- Wall Street indexes closed lower on Friday due to expectations of a more hawkish stance from the Federal Reserve on interest rate hikes, despite lower-than-expected nonfarm payrolls data in June. The Nasdaq index declined by 0.13%, the S&P 500 index by 0.29%, and the Dow Jones index by 0.55% on a daily basis.
- The Dollar Index closed last week with a 0.6% decrease and is currently hovering around 102.4.
- Brent crude oil prices closed last week with a 4.1% increase, reaching $78.5 per barrel.
- The 10-year Treasury bond yield in the US rose by 22 basis points to 4.06%, while the 2-year Treasury bond yield increased by 5 basis points to 4.95%.
- Nonfarm payrolls in the US decreased from 306,000 to 209,000 in June, surpassing expectations.
- The unemployment rate in the US declined from 3.7% to 3.6% in June.
- Average hourly earnings in the US exceeded expectations with a monthly increase of 0.4% in June, reaching an annual increase of 4.4%.
- The US labor market data showed a decline in nonfarm payrolls and a decrease in the unemployment rate in June, while average hourly earnings exceeded expectations.
- The European Central Bank’s meeting minutes from June 14-15 will be released, providing insights into their interest rate decisions.
- Sentix Investor Confidence in the Eurozone declined from -13.1 to -17 in June, reflecting concerns over Germany’s recession and the impact on the region.
- Germany’s ZEW Current Conditions index decreased from -34.8 to -56.5 in June, while the Expectations index slightly rebounded from -10.7 to -8.5.
- The final Consumer Price Index (CPI) for June in Germany is expected to show a monthly increase of 0.3% and an annual rate of 6.3%.
- Industrial production data for May in the Eurozone is expected to show a limited 0.3% increase.
- Trade data for May in the Eurozone is expected to indicate a deficit after two consecutive months of surplus.
- The monthly GDP growth data for April in the United Kingdom is expected to show a 0.2% growth, driven by the services sector.
- China’s trade data for June will provide insights into the global economic activity and the Chinese economy.
- The Reserve Bank of New Zealand is expected to keep the interest rate unchanged after raising it to 5.50% in May.
- The Bank of Korea is expected to maintain its policy rate at 3.50% due to expectations of continued inflation slowdown.
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US Market Outlook and Economic Events
Wall Street Ends Lower on Expectations of Hawkish Fed Stance
On Friday, despite the lower-than-expected nonfarm payrolls data in June, the decline in the unemployment rate and higher-than-expected wage increases led to expectations of a more hawkish stance from the Fed on interest rate hikes. As a result, Wall Street indexes closed the day with losses. The Nasdaq index declined by 0.13%, the S&P 500 index by 0.29%, and the Dow Jones index by 0.55% on a daily basis.
The Dollar Index, after closing last week at 102.3 with a 0.6% decrease, is currently hovering around 102.4.
Brent crude oil prices closed last week at $78.5 per barrel, marking a 4.1% increase.
The 10-year Treasury bond yield in the US finished the week at 4.06%, rising by 22 basis points. The 2-year Treasury bond yield, which is more sensitive to monetary policy developments, closed the week at 4.95%, increasing by 5 basis points.
In the US, nonfarm payrolls in June decreased from 306,000 to 209,000, surpassing expectations. However, the unemployment rate declined from 3.7% to 3.6% in June.
Average hourly earnings, an important indicator for inflation, exceeded expectations in June with a monthly increase of 0.4%. The previous month’s data was also revised upward from 0.3% to 0.4%. On an annual basis, the increase in wages reached 4.4%, surpassing expectations. The previous month’s data was also revised upward from 4.3% to 4.4%, indicating sustained inflationary pressures driven by wages.
On Friday, the US labor market data, including nonfarm payrolls, unemployment rate, and average hourly earnings, were closely monitored. Nonfarm payrolls in June decreased from 306,000 to 209,000, falling below expectations (230,000), reaching the lowest level since December 2020. The previous month’s data was revised downward from 339,000 to the mentioned 306,000 level. Looking at the details, the majority of job gains were in the private sector (149,000 increase), while there was limited growth in the public sector (60,000 increase).
The unemployment rate declined from 3.7% to 3.6% in June, in line with expectations, reaching the highest level since October 2022. The number of unemployed individuals 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 stable at 62.6%, maintaining its high levels since March 2020.
US Inflation Data and Unemployment Claims
This week in the US market calendar, we have two key data releases that will closely influence the Federal Reserve’s monetary policy decisions. On Wednesday, the June Consumer Price Index (CPI) data will be released, followed by the June Producer Price Index (PPI) data on Thursday.
In May, the headline CPI slowed down from 0.4% to 0.1% on a monthly basis, aligning with expectations. The annual inflation rate also decreased from 4.9% to 4%, reaching the lowest level since March 2021. The core CPI, which excludes food and energy prices, remained steady at 0.4% on a monthly basis in May, while the annual rate declined from 5.5% to 5.3%, the lowest level since November 2021. For June, expectations are for the headline CPI to accelerate to 0.3% on a monthly basis, with the annual rate declining to 3.1%. The core CPI is expected to show a slight slowdown to 0.3% on a monthly basis and a decline to 5% on an annual basis.
