Market outlook for the week of 20th-24th July
Monday begins with Marine Day in Japan then later the focus will shift to the Canadian inflation data. On Tuesday, New Zealand will release its CPI data, while the U.K. will publish the claimant count change, the average earnings index 3m/y and the unemployment rate.
Wednesday’s highlight will be the U.K.’s inflation report then, on Thursday, Australia will release the employment change and the unemployment rate, while attention in the eurozone will turn to the ECB monetary policy announcement.
On Friday, the focus will be on Japan’s national core CPI y/y, alongside the flash manufacturing and services PMI releases from the U.K., the Eurozone, and the U.S. The U.S. new home sales data will also be published.
The Fed’s blackout period began on Saturday, shifting the market’s focus squarely to incoming economic data ahead of the July FOMC meeting.
In Canada, the consensus for CPI m/m is -0.2%, compared with the prior 1.0%. Median CPI y/y is expected to remain unchanged at 2.1%, trimmed CPI y/y is also forecast to hold steady at 2.0%, while common CPI y/y is expected to ease to 2.5% from 2.7%.
Overall, Canada’s inflation is expected to cool in June, largely reflecting lower energy costs. Although energy prices remain higher than a year ago and are still expected to contribute to headline inflation, their impact is projected to be less pronounced than in previous months. Food inflation, meanwhile, is expected to remain elevated.
From a monetary policy perspective, the Bank of Canada will closely monitor this week’s data to assess whether higher energy prices are feeding through into broader consumer prices, rather than simply reflecting direct commodity price movements, RBC analysts said.
So far, there has been little evidence of widespread second-round inflationary effects, supporting the view that underlying inflation remains consistent with price stability. This is in line with expectations that inflation will gradually return to the Bank’s 2% target, allowing the BoC to keep interest rates unchanged through 2026.
Moving to New Zealand, the consensus for CPI q/q is 1.5%, compared with the prior 0.9%. On an annual basis, CPI is expected to accelerate to 4.1% from 3.1% according to Westpac, exceeding the RBNZ’s forecast of 3.9%.
The increase will be driven primarily by higher energy prices. Any upside surprise relative to the RBNZ’s forecast is likely to come mainly from volatile components, such as holiday accommodation, rather than from broader-based inflationary pressures.
While headline inflation is set to reach its highest level in two years, underlying inflation has continued to ease. Nevertheless, core inflation remains above the RBNZ’s 2% midpoint target, even as economic growth slows and labour market conditions soften.
This week, the U.K. will release both inflation and labour market data, which will be closely watched for clues about the Bank of England’s monetary policy outlook.
The consensus is for headline CPI y/y to ease to 2.7% from 2.8%, while core CPI is expected to slow to 2.5% from 2.6%. Services inflation is also forecast to moderate, partly due to lower airfares, while softer energy prices and the Ofgem price cap are expected to help contain overall price growth.
In the labour market, the consensus for the claimant count change is 28.3K, compared with 31.2K previously. The average earnings index 3m/y is expected to edge up to 4.5% from 4.4%, while the unemployment rate is forecast to remain unchanged at 4.9%.
Overall, wage pressures have continued to ease to below the BoE’s projections, but services and household inflation expectations remain relatively elevated, Wells Fargo analysts said.
In Australia, the consensus for employment change is 15.2K, compared to the prior 40.3K, while the unemployment rate is expected to remain unchanged at 4.4%.
The labour market has lost momentum following the strong employment gains recorded earlier this year. Westpac analysts note that, on a three-month average basis, employment growth is now lagging the increase in the working-age population, leaving the employment-to-population ratio 0.7 percentage points below its recent peak.
The rebound seen earlier in the year appears to have faded, with elevated inflation and higher interest rates continuing to weigh on economic activity. While the full impact on the labour market is still unfolding, conditions have already softened.
Business surveys suggest hiring activity is likely to remain subdued in the near term. With labour force participation holding up better than employment growth, the broader trend points to a gradual increase in unemployment.
Recent revisions to official data and alternative indicators suggest underemployment has risen noticeably in recent months. This likely reflects a combination of weaker hiring demand and more people seeking additional work amid ongoing cost-of-living pressures.
This week’s labour market data is unlikely to have a significant impact on the RBA’s policy outlook, as inflation remains the central bank’s primary focus so the June inflation data will be far more important.
A softer inflation reading could delay the next rate hike, but conflict developments in the Middle East and the risk of higher energy prices could slow the disinflation process, leaving the RBA on track for a 25bps rate hike in the third quarter, with August remaining the base-case scenario for Wells Fargo.
The ECB is widely expected to keep its deposit rate unchanged at 2.25% next week, as easing inflation supports a pause in the tightening cycle. However, policymakers are likely to maintain a cautious tone, with renewed risks for higher energy prices to continue challenging the inflation outlook due to the Middle East conflict.
While economic growth across the eurozone remains uneven and subdued, the ECB is expected to keep inflation as its primary focus. Markets still anticipate one additional 25bps rate hike later in the third quarter, most likely in September, although any further tightening will remain dependent on incoming economic data.
In Japan, the consensus for the national core CPI y/y is 1.6%, up from 1.4% previously. The June inflation data will provide further evidence on whether underlying price pressures remain sufficiently strong for the BoJ to continue its hiking cycle.
Although headline and core inflation have eased in recent months, stronger Tokyo CPI data, improving domestic demand, and resilient services activity suggest that underlying price pressures remain intact.
The BoJ is expected to place greater emphasis on underlying inflation and wage growth rather than headline inflation when assessing the policy outlook. Markets continue to anticipate a 25bps rate hike in Q4, most likely at the October meeting, if incoming data remains consistent with the Bank’s forecasts.
In the U.S., the consensus for new home sales is 604K, compared with the prior 580K. Wells Fargo analysts expect an increase of 2.9% in June to an annualized pace of around 597K, recovering from declines in April and May but remaining at a relatively subdued level.
Higher mortgage rates have continued to weigh on housing demand, although mortgage purchase applications have edged up slightly in recent weeks. Builders have also reported soft sales conditions and weaker buyer traffic.
Looking ahead, Wells Fargo expects a modest improvement later this year as long-term borrowing costs gradually ease and builders continue to offer incentives to attract buyers. Even so, a strong rebound in home sales is not anticipated.
This article was written by Gina Constantin at investinglive.com.