• Wall Street indices closed higher despite mixed economic data, boosted by positive June personal spending data and a slowdown in inflationary pressures.
• Nasdaq index rose by 1.90%, S&P 500 index by 0.99%, and Dow Jones index by 0.50%.
• US dollar index (DXY) increased by 0.5%, reaching 101.6.
• Brent crude oil saw a 4.8% increase, closing at $85 USD per barrel.
• US 10-year treasury yield rose by 12 basis points to 3.95%, while the 2-year yield increased by 3 basis points to 4.87%.
• June PCE deflator accelerated to 0.2% monthly and 3% yearly, the lowest since March 2021.
• Core PCE deflator slowed down to 0.2% monthly and 4.1% yearly, the lowest since September 2021.
• Personal income growth slowed to 0.3% monthly, while personal spending rose to 0.5%, showing robust consumer demand.
• University of Michigan’s consumer confidence index for July reached its highest level since October 2021 at 71.6.
• July manufacturing PMI increased to 49, signaling a slowdown in contraction, while services PMI decreased to 52.4, showing a slowdown in growth.
• ISM manufacturing index declined to 46, the fastest decline since May 2020, while ISM non-manufacturing index increased to 53.9.
• Factory orders data for June to be released, reflecting continued recovery in investments.
• Construction spending data for June to show a slowdown to 0.6% monthly growth.
• JOLTS job openings expected to decline to 9.60 million, ADP private sector employment to slow to 188,000, and non-farm payroll increase to decrease to 200,000.
• Germany’s preliminary CPI for July showed a 0.3% monthly increase and 6.2% yearly decrease, while Eurozone’s core CPI declined to 5.5% yearly.
• Germany’s GDP stabilized with 0% growth in Q2, recovering from two consecutive quarters of recession, while France’s GDP grew by 0.5% in Q2.
• Eurozone consumer confidence remained negative at -15.1, the highest since February 2022.
• Bank of England (BoE) raised its policy rate by 50 basis points to 5% in June, and market expectations for the upcoming meeting are for a 25 basis point increase, bringing the rate to 5.25%.
• China’s Caixin Manufacturing and Services PMI for July in Asia expected to show further declines, reflecting economic slowdown in China.
• The Reserve Bank of Australia (RBA) is expected to implement a 25 basis point rate increase, taking its policy rate to 4.35%.

Wall Street Indices Close Higher Despite Mixed Economic Data

On Friday, data regarding personal spending in June in the United States was released, showing a higher-than-expected monthly increase. However, the impact of June’s PCE deflator, which indicated a slowdown in inflationary pressures, led to a positive performance in Wall Street indices. The Nasdaq index rose by 1.90%, the S&P 500 index by 0.99%, and the Dow Jones index by 0.50%.

The US dollar index (DXY) ended the previous week with a 0.5% increase, reaching a level of 101.6.

In the commodity market, Brent crude oil saw a 4.8% increase last week, closing at $85 USD per barrel.

Additionally, the US 10-year treasury yield finished the week at 3.95%, marking a 12 basis points rise. The 2-year treasury yield, which is more sensitive to changes in monetary policy, concluded the week at 4.87%, with a 3 basis points increase.

Last Week’s US Economic Indicators

In the US, the Federal Reserve closely monitored the June PCE deflator, as well as personal income and spending data for the same month. According to the data, in June, the monthly increase in the PCE deflator aligned with expectations, accelerating from 0.1% to 0.2%. On a yearly basis, it also aligned with expectations, dropping from 3.8% to 3%, making it the lowest level since March 2021.

The core PCE deflator, which excludes volatile food and energy prices, also matched expectations, slowing down from 0.3% to 0.2% on a monthly basis. On a yearly basis, it decreased from 4.6% to 4.1%, the lowest level since September 2021.

In June, the monthly increase in personal income slowed down from 0.5% to 0.3%, below the expected 0.5%. However, personal spending saw a rise from 0.2% to 0.5%, surpassing the anticipated 0.4%. This indicates that consumer demand remained robust against higher interest rates.

The University of Michigan’s consumer confidence index for July, while revised slightly downward from 72.6 to 71.6, still exceeded the previous month’s level of 64.4. The confidence was supported by the ongoing easing of inflation and the stable state of the labor market, reaching its highest level since October 2021.

Upcoming Economic Indicators in the US

On Tuesday, the final July data for the S&P Global manufacturing sector PMI and the ISM manufacturing sector index will be published. Data on construction spending in June will also be monitored.

On Thursday, the final July data for the S&P Global services sector PMI and the ISM non-manufacturing index will be released. Additionally, on Thursday, data on factory orders for June will be released.

The markets will also keep an eye on the JOLTS job openings data on Tuesday, the ADP private sector employment data on Wednesday, and the non-farm payroll data on Thursday.

• Manufacturing and Services Sector

In July, despite expectations of a slight decline, the manufacturing PMI increased from 46.3 to 49, signaling a slowdown in the contraction of the sector. For the services sector in July, the PMI decreased from 54.4 to 52.4, indicating a slowdown in growth, though it remained in expansionary territory for the sixth consecutive month. The slowdown was attributed to the impact of higher interest rates, which led to a deceleration in new sales, resulting in the weakest growth in the services sector since February.

• ISM Indices

In the manufacturing sector, the ISM index for June declined from 46.9 to 46, indicating a slight acceleration in the sector’s contraction, which has been persisting for nine months and recording the fastest decline since May 2020.

For the non-manufacturing sector, the ISM index for June increased from 50.3 to 53.9, surpassing expectations and signifying an acceleration in growth. This was the sixth consecutive month of expansion in non-manufacturing sectors.

