NFP and inflation data from the Eurozone and Switzerland along with PMI data from China will highlight this shortened week ahead of us. Friday is July 4, Independence Day holiday in the US, US markets will close early so caution is advised.
USD
On June 23 US has carried out bombing attacks on Iran’s nuclear facilities. Oil has opened as high as $78 as a result of attacks and possible retaliation from Iran. On June 24 Iran has attacked US base in Qatar. President Trump stated on social network that attack was telegraphed in front, he thanked Iran for the advance notice and stated that all launched missiles were brought down. Later on he announced cease fire between Israel and Iran and as a result oil plunged to $65. President turned his attention on calling out Fed Chair Powell for not cutting rates as he felt empowered by Fed Governors Waller and Bowen, hawks, mentioning it is time for a change in monetary policy and that they are considering July cuts. Talks about framework for a deal between US and China that happened on Wednesday were floated and gave markets another boost.
In delivering his testimony in front of the Congress Chair Powell reiterated his remarks from the FOMC meeting. He stated that monetary policy is in a good place and that they are waiting to learn more about the economy before making policy changes. Economy is solid, nearly full employment and inflation that is running little above 2%. Tariffs will likely push up prices and put a weight on economic activity. He reiterated that they are attentive to risks on both sides of their mandate and clarified that inflationary effects from tariffs are expected in June, July and August. He then added that if those inflationary effects do not appear it could lead to cutting earlier which again leaves September as the first month for rate cuts.
Final Q1 GDP reading was revised down to show economy that shrank by 0.5% vs -0.2% annualized as reported in the second reading. Personal consumption contribution declined to only 0.31pp from 0.8pp in the second reading. May durable goods showed a jump of 16.4% m/m due to plane orders but core capital goods, nondefense capital goods orders ex-air, rose 1.7% m/m vs 0.1% m/m as expected after dropping by 1.5% m/m in April indicating improvement in demand.
May PCE inflation saw headline number come in at 2.3% y/y as expected, up from 2.1% y/y in April with a 0.1% m/m (0.1358% unrounded) print. Core reading rose to 2.7% y/y vs 2.6% y/y as expected and up from 2.5% y/y the previous month with a 0.2% m/m print (0.1788% unrounded). Personal income dropped -0.4% after rising 0.8% in April while personal spending weakened -0.1%. USD continued to decline after the report on increased chances of rate cuts while stock market dipped on the fears about consumer weakness presented in the report.
The yield on a 10y Treasury started the week at 4.38%, rose to 4.41% and finished the week at around 4.29%. The yield on 2y Treasury started the week at 3.92%, rose to 3.94% and finished the week at around 3.73%. Spread between 2y and 10y Treasuries started the week at 47bp and finished the week at 56bp as curve proceeded to steepen. FedWatchTool sees the probability of a 25bp rate cut at July meeting at around 21%, while probability of a no cuts is around 79%. September remains the first month with greater than 50% probability of a rate cut.
This week we will have ISM Manufacturing PMI data as well as NFP data but this time on Thursday instead of usual Friday due to the Independence Day holiday. Headline number is expected to come at around 100k with the unemployment rate staying at 4.2%.
Important news for USD:
Tuesday:
ISM Manufacturing PMI
Thursday:
NFP
Unemployment Rate
EUR
Preliminary PMI data for the month of June saw manufacturing unchanged 49.4 while services printed 50 thus returning from one-month drop below 50 in May. Services sector is still experiencing falling new orders, but in June that pace has slowed down. The report shows that companies still face significant price pressures that are passed onto consumers. It is also stated that inflationary environment in services is partly offset by deflationary environment in manufacturing. Composite stayed at 50.2. This month we again got divergence between German and French reading but this time Germany showed improvements while French readings declined. Overall, PMI data for Q2 point to weak growth.
Germany published a plan for bond issuance that will see faster than expected defense spending. It is stated that new borrowing will amount to €143bn in 2025, €172bn in 2026 and €185bn by 2029. EURUSD has managed to reach new multi-year high as it reached 1.1750 during the week. Preliminary June CPI data from France and Spain both came in higher than in May at 0.9% y/y and 2.2% y/y respectively.
