Key Events: Powell to Tell Markets to Get Real

Key Events

G10

In the US, these are the important data points:

1. Retail sales – Tuesday. Expect 0.2% for the control group, in line with consensus. Consumption growth is slowing due to catchup in personal income tax payments.
2. Manufacturing production – Tuesday. Consensus of –0.1% mom appears reasonable, though the data says little about the broader services-driven economy.
3. Jobless claims – Thursday. Expect continued stabilization.

In the Eurozone and UK, the main events will be:

1. UK June CPI – Wednesday. Expect a slight drop in YoY headline to 1.9% with core and services unchanged at 3.5% and 5.7%. Details will be key: wage-intensive services inflation should keep normalizing. Taylor Swift concerts could add volatility – a small upside impulse, though reversing in July.
2. EZ Final June CPI – Wednesday. Consensus is +2.5% YoY headline, +2.9% core, unchanged from the prelims. The sticky services trend is more important: the national numbers suggest a continued rise in momentum, but we expect it will fade over the summer.
3. UK Labour market data – Thursday. Markets expect an unchanged unemployment rate and drop in YoY pay. Most important will be whether employment growth continues to slow, and if wage growth in consumer-facing services remains sluggish.

Elsewhere in G10:

1. New Zealand Q2 CPI – Tuesday. RBNZ’s dovish pivot makes a miss (vs consensus +0.8%) necessary. The RBNZ forecast a +0.5% QoQ increase to non-tradables. We expect little progress in all non-tradable categories except alcohol and tobacco, which may see reprieve from an outsized Q1 increase.
2. Australia Labour Force Survey – Thursday. The labour force has proven resilient with much of the ‘weakness’ due to seasonality and foreign worker influx adding to labour supply. A beat this month would align with post-Covid seasonality. No beat would suggest a return to the pre-Covid labour market.
3. Canada CPI – Tuesday. Last month’s hot print reduced odds of a July cut. Given BoC’s 2024 forecast of just 2.2% YoY in headline, MoM above 0.2% would be hawkish.
4. Japan CPI – Friday. Core is expected to rise to 2.7% YoY on higher utility bills. Watch supercore (excl. fresh food & energy), which has slowed sharply in recent months. From here, a monthly outturn of 0.2% MoM is required to reach the BoJ’s 2024 forecast of 1.9% YoY in 2024.

EM

1. China Third Plenum – Monday to Wednesday. The consensus among China watchers is that the meeting will focus on high-quality development, with security at the forefront of all issues.
   • Announcements of reforms will focus on a) Fiscal and tax reforms, b) SOE profitability and c) Urban-rural integration.
   • Other topics may include capital market reform and opening to foreign investors.
   • Expectation of big fiscal stimulus is low, but the above topics could still impact market sentiment.
2. China GDP, Retail Sales, FAI, IP – Monday. Monthly data is expected to slow further. High-frequency data hints at continuing weakness in aggregate demand excluding exports.

Central Banks in Action

1. Fed Powell – Monday. Expect him to push back against the 2.5 2024 cuts priced by markets.
2. PBOC – Monday. PBoC is likely to keep 1Y MLF unchanged next week, but we still think they will cut later (possibly September).
3. Bank Indonesia – Wednesday. BI should stay on hold at 6.25%. IDR has strengthened since last meeting, but BI will likely wait for the Fed to cut first.
4. ECB Decision – Thursday. Expect no rate change given the June cut and that the ECB are in data-watching mode. Lagarde will likely look through evidence of wage-intensive services inflation ticking up in June. Expect it to fade over summer.
5. SARB – Thursday. Inflation and inflation expectations remain well above the target’s midpoint, suggesting another rates-on-hold decision.

Markets to Watch

• Dollar breakout. The dollar is testing the downside of its range against many currencies, such as 1.09 in EUR/USD, and 200DMA 1249 on the broad BBDXY Index. With GBP and AUD already exceeding recent ranges, a USD breakdown is possible.
• Commodity FX had a poor week as the oil market priced weaker demand. We see two opportunities in G10 FX with markets likely overreacting.
• GBP has rallied over the past two weeks. We remain bearish on the currency with long positions oversized. This week’s data will prove pivotal.
• Equal weight S&P vs Mag-7. Equity investors have been increasingly crowded in a subset of outperforming names this year. Watch for a violent positioning reversal next week. This could lead to strong breadth, but weak headline equity performance.
• Base metals. Commodity demand in China has been weak recently relative to expectations, with iron ore lagging. Could the Third Plenum reverse fortunes?
• BoE pricing could see heavy impact from next week’s UK data. We remain dovish on BoE pricing but would add to the position if the data confirms our expectations, rather than pre-empt it.

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