• Factory Orders 

On Thursday, data on factory orders for June will be released. Excluding the volatile aerospace industry, non-defense capital goods orders increased by 0.2% on a monthly basis in June, indicating a continued recovery in investments. Factory orders increased by 0.3% in May and are expected to slow down in June compared to market expectations.

• Construction Spending

On Tuesday, data on construction spending in June will be monitored. The monthly growth rate in construction spending is expected to slow down from 0.9% to 0.6%.

• Employment Indicators

Regarding the labor market, key employment indicators will be released throughout the week. These include the JOLTS job openings data for June on Tuesday, the ADP private sector employment report for July on Wednesday, the weekly initial jobless claims on Thursday, and the non-farm payrolls, unemployment rate, and average hourly earnings data for July on Friday.

In May, the JOLTS job openings decreased from 10.32 million to 9.82 million, slightly exceeding expectations (9.93 million). The decline indicated a partial loss of momentum in labor demand by firms, though job openings remained well above pre-pandemic levels, supporting the view of a tight labor market in the US.

The latest weekly initial jobless claims, despite expectations of a slight increase, declined from 228,000 to 221,000, marking the lowest level in the past five months and maintaining levels well below historical averages, pointing to a continued tightness in the labor market. 

The ADP private sector employment increase for June rose from 267,000 to 497,000, significantly exceeding expectations (225,000), and marking the highest level since February 2022.

In June, the non-farm payroll increase decreased from 306,000 to 209,000, surpassing expectations (230,000) and recording the lowest level since December 2020. The data for the previous month was also revised downward from 339,000 to 306,000. The unemployment rate for June declined in line with expectations from 3.7% to 3.6%. The number of unemployed individuals in June decreased by 140,000 to 5.96 million, while the number of employed individuals increased by 273,000 to 161 million.

The labor force participation rate remained unchanged at 62.6%, maintaining its highest levels since March 2020. The average hourly earnings for June increased by 0.4% on a monthly basis, exceeding expectations (0.3% increase) and was upwardly revised from 0.3% to 0.4% in the previous month’s data. The yearly increase in hourly earnings also exceeded expectations, reaching 4.4%, and was revised upward from 4.3% to 4.4%. These data point to ongoing inflationary pressures arising from wage growth.

The forthcoming employment indicators are expected to reflect a partial weakening due to the impact of Fed rate increases. The JOLTS job openings data is predicted to decline from 9.82 million to 9.60 million, the ADP private sector employment increase is expected to slow down from 497,000 to 188,000, the non-farm payroll increase is anticipated to decrease from 209,000 to 200,000

Eurozone Consumer Confidence and Inflation Data

Eurozone Consumer Confidence for July was finalized at -15.1, in line with the preliminary data. Despite reaching its highest level since February 2022, the negative trend continued due to the impact of the European Central Bank’s (ECB) interest rate hikes.

German Consumer Price Index (CPI)

Germany’s preliminary CPI for July showed a monthly increase of 0.3%, consistent with expectations, following a similar rise in June. On a yearly basis, it slightly declined from 6.4% to 6.2%, also in line with expectations. Additionally, the Eurozone’s core CPI declined slightly from 5.8% to 5.5% on a yearly basis in July.

German and French GDP Growth Rates 

The second quarter GDP growth rates for Germany and France were released. Germany’s economy had contracted by 0.4% in the previous quarter due to high inflation, ongoing energy crisis, and tightening financial conditions following ECB’s rate hikes. It further contracted by 0.1% in the first quarter due to concerns over the energy crisis, tightened financial conditions impacting consumer spending, and reduced public spending, leading to two consecutive quarters of recession. However, the economy stabilized in the second quarter, showing no growth (0% quarterly growth), indicating a recovery from recession. Expectations were for a 0.1% growth. France’s economy, on the other hand, saw a robust growth of 0.5% in the second quarter, surpassing expectations of 0.1% growth and marking the strongest growth since the second quarter of 2022.

Upcoming Economic Indicators in Europe

In the coming days, the Eurozone’s final Manufacturing and Services Purchasing Managers’ Index (PMI) data for July will be released.

Preliminary data indicated that the Manufacturing PMIs remained below the 50 threshold, signaling a contraction in manufacturing activities, with Germany’s PMI declining to 38.8, Eurozone’s to 42.7, France’s to 44.5, and the UK’s to 45. Meanwhile, the Services PMIs for France, Germany, Eurozone, and the UK also indicated a slowdown in growth.

Additionally, Eurozone’s Producer Price Index (PPI) for June will be released, which is expected to show a continuation of the decline in producer prices, primarily driven by the energy price slump. In May, the PPI had decreased by 1.9% monthly, and on a yearly basis, it had dropped from 0.9% to 1.5%.

Interest Rate Decision by the Bank of England (BoE)

On Thursday, the Bank of England’s interest rate decision will be announced. After raising its policy rate by 50 basis points to 5% at its June meeting, expectations for this meeting are for a 25 basis point increase, bringing the policy rate to 5.25%. The decision will depend on the Bank’s assessment of inflation persistence and inflationary pressures.

In Asia, the Caixin Manufacturing PMI for July will be published on Tuesday, followed by the Caixin Services PMI on Thursday. In June, the Manufacturing PMI decreased slightly to 50.5, indicating a slowdown in the growth of the manufacturing sector. The Services PMI also declined to 53.9, indicating a deceleration in growth. For July, both PMIs are expected to decline further, reflecting the economic slowdown in China.

Interest Rate Decision by the Reserve Bank of Australia (RBA)

On Tuesday, the Reserve Bank of Australia’s meeting will take place. Last month, the RBA kept its policy rate at 4.10%, citing the need for more time to assess the economic situation and risks. However, it also mentioned the possibility of further tightening of monetary policy if inflation pressures persist. For this meeting, the expectation is for a 25 basis point rate increase, taking the policy rate to 4.35%.