Key events this week include China’s Third Plenum (Mon-Thu), the ECB rate decision (Thu) and a host of US bank earnings.
Later today we have eurozone industrial production and the US Empire manufacturing prints. Markets will be booking for confirmation on the weakening US consumer on Tuesday, when we have the US retail sales print. Eurozone CPI, UK CPI, and US housing starts and industrial production will garner market attention on Wednesday. We also have the King’s Speech to introduce new UK PM Keir Starmer’s legislative agenda. UK unemployment, and US initial jobless claims, Phili. Fed manufacturing index, and Conf. Board LEI readings are due on Thursday.
Central bank activity includes Fed’s Chair Powell’s interview, and we will hear from Daly on the economy later today. The Fed’s Kugler speaks on Tuesday. The Fed’s Beige Book on Wednesday will give further clues as to the health of the US economy and consumer and we will hear from the central bank’s Barkin on the US economy. Thursday’s main event is the ECB’s rate decision, a hold on rates is expected, and what will be of importance to markets is rhetoric during President Lagarde’s post meeting news conference. On Thursday we will hear from the Fed’s Daly, Logan and Bowman. Then on Friday Williams and Bostic both speak at different events.
Last week Fed Chair Powell’s Congressional testimonies offered a balanced view of the US economy, acknowledging inflation progress whilst cautioning against premature rate cuts. He noted inflation’s moderation to 2.5% but emphasised the need for sustained progress towards the 2% target. Powell described a strong, but not overheated, labour market and highlighted the Fed’s awareness of risks in both cutting rates too soon or too late. Whilst not signalling specific rate cut plans, his remarks led markets to reprice rate cut odds to two this year. This move was further evidenced by the release of lower-than-expected US CPI data for June which bolstered the disinflation narrative in the US, with headline CPI falling to 3.0%yoy, and the core reading easing to 3.3%yoy. Next, PPI rose slightly more than expected in June, primarily due to increased service costs. The Uni. of Michigan sentiment, expectations and current conditions all dropped, as did the 1-year and 5–10-year inflation expectations, both reading 2.9%.
Elsewhere, China’s inflation surprised to the downside. In June, CPI rose 0.2%yoy (exp. 0.4%yoy) and PPI slid 0.8%yoy, remaining in deflation. Deflationary pressures continue to impact the economic recovery in China as consumption has been stifled by the real estate slump and weak job market. China’s economic recovery is showing signs of weakness and unevenness. While industrial output climbed and export growth accelerated in June, retail sales growth disappointed. Moreover, this morning we heard that Q2 GDP growth slowed to 4.7%, to the weakest in five quarters. The PBoC is holding off on dramatic measures, instead opting for expanded fiscal spending to stimulate the economy. Despite increased household deposits, consumption remains weak, and money supply growth has hit historic lows. Investors are now focusing on the Third Plenum meeting this week for potential policy support and reforms, though expectations are for modest tweaks rather than major changes.
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