Regarding the Producer Price Index, after a 0.2% increase in April, the index experienced a 0.3% decline in May, surpassing expectations. On an annual basis, the PPI decreased from 2.3% to 1.1%, the lowest level since December 2020, while expectations pointed to a decline to 1.5%. For June, a 0.2% increase in the headline PPI and a slowdown to 0.4% on an annual basis are anticipated. The core PPI is expected to increase by 0.2% on a monthly basis and decline from 2.8% to 2.7% on an annual basis.
In addition to the inflation data, Thursday will bring the weekly initial jobless claims, providing insights into the labor market’s health. The previous week’s data showed a slight increase from 236,000 to 248,000 claims, slightly above expectations but still at historically low levels, indicating a tight labor market.
US Consumer Sentiment
On Friday, the preliminary reading of the University of Michigan Consumer Sentiment Index for July will be released. The consumer sentiment index increased from 59.2 to 64.4 in June, reaching the highest level in the past four months. The continued easing of inflation and the resolution of the debt ceiling issue in the country contributed to the improved sentiment.
US Federal Reserve and Canadian Central Bank
Throughout the week, market participants will closely monitor speeches from Federal Reserve officials for any signals regarding future monetary policy. These speeches will provide insights into the Fed’s stance and potential policy adjustments.
Overall, this week’s economic calendar in the US includes important inflation data, unemployment claims, consumer sentiment, central bank meetings, and monetary policy signals that will guide market expectations and influence investor sentiment.
On Wednesday, the Bank of Canada will hold its meeting. After raising the policy rate by 25 basis points to 4.75% at its previous meeting, which marked the highest level since 2001, expectations are for another 25 basis points increase to 5%. The Bank’s decision will be influenced by the assessment of the country’s excessive demand and the need to balance supply and demand to achieve sustainable inflation around the 2% target.
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European Economic Outlook
ECB Meeting Minutes
In Europe, market focus will be on the release of the European Central Bank’s (ECB) meeting minutes from June 14-15. The previous meeting indicated an interest rate increase in line with expectations and provided signals of continued rate hikes. The ECB also announced that there would be no reinvestments within the Asset Purchase Program (APP) in July. The updated macroeconomic projections during the meeting revised growth forecasts downward and raised inflation projections.
Eurozone’s Sentix Investor Confidence and German Economic Indicators
On Monday, the Sentix Investor Confidence data for July will be released in the Eurozone. In June, the Sentix Investor Confidence index declined from -13.1 to -17, surpassing expectations, reflecting concerns over Germany’s entry into a recession in the first quarter and the potential impact on the region. With recent core inflation data near record levels and the European Central Bank (ECB) signaling further rate hikes, investor confidence is expected to remain weak.
On Tuesday, Germany’s ZEW Current Conditions and Expectations indices for July will provide insights into the country’s economic performance and future outlook. In June, the ZEW Current Conditions index decreased from -34.8 to -56.5, exceeding expectations, while the Expectations index slightly rebounded from -10.7 to -8.5, maintaining a contractionary trend for the past two months. For July, expectations are for the ZEW Current Conditions index to improve to -60 and the Expectations index to decline to -10.
Additionally, on Tuesday, the final Consumer Price Index (CPI) for June in Germany will be released, which will also impact the ECB’s monetary policy decisions. The preliminary data indicated a 0.3% increase in the headline CPI on a monthly basis, surpassing expectations, and a rise from 6.1% to 6.4% on an annual basis. Expectations suggest that the annual rate will increase to 6.3%.
Eurozone’s Industrial Production and Trade Data
On Thursday, the Eurozone’s industrial production data for May will be released. After a 3.8% decline in March, industrial production experienced a partial recovery with a 1% increase in April on a monthly basis. The annual rate also improved from a 1.4% decline to a slight 0.2% increase. Expectations point to a limited 0.3% increase in industrial production for May.
Furthermore, on Friday, the Eurozone’s trade data for May will be released, providing insights into the global trade outlook. In April, the trade balance shifted from a surplus to an 11.7 billion Euro deficit after two consecutive months of surplus.
United Kingdom’s GDP Monthly Growth
On Thursday, the monthly GDP growth data for April will be announced in the United Kingdom. After stagnant growth of 0% in February and a 0.3% contraction in March, April recorded a partial recovery with a 0.2% growth, in line with expectations. The services sector played a key role with a 0.3% growth, while the manufacturing industry and construction sector experienced contractions of 0.3% and 0.6% respectively. For May, a 0.3% contraction in monthly GDP is expected.
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Asian Economic Outlook
China’s Trade Data and Central Bank Meetings
On Thursday, China’s trade data for June will be closely monitored. In May, exports declined by 7.5%, surpassing expectations with a 1.8% decrease, while imports contracted by 4.5%, showing a moderate decline of 8% compared to expectations. These trade figures indicated a slowdown in global economic activity and the Chinese economy.
On Wednesday, the Reserve Bank of New Zealand will hold its meeting. After raising the policy rate by 25 basis points to 5.50% in May, reflecting high inflation levels, expectations are for the bank to keep the interest rate unchanged this week.
Moreover, on Thursday, the Bank of Korea will hold its meeting. In the previous meeting in May, the bank maintained the policy rate at 3.50% for the third consecutive time. The bank anticipated a continued slowdown in inflation but expected it to remain above the target level for a significant period, warranting a sustained restrictive policy stance. No changes in the interest rate are expected at this week’s meeting.