Markets to Watch This Week: Euro Area GDP Growth Risks Skewed Lower

We standardise WoW price changes across different markets to allow for cross-market comparisons.

Last Week’s Highlights

US jobs data took centre stage. Last week, US jobs data dominated the market narrative, with JOLTS (Tuesday) and NFP (Friday) data pointing towards a slower labour market. The JOLTS data showed that the number of quits dropped to 3.6mn, the lowest level in over two years. Meanwhile, NFP came out slightly above consensus at 187,000, but we had large downward revisions to previous months’ data of around 110,000. Weaker jobs data helped 2-year yields fall almost 20bps, while the 10-year yields were also lower, but by only 5bps (Charts 1 and 3).

China announced further support for its struggling property sector. We saw three key property announcements. The first made it easier to be classified as a first-time buyer, the second made mortgage repayments cheaper, and the final measure increased subsidies to parents for education costs. The measures boosted both Chinese stocks and commodities linked to the Chinese property sector, such as iron ore (Chart 5).   

Chinese PMIs rebounded, while Europe struggled. Chinese PMIs came out ahead of consensus forecasts as the official manufacturing PMIs rose to 49.7. While still signalling contraction, the details were far better as new orders rose to 50.2 while production rose further to 51.9. Meanwhile, in Europe, the manufacturing PMI came out at 43.5 while new orders fell to 39. In response, EUR ended the weak lower, as the worst-performing major currency (Chart 2). We highlight the following comments from HCOB:

‘Businesses are still holding back from making big staff cuts, even with a substantial drop in output over five months. This does not bode well for productivity or output per head, but provides some stability for the economy as a whole as people do not lose their income.’

What to Watch

Goods demand is rising in the US – at the expense of services? This week is quiet on the data front. The market-moving release will likely be the ISM Services report (Wednesday). Goods PCE has rebounded recently relative to services. Will that continue? Dominique expects the report to align with consensus expectations but will be paying close attention to the price component. Prices within the manufacturing survey have recently been rising, boosted by higher oil prices. Are we likely to see the same in services?

Governor Andrew Bailey to testify before parliament. Bank of England (BoE) Governor Bailey’s testimony to parliament, and the Decision Maker Panel survey, will provide new colour for BoE thinking. Unless inflation or unemployment data surprises later in the month, we expect they will hike once more then pause.

Will euro-area GDP collapse as PMIs imply? Eurozone final Q2 GDP is released on Thursday. While the median consensus is for an unchanged +0.3% QoQ outturn, the risk seems almost certainly skewed to the lower side following national readings.

The Week Ahead: Watch Dominique and Andrew as Dominique breaks down last week’s jobs report and explains why Chair Powell will relieved at seeing an increase in labour supply. She also breaks down how tipping culture in the US could be distorting official statistics while supporting personal consumption.

Viresh Kanabar has worked in the UK financial services industry for over 8 years including in Consulting and Investment Risk. Most recently he launched The Macro Journal Substack where he puts out regular in-depth reports covering all areas of global macro.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-market research.

Photo Credit: depositphotos.com

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