Emerging Markets | Europe | FX | Rates | US
Key Events: Election Tension Mounts in UK and France
- By Macro Hive
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Key Events
G10
In the US, the most important data is:
- NFP – Friday. We agree with the consensus on payrolls and unemployment. Wage growth will be more important than usual due to last month’s pickup, which some argue is the start of a trend.
- ISM PMIs – manu. Monday, services Wednesday. We agree with the consensus, though these are more important from a trading than economic perspective. For trading strategies, please see the Events Monitor.
- JOLTS – Tuesday. Expect continued gentle weakening of labour market tightness indicators (openings per unemployed, actual hires per openings and quit rates).
In the Eurozone and UK, the main events will be:
- French legislative election, first round – Sunday. Far-Right RN continue to poll strongly. Much uncertainty surrounds the second round (7 July). An out/underperformance by the RN and allies will be significant.
- UK general election – Thursday. Polling still heavily favours Labour; expect a strong majority. This lead could shrink if complacency sees LibDem or Green outperform, or if right-wing Reform struggle (would support the Conservatives). Expect muted market reaction unless Reform significantly outperform. This tail risk would be negative UK assets medium term.
- German and EZ prelim. June CPI – Monday, Tuesday. Consensus expects a 0.1ppt decline in YoY core and headline inflation in the EZ. Momentum will be important. While we will not get the key breakdown of wage-intensive services inflation, we will get headline services. The ECB will hope momentum here has slowed.
- Eurozone unemployment – Tuesday. With the ECB in data-watching mode, continued labour-market strength would concern them. Expectations are for the rate to remain at 6.4% in May.
Elsewhere in G10:
- NZ NZIER Business Survey – Monday. Sentiment declined last quarter, with initial post-election optimism in the rearview mirror. Focus will remain on measures of domestically driven inflation pressures.
- AU retail sales – Wednesday. Retail sales have been sluggish with non-discretionary spending in decline. The +0.3% MoM increase is deceiving (reported in nominal terms) and does nothing to change the sluggish consumer backdrop.
- Swiss June CPI – Thursday. Consensus expects +1.4% YoY, in line with SNB forecasts. We still think core developments are more important, as does the SNB. We look for further core disinflation outside housing and still expect a December cut.
EM
- China PMIs on Sunday – High-frequency indicators show divergence, with consumer demand staying soft and construction rising. PMIs seem less relevant in this context. But overall, we expect the data to soften.
- Korea CPI – Monday. Headline inflation may pause around 2.6% after two months due to higher gasoline prices, but the downward trend should lead the BoK to cut rates in Q3.
- Korea exports – Monday. Early data shows exports rose 8.5%YoY; adjusting for fewer workdays, June export growth could remain around 10%.
- Turkish disinflation to commence – Tuesday. Helpful base effects and past rate hikes will see disinflation take hold in June.
Central Banks in Action
- Fed Powell – Tuesday. Powell will join Lagarde and Campos Neto at the ECB forum on central banking. We expect same message of not enough confidence.
- Fed minutes – Wednesday. Expect a hawkish tone, in line with the doves showing only one more 2024 cut than the median and with recent Fed communications.
- NBP on hold – Wednesday. With inflation set to rise in the coming months and PLN weaker versus the last rate meeting, the NBP will reiterate that rate cuts this year remain unlikely.
Markets to Watch
- EUR/USD vol under scrutiny. Implied front-end volatility has spiked into the first round of elections. However, it has failed to realise – implied is trading at the largest premium over historical since early 2023.
- USD/JPY remains a buy-on-dips. Now challenging 161, we think it must near 163/164 before the MoF intervene.
- GBP/CAD has stalled atop resistance. We still see 1.70 by September.
- EUR/CHF has inched higher. The next week likely brings volatility. We wait for election risk to pass before finding reasons to turn long.
- USD/CNY fixings: Fixings are gradually making new YTD highs, allowing more scope for spot to rise.
- OAT performance will be driven by French election news. We like to be short OATs vs Bund and periphery EGBs, but set out how we would trade the result here.
- BTP/Bund spread: BTPs have traded high-beta to OAT risk and will likely still do so near term (OAT/Bund widens, BTP/Bund widens too, and same for tightening). Watch for tactical opportunities to enter short-end Italy/Germany tighteners.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)