By Fabiana Negrin Ochoa and Jessica Fleetham
Below are the most important global events likely to affect FX and bond markets in the coming week starting July 8.
U.S. inflation data will be one of the key highlights of the week as investors look to see whether prices are coming down sufficiently to prompt the Federal Reserve to start cutting interest rates, potentially as soon as September.
In Europe, investors will focus on the aftermath of elections in France and the U.K. at the start of the week, before turning their attention to inflation figures from various eurozone countries, the U.K. and Scandinavia.
A trio of central bank decisions and Chinese economic activity data will be in the spotlight in Asia markets.
Policymakers in New Zealand, South Korea and Malaysia are set to announce rate decisions as traders continue to watch for the long-awaited start of monetary easing.
Other releases on the radar include China inflation and trade data, an India inflation print and Taiwan exports--all for June--plus advance estimates for Singapore's second-quarter economic growth.
U.S.
U.S. inflation data for June on Thursday will attract heightened attention as expectations that the Federal Reserve could start cutting interest rates as early as September are gaining traction following Chair Jerome Powell's recent comments that there has been "quite a bit of progress in bringing inflation down toward our target."
The comments caused the dollar and U.S. Treasury yields to fall. However, Powell also said policymakers will need to see more consistency in the data to be confident enough to cut interest rates, increasing the importance of the upcoming data release.
"The remarks are very much in line with our view that recent data have increased the odds of a September cut from the Fed," Jefferies economist Mohit Kumar said in a note.
Money markets are pricing in a sizable chance that the Fed will start cutting interest rates in September and are fully pricing in a reduction in November, having recently only fully priced in a first cut in December.
U.S. producer price data for June on Friday will provide an important indicator of pipeline inflationary pressures. Released the same day, the University of Michigan preliminary consumer sentiment survey for July will be a key indicator on the current performance of the U.S. economy.
The U.S. Treasury will auction $58 billion in three-year notes on Tuesday, $39 billion in 10-year notes on Wednesday and $22 billion in 30-year bonds on Thursday.
LATIN AMERICA
Inflation figures for June are due from Mexico on Tuesday and Brazil on Wednesday.
EUROZONE
Investors will be watching closely to see how French government bonds, French banking stocks, the CAC-40 index and the euro react following the second round of France's legislative elections on Sunday, July 7.
Markets reacted with relief after Marine Le Pen's far-right National Rally party gained the most votes in the first round but looked unlikely to secure an absolute majority. If this is the case, markets could see further relief, although investors will remain cautious about any plans for unsustainable levels of public spending or that disagreements among politicians within any coalition could hamper decision-making.
"Potential political paralysis implies that the reform process will stall over the coming years," Jefferies economists said in a note.
Beyond politics, focus will soon switch back to the eurozone economy as investors continue to speculate about when the European Central Bank is likely to cut interest rates a second time.
Final inflation data for June for Germany is due on Thursday and for France on Friday, while German trade data for May are due on Monday.
The Netherlands will auction January 2044-dated green bonds, while Austria will tap May 2029-dated green bonds and June 2044-dated conventional bonds on Tuesday. Germany will tap May 2036- and 2038-dated Bunds on Wednesday, when Portugal is also expected to hold an auction. Italy will sell government bonds on Thursday.
U.K.
Investors will continue to assess the implications of the results of the U.K. general elections on July 4, where the Labour Party secured a landslide victory and ushered in a change after many years of rule by the Conservative Party.
Analysts expect the policies of a Labour government wouldn't deviate too much from the status quo, with only modest tax and spending hikes set out in the manifesto. In the coming weeks and months, investors will be looking out for any prospects of closer U.K.-EU ties under Labour.
The reaction to the election is likely to be limited, however, and focus will soon switch back to economic data as investors remain unsure about when the Bank of England could start cutting interest rates. Markets currently price in a probability of close to 60% for a rate cut in August, though this will depend on evidence emerging that inflation is continuing to slow.
Attention will focus on gross domestic product data for May, alongside industrial production and trade figures, also for May, on Thursday. The British Retail Consortium's latest retail sales monitor is due for release on Tuesday.
