Key Takeaways for Investors

US Market Focus:

• Federal Reserve Chairman Jerome Powell’s testimonies and speeches by other Fed members will provide insights into monetary policy direction.
• Weekly initial jobless claims data will shed light on the state of the labor market.
• Housing market data, including housing starts, building permits, and existing home sales, will be examined for housing demand and market slowdown.
• S&P Global Manufacturing and Services Purchasing Managers’ Index (PMI) for June will provide insights into the economic activity outlook.

European Market Focus:

• European manufacturing and services PMI for June indicate stabilization and mild slowdown.
• European consumer confidence remains in negative territory due to ongoing interest rate hikes.
• German Producer Price Index (PPI) is expected to show a further decline in May.
• UK Consumer Price Index (CPI) for May is expected to show a slowdown in inflation.
• Bank of England (BoE) is anticipated to raise the policy rate by 25 basis points to 4.75%.
• Norwegian and Swiss central banks are expected to raise interest rates.

Developments in China:

• People’s Bank of China (PBOC) is expected to further reduce benchmark interest rates for 1-year and 5-year loans. PBOC has already lowered the 7-day reverse repurchase rate and reference interest rate for one-year Medium-term Lending Facility (MLF) loans.

Federal Reserve Testimonies: Assessing Monetary Policy Signals

This week, all eyes will be on Federal Reserve Chairman Jerome Powell as he delivers presentations before the House Financial Services Committee on Wednesday and the Senate Banking Committee on Thursday. Market participants eagerly await any new signals regarding the central bank’s monetary policy direction. Additionally, speeches by other Federal Reserve members throughout the week will be closely monitored for further insights.

Labor Market Data: Assessing Job Market Challenges

Thursday’s release of the weekly initial jobless claims will provide valuable insights into the state of the labor market. Despite expectations of a slight decrease, the previous week’s data remained stubbornly high at 262,000 claims, maintaining levels seen since October 2021. This persistence suggests ongoing challenges in the job market.

Housing Market Data: Examining Housing Demand and Market Slowdown

Thursday’s focus will also be on housing market data, including housing starts, building permits, and existing home sales for May.

Housing starts rebounded in April with a 2.2% monthly increase, offsetting the previous month’s decline. However, building permits experienced a second consecutive monthly decline, signaling potential headwinds. In April, existing home sales recorded a 3.4% decrease, indicating a slowdown in the housing market. Tightened financial conditions following Federal Reserve interest rate hikes are expected to continue challenging the sector’s performance.

PMI Figures: Assessing Economic Activity Outlook

On Friday, the S&P Global Manufacturing and Services Purchasing Managers’ Index (PMI) for June will provide valuable insights into the latest outlook on economic activity.

The manufacturing PMI for May indicated a contraction, driven by weakening demand and a decline in new orders. Conversely, the services PMI showed an acceleration in growth. It maintained an expansionary trend for the fourth consecutive month.

For June, a slight slowdown in the rate of contraction is expected for the manufacturing PMI, while a mild decline is anticipated for the services PMI, reflecting a slight moderation in the service sector’s growth.

European Manufacturing and Services PMI Data: June Preliminary Figures

The manufacturing sector in Europe faced mixed conditions in May, with most countries experiencing contraction. However, preliminary data for June suggests some stabilization.

Germany’s manufacturing PMI showed a slight increase from 43.2 to 43.5, indicating a mild slowdown in contraction. The Eurozone manufacturing PMI remained flat at 44.8, while France manufacturing PMI saw a small decrease from 45.7 to 45.2. The UK manufacturing PMI also experienced a slight decrease from 47.1 to 46.8.

In the services sector, Germany, the Eurozone, France, and the UK recorded modest declines, signaling a mild slowdown in growth.

European Consumer Confidence Index: June Preliminary Data 

Consumer confidence in Europe has shown signs of recovery but remains in negative territory due to the European Central Bank’s (ECB) ongoing interest rate hikes. The May consumer confidence index reached -17.4, the highest level since February 2022. Despite this partial recovery, negative sentiment is expected to persist at -17.

German Producer Price Index (PPI): May Data

Germany’s PPI, which measures inflationary pressures at the producer level, saw a monthly increase of 0.3% in April, marking the first rise since September. However, on a yearly basis, the PPI declined from 6.7% to 4.1%, reaching its lowest level in the past 25 months.

On Tuesday, the May data is anticipated to show a further monthly decline of 0.7% and a yearly decrease from 4.1% to 1.7%, continuing the downward trend.

UK Consumer Price Index (CPI) : May Data

In the UK, the monthly CPI for April accelerated from 0.8% to 1.2%, recording the largest monthly increase since October. However, on a yearly basis, the CPI declined from 10.1% to 8.7%, reaching its lowest level since March 2022 but surpassing expectations.

On Wednesday, the UK’s Consumer Price Index (CPI) for May is expected to show a slowdown in the headline inflation rate. It is anticipated that the monthly CPI growth rate will decrease from 1.2% to 0.5%, indicating a deceleration in price increases. On a yearly basis, the CPI is projected to decline from 8.7% to 8.5%, suggesting a moderation in the overall inflation level.

Furthermore, the core CPI, which excludes volatile food and energy prices, is expected to remain stable at 6.8% on a yearly basis, similar to the previous month.

Bank of England (BoE) Monetary Policy Decision

The BoE’s last meeting resulted in a 25 basis point increase in the policy rate to 4.50%, aligning with expectations.

In the upcoming meeting on Thursday, the BoE is expected to raise the policy rate by another 25 basis points to 4.75%. This move aims to maintain the highest policy rate since 2008, reflecting the bank’s commitment to managing inflationary pressures.

Norwegian and Swiss Central Bank Interest Rate Decisions

In the upcoming meeting on Thursday, the Norges Bank is expected to raise the policy rate by another 25 basis points to 3.5%. The Norges Bank raised its policy rate by 25 basis points to 3.25% in the previous meeting, consistent with market expectations.

In the upcoming meeting on Thursday, the Swiss National Bank is expected to raise the policy rate by another 25 basis points to 1.75%. The Swiss National Bank increased its policy rate by 50 basis points to 1.50% in response to rising inflationary pressures during its last meeting in March.

In Asia, the focus this week is on the interest rate decision of the People’s Bank of China (PBOC) scheduled for Tuesday.

Following signs of a slowdown in the Chinese economy, the Chinese government requested major banks to lower deposit interest rates earlier this month. In response, the PBOC reduced the 7-day reverse repurchase rate, which serves as a short-term lending rate, from 2% to 1.90% at the beginning of last week. This marked the first rate cut since August 2022. Additionally, the PBOC lowered the reference interest rate for one-year Medium-term Lending Facility (MLF) loans from 2.75% to 2.65%, also for the first time since August 2022.

In the upcoming PBOC meeting, it is expected that the central bank will further reduce the benchmark interest rates for 1-year and 5-year loans, known as Loan Prime Rates (LPR). Specifically, it is anticipated that the 1-year LPR, which serves as a key indicator for short-term loans, will be lowered from 3.65% to 3.55%, while the 5-year LPR, which is a benchmark for long-term loans like housing loans, will be reduced from 4.30% to 4.20%.