This week highlights include US CPI and Retail Sales data, while the UK sees CPI, Retail Sales and Jobs data, while in APAC, Australian jobs, RBNZ rate decision, China activity data, PBoC MLF, and Japan GDP will be the highlights.

UK Employment Data-Tuesday

As expected, the primary focus for the Bank of England (BoE) in this report will be wages. In May, both the headline and ex-bonus wage figures moderated to 5.7%, aligning with expectations, a development that was considered unlikely to influence the BoE's August decision significantly. Most metrics from that month were in line with consensus. Looking ahead, Morgan Stanley anticipates that ex-bonus wages will align with the BoE's view, though there is a potential risk of an upward revision to May's data. This release remains crucial for BoE pricing and decision-making for September, but the significance of wage metrics may be overshadowed by the upcoming CPI release and the expected significant public sector wage increase, averaging around 5.5%. It's also important to note that the data continues to have reliability issues.

RBNZ Announcement-Wednesday

The Reserve Bank of New Zealand (RBNZ) is set to hold a policy meeting next week, with mixed expectations regarding the Official Cash Rate. Out of 31 economists surveyed by Reuters, 19 expect the rate to remain at 5.50%, while 12 anticipate a 25bps cut. Recent shifts in money markets suggest a higher probability of a rate cut, with OIS indicating an 84% chance of a reduction and just a 16% likelihood of maintaining the current rate. At its last meeting, the RBNZ kept the rate unchanged, as expected, and emphasized that the OCR would need to remain restrictive, though with a dovish tone suggesting that the extent of this restraint would lessen over time, consistent with a decline in inflation pressures.

The RBNZ noted that while domestic price pressures remain strong, there are signs that inflation persistence will ease as capacity pressures and business pricing intentions decline. The minutes revealed confidence that inflation would return to the 1%-3% target range by the second half of 2024. Since the last meeting, few updates have emerged, and recent data has generally supported a continued pause, including softer New Zealand CPI in Q2 and better-than-expected employment figures. However, recent softer inflation expectations have led markets to lean heavily towards a rate cut.

US CPI- Wednesday

Following June's unexpected downside, analysts anticipate that US consumer prices will increase by +0.2% M/M in July (previously -0.1%), bringing the annual rate to 2.9% Y/Y (previously 3.0%). Core CPI is expected to rise by +0.2% M/M (previously +0.1%), with the annual rate easing to 3.2% Y/Y (previously 3.3%). The Cleveland Fed's inflation nowcasting is tracking headline inflation at +0.24% M/M in July and 3.01% Y/Y, with core inflation tracking 0.27% M/M and 3.33% Y/Y, suggesting potential upside risks for the latter relative to consensus.

Bank of America expects headline inflation to rise by 0.25% M/M unrounded due to increases in core services inflation and energy prices, with the annual rate remaining unchanged at 3.0% Y/Y. Core CPI is projected to rise by 0.22% M/M, slightly higher than June but in line with the trend in disinflation, potentially meeting the Fed’s criteria for initiating rate cuts in September. BofA also highlights that financial markets are pricing in over 100bps of rate reductions this year, with debates on the likelihood of a larger up-front cut or an inter-meeting move, though it believes the current situation does not justify immediate action.

UK CPI-Wednesday

The Bank of England's June Monetary Policy Report forecasted Q3 CPI at 2.3%, a slight increase from the 2.0% rate maintained for the last two months and the 2.1% average in Q2. For July, Pantheon expects the rate to rise to 2.2%, driven by base effects from Ofgem utility price adjustments in 2023, which were more significant than the reduction announced in July 2024. Core inflation is expected to average 3.4% in Q3, down from 3.6% in Q2, while Morgan Stanley forecasts the year-on-year services inflation rate to moderate to 5.4%, slightly below the BoE's expectation of 5.56%.

However, they caution that services inflation could rise above forecasts in August’s print, released just before September's policy announcement. For the BoE, July's data will be critical in the ongoing debate among members who previously voted for a cut, especially those who were undecided due to concerns about persistent inflation and potential upside risks. Current market pricing suggests the next cut could come in November, with around a 30% chance of a September move. Despite the upbeat growth outlook from recent PMIs, which points to core inflation remaining well above 2.0% and CPI likely to rebound above the target, a back-to-back cut in September seems unlikely but cannot be ruled out.

Japan GDP-Thursday

Japanese GDP for Q2 is expected to increase by 0.5%, following a 0.7% decline in the previous quarter. Forecasts range from a low of 0.6% to a high of 3.0%. After the Q1 GDP data, Japan made an unexpected revision, revealing that the economy contracted more than initially reported, with an annualized decline of 2.9% compared to the previously estimated 1.8% contraction. This revision was primarily due to corrections in construction orders data, exposing inaccuracies in the initial estimates.