The U.K. Debt Management Office plans the syndicated re-opening of the 1.25% November 2054 Index-linked Gilt in the week starting on July 8 subject to demand and market conditions.
SCANDINAVIA
Norway releases gross domestic product data for May on Tuesday, followed by inflation figures for June on Wednesday. Sweden releases June inflation data on Friday.
Denmark will hold a bond auction on Wednesday.
SWITZERLAND
A bond auction is scheduled for Wednesday.
NEW ZEALAND & AUSTRALIA
Focus in New Zealand will be dominated by the Reserve Bank of New Zealand's July policy meeting on Wednesday.
While there are clear signs of continuing recession-like conditions in the farm-rich economy, the RBNZ is expected to maintain the official cash rate at 5.5% and retain a hawkish bias.
However, economists expect a more significant shift in August when the central bank will have seen the latest inflation data, and will present a fresh set of forecasts.
Some economists expect the RBNZ will start to point toward the prospect of interest-rate cuts before the end of the year, amid increasing confidence that inflation will be back to target.
In Australia, the data flow will bring mostly second-tier releases, but a speech by the Reserve Bank of Australia's head of economic research, John Simon, on Wednesday will attract attention, especially given rising expectations for a potential rate increase in August.
CHINA
China reports inflation data for June on Wednesday, followed by trade and monetary figures on Friday.
The releases will be looked at for more signs of economic rebound or ebbing momentum ahead of the pivotal Third Plenum policy summit, which has been in the past used to set out economic policy reforms, due to start July 15.
China's consumer prices rose mildly in May while factory-gate prices continued to fall, suggesting persistently tepid demand as Beijing continues to try to lift lackluster consumption. Economists polled by the Wall Street Journal expect CPI to have ticked up slightly to 0.4% on year in June, with PPI remaining in deflation but improving to -0.7%.
Exports are tipped to have picked up to 7.8% on year in June, with imports rising to 3.2%. That would come after exports grew at a faster clip in May, thanks to resilient global demand, while import growth slowed.
Barclays economists note that both the official and Caixin manufacturing PMI gauges for new export orders pointed to weaker external demand, but think that high-end/high value-added sectors will remain a highlight. Favorable base effects are in play for imports.
While government bond issuance likely fuelled some steam in credit growth, data will likely show that private credit demand remains muted, the economists expect, citing a soft labor market and sharp contraction in the property sector.
SOUTH KOREA
The Bank of Korea announces its rate decision on Thursday. Most bets point to a hold at this meeting but easing inflation is spurring speculation that policy easing might be on the way.
South Korea's headline inflation could slow toward the central bank's 2.0% target in the latter half of the year, having trended lower to reach 2.4% in June from the year's peak of 3.1%, Goldman Sachs economists said in a note.
They forecast a dovish shift at the BOK's upcoming July 11 policy meeting, which could open the door for the start of rate cuts in August.
A soft won could keep the central bank cautious, however, Barclays economist Bum Ki Son said.
While a strong current-account surplus could make the central bank more confident about the currency, recent weakness could lead it to prioritize FX stability, the analyst said. "At this juncture, we expect the BOK to be more cautious and start cutting rates in October."
JAPAN
It is a data-light week for Japan, with not much in the way of major releases aside from balance of payments numbers for May due Monday. Bank lending figures for June will also be published.
Eyes will likely be on some Bank of Japan activity, with the central bank due to hold a branch managers meeting on Monday and release a regional economic report. A consumer sentiment survey on Friday could also be of interest.
Investors might also monitor the BOJ's planned purchases of one- to three-year Japanese government bonds, three- to five-year sovereign notes and over 25-year domestic government bonds on Wednesday to see if the central bank reduces the amounts of its purchases. The Ministry of Finance's scheduled auctions of 2.3 trillion yen ($14.26 billion) worth of five-year JGBs on Tuesday and of Y1 trillion worth of 20-year JGBs on Thursday might also attract interest from investors.
(MORE TO FOLLOW) Dow Jones Newswires
07-07-24 1814ET
