am AEST)
• JP: Jibun Flash PMIs (Wednesday, 24 July at 10.30am AEST)

• US: S&P Flash PMIs (Wednesday, 24 July at 11.45pm AEST)
• US: Durable Goods (Thursday, 25 July at 10.30pm AEST)
• US: GDP Q2 advanced (Thursday, 25 July at 10.30pm AEST)
• US: Core PCE inflation (Friday, 26 July at 10.30pm AEST)
• US: Michigan Consumer Sentiment Final (Saturday, 27 July at 12.00am AEST)

• EU: Hamburg Commercial Bank (HCOB) Flash PMIs (Wednesday, 24 July at 6.00pm AEST)
• UK: S&P Flash PMIs (Wednesday, 24 July at 6.30pm AEST)

• JP

Jibun bank flash PMIs

Wednesday, 24 July at 10.30am AEST

Japan's June Purchasing Managers' Index (PMI) for services activities reversed sharply to 49.4, down from 53.8 in May, marking its first contraction since August 2022. The decline may be attributed to a stagnation in new business as elevated prices weigh on domestic demand. This component had previously expanded for 21 consecutive months.

Despite the contraction in services, international sales continued to be supported by the weak yen, and the 12-month outlook and job creation both remained relatively strong. This raises some hopes that the June weakness is a one-time blip. June manufacturing activities also showed slight weakness, coming in flat at 50.0 from the previous 50.4.

Validation will be sought from upcoming PMI readings to determine if new business growth will improve. Further weakness could indicate an outright decline in demand, potentially reigniting growth concerns.

JP Jibun bank PMI chart

• EU

HCOB flash PMIs

Wednesday, 24 July at 6.00pm AEST

This week, the ECB maintained its three key lending rates as expected. During the press conference, President Lagarde emphasized that the ECB's decision in September remains completely undecided, highlighting the bank's approach to making decisions based on incoming data, without committing to a fixed rate path ahead of time.

In light of this, there is keen interest in this week's PMI data. The PMI index dropped to 50.9 in June, down from 52.2 in May, breaking a five-month trend of increasing readings. For July, expectations suggest a slight improvement, with the PMI composite index projected to rise to 51.2. Currently, the European interest rate market indicates a 66% likelihood of a 25 basis point (bp) rate cut in September.

EA HCOB composite flash PMIchart

• US

Q2 GDP growth rate

Thursday, 25 July at 10.30pm AEST

In the first quarter (Q1) of 2024, the US economy grew at a slower pace than initially reported, posting an annualised growth rate of 1.4% compared to the initial estimate of 1.6%. This slower pace was due to a downward revision in personal spending. With easing inflation and softer growth conditions recently, a rate cut from the Federal Reserve (Fed) in September has been fully priced in by the markets.

The advance estimate for the US GDP in the second quarter (Q2) is expected to show an improvement, with growth anticipated to be around 1.8%, up from 1.4% in Q1. The Atlanta Fed's GDP estimate for Q2 suggests even stronger growth, projecting a rate of 2.5% as of 16 July 2024. This upward revision from the previous forecast of 2.0% last week was influenced by a stronger-than-expected retail sales report for June.

Given the recent dovish shift in rhetoric from the Fed, a significant outperformance in the GDP reading might be required to convince markets to delay expectations for rate cuts. Without such a performance, September remains the anticipated timeline for the start of the Fed’s easing process.

US GDP quarter-on-quarter chart

• US

Core PCE inflation

Friday, 26 July at 10.30pm AEST

In May, the headline Personal Consumption Expenditures (PCE) price index did not increase, maintaining the annual inflation rate at 2.6% YoY. The US core PCE price index, which excludes food and energy prices, rose by a modest 0.1% from the previous month. This was the smallest increase since November 2023, slowing the annual core PCE inflation rate to 2.6% in May from 2.8% previously.

The Federal Reserve closely monitors the PCE inflation readings because they provide a comprehensive measure of inflation, reflecting changes in consumer behavior, such as substitutions made when prices rise. While the central bank officially tracks the headline PCE, it often places more emphasis on the core figures as they are considered a more accurate reflection of long-term inflation trends.

For June, market expectations suggest that the headline PCE will rise by 0.1% month-over-month (MoM), which would reduce the annual rate to 2.5%. The core PCE is anticipated to increase by 0.2% MoM, keeping the annual rate steady at 2.6%. A 25 bp rate cut is fully anticipated at the Fed's September Federal Open Market Committee (FOMC) meeting, with an additional 63 basis points in rate cuts expected before the end of the year.

Core PCE price index month-over-month chart

• US

Q2 2024 earnings

The US Q2 2024 earnings season continues this week, with earnings reports scheduled from companies including Visa, Ford, and two tech giants, Alphabet and Tesla.

US earnings dates chart