This week we will have preliminary June CPI data expected to show a small increase.
Important news for EUR:
Tuesday:
CPI
GBP
June preliminary PMI data showed second consecutive month of improvements across both sectors. Manufacturing printed 47.7 up from 46.4 in Mat with services printing 51.3 from 50.9 the previous month and thus lifting composite to 50.7 from 50.3 in May. The report shows increase in output and decrease in inflationary pressures. That will be welcomed by the BoE which is on the path for August cut. One worrying signal is that employment continues to decline which causes demand to weaken which yes brings inflation down, but it also brings economic growth down.
BoE MPC Ramsden, voted for a 25bp rate cut at the last meeting, stated that his decision to vote for a rate cut was due to him seeing loosening in the labor market which caused him to add more importance to the downside risks. Governors Bailey echoed Ramsden concerns about labor market stating that it is slowing which will put downward pressure on wages.
AUD
May monthly CPI data saw inflation ease down to 2.1% y/y from 2.4% y/y, much lower than 2.3% y/y as expected. Trimmed mean, core measure, also eased a lot and printed 2.4% y/y, down from 2.8% y/y in April. Although monthly readings capture only around 70% of items that go into CPI basket, which is reported quarterly, this is a very encouraging reading for RBA and will help them to deliver another rate cut at their July meeting.
This week we will get official PMI data for the month of June from China.
Important news for AUD:
Monday:
Manufacturing PMI (China)
Services PMI (China)
Composite PMI (China)
NZD
Second dairy auction of June saw index decline by 1% making it the third consecutive auction of falling prices. ANZ Roy Morgan Consumer Confidence index rose in June by almost 6 points to 98.8 after a 92.9 print in May thus marking the highest reading since December. All components of the index showed improvement. Inflation expectations jumped by 0.3% and are now at 4.9%, which represents the highest level since April 2023. Most likely reason for the increase are higher food prices coupled with concerns over rising energy and electricity costs.
CAD
May inflation report saw headline CPI come in unchanged at 1.7% y/y but increase 0.6% m/m vs 0.5% m/m as expected and up from -0.1% m/m seen in April. Core measures saw median and trim come down to 3% y/y while trim measure ticked up to 2.6% y/y from 2.5% y/y the previous month. Core inflation also rose 0.6% m/m which is a worrying sign and it lowers the odds of a rate cut in July.
JPY
Preliminary June PMI data saw improvements across the sectors. Manufacturing returned into expansion with a 50.4 print after a 49.4 print in May with output returning to growth and employment experiencing stronger growth. New orders and new export orders experienced declines while inflation accelerated. Services rose to 51.5 from 51 the previous month as output, new orders and employment experienced stronger growth. Foreign demand was a drag on both sectors with both sectors experiencing stronger output prices indicating that inflation pressures will be transferred to the consumers. Composite printed 51.4, jumping from 50.2 in May.
PPI data for the month of May saw another higher reading as it showed a growth of 3.3% y/y vs 3.1% y/y as expected. Summary of Opinions from the last week’s BoJ meeting showed agreement that inflation is running hotter than expected but the threat of tariffs is expected to weaken economic sentiment so although one member urged bank to “decisively” increase rates they will wait first for trade deal with the US before hiking rates. Tokyo area inflation from June saw easing as all three measures, headline, ex fresh food and ex fresh food, energy, printed 3.1% y/y. Easing of inflation is a welcoming sign but inflation is still running above 3% and way above BoJ’s 2% target.
CHF
SNB total sight deposits for the week ending June 23 came in at CHF442.5bn vs CHF434.8bn the previous week. Swissy is strengthening on the back of geopolitical tensions caused by the bombing in Iran and SNB cannot fight the market and curb Swissy strength.
This week we will have June inflation data.
Important news for CHF:
Thursday:
CPI