Analysts at Deloitte predict that "real GDP growth will start to recover in the second half of 2024," with stronger wage growth and more moderate inflation expected to boost consumer spending, while a weak yen is likely to stimulate export growth. Despite these positive factors, Deloitte expects the overall economic growth to be "relatively modest."

Australia Employment Data-Thursday

The Australian economy is forecasted to add 12.5k jobs in July, a significant decrease from June’s 50.2k. The participation rate and unemployment rate are expected to remain steady at 66.9% and 4.1%, respectively. In June, Australian employment surged with a net increase of 50,200 jobs, far exceeding the expected 20,000. Full-time employment contributed 43,300 to this growth, marking the second consecutive month of strong gains.

However, the unemployment rate rose slightly to 4.1% from 4.0%, contrary to expectations of it remaining stable, due to an increase in the labour force participation rate, which reached nearly a record high of 66.9%. Despite the robust job growth, there are indications of a loosening labour market, as evidenced by the upward trend in the unemployment rate, though the market remains tight overall. The most recent Reserve Bank of Australia (RBA) meeting saw no major surprises, as the Cash Rate was kept unchanged at 4.35%, and the hawkish tone was maintained, with Governor Bullock clarifying during the press conference that a rate hike was discussed.

China Activity Data-Thursday

Chinese economic activity data for July is expected to show Retail Sales at 2.0% (prev. 2.0%), Industrial Output at 5.2% (prev. 5.3%), and Urban Investments at 3.9% (prev. 3.9%). These indicators will be closely monitored to assess the health of the Chinese economy. The Caixin Manufacturing PMI for July fell to 49.8 from 51.8 in June, signalling a contraction in the manufacturing sector. This reading was below analysts' expectations of 51.5 and marked the lowest level since October of the previous year. The decline was primarily driven by the first drop in new orders in a year, attributed to subdued demand and client budget cuts. Investment and intermediate goods were the most affected, while the consumer goods sector saw a slight expansion in July. Caixin's Chief Economist highlighted "insufficient domestic demand and weak market optimism" as the main challenges for the manufacturing sector. In the previous release, China's industrial output increased by 5.3% Y/Y in June (vs. expectations of 5.0%), a slight slowdown from the 5.6% growth in May. Retail sales rose by 2.0% in June (vs. expectations of 3.3%), a significant drop from the 3.7% growth in May, while fixed asset investment grew by 3.9% in the first half of 2024, in line with expectations.

US Retail Sales-Thursday

US retail sales are expected to rise by +0.3% M/M in July (previously 0.0%), with the ex-autos measure seen increasing by +0.1% M/M (previously +0.4%), and the Control Group anticipated to rise by +0.1% M/M (previously +0.9%). Bank of America's monthly consumer checkpoint report, which aggregates credit and debit card spending per household, showed a decline of -0.4% Y/Y in July (previously -0.5% Y/Y in June). The report noted that within the total, spending on services was stronger than on goods, with international travel being a standout area.

BofA observed that the labour market is showing more signs of cooling, but its internal data on after-tax wages and salary growth continues to support consumer spending. "We believe households have managed to achieve some volume growth in their spending despite weaker nominal spending growth per household; to do this, consumers are becoming more price-sensitive, and we see stronger spending in value groceries and clothing compared to these categories overall," the report stated, adding that "one reason for increased price sensitivity may be the diminishing savings buffers consumers have, especially when accounting for inflation. While deposits have decreased, in our view, they remain moderately supportive of consumer spending."

UK Retail Sales-Friday

Morgan Stanley anticipates that UK retail sales ex-fuel will decline by 0.3% in July, citing factors such as "perhaps the weather, interest rate levels, or the high prices of discretionary retail goods – but consumers are not quite ready to spend yet." However, industry data from the British Retail Consortium (BRC) indicated a recovery in UK retail sales in July 2024, with a year-on-year increase of 0.5% (vs. previous -0.2% in June). The BRC noted a notable rise in purchases of summer clothing and health and beauty products, driven by warmer weather and consumer preparations for outdoor activities and holidays.

Conversely, spending on furniture and household appliances weakened as consumers prioritized holidays and entertainment over indoor goods, leading to negative growth for non-food items, particularly in-store sales. The BRC also observed that with election uncertainty resolved, retailers are now focusing on the Autumn Budget for potential relief from business rates increases and possible reforms promised in Labour's manifesto.

KPMG added that while summer staples have driven growth, the overall upturn was less significant than expected for this critical period. Televised sports events boosted sales of electronics, such as TVs and tablets, but big-ticket purchases remained subdued. KPMG further noted that many households are under financial pressure due to higher mortgage and rent costs, leading to more cautious spending.

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