The US Jobless Claims data should be the most important release this week given the worries around the US labour market triggered by the US NFP report.

US ISM Services PMI-Monday

The ISM services PMI is expected to rise back into expansionary territory, with the consensus looking for 51.0 in July vs 48.8 in June. As a proxy, the S&P Global flash US services PMI for the month rose to a 28-month high of 56.0 from 55.3. However, the S&P Global composite PMI data for July noted that optimism about output in the year ahead slipped to a three-month low in July.

S&P Global said that "sentiment was adversely affected by uncertainty regarding the Presidential Election and resulting policies, though companies also cited concerns over the persistently high cost of living about both inflation and interest rates," adding that these concerns are more evident in the service sector than in manufacturing.

On inflation, the report said "while some stubbornness of inflation was still evident in the service sector, prices charged for services rose on average at the slowest rate for almost four years barring only January’s brief dip in the rate of inflation," and "higher wage pressures also remained a dominant factor behind price hikes, especially in the service sector."

New Zealand Job Report-Tuesday

Q2 Employment Rate is seen ticking to 4.7% (prev. 4.3%) with Q/Q jobs growth seen at -0.3% (prev. -0.2%). The participation rate is 71.3% (prev. 71.5%). Labour Cost Index Q/Q is expected to remain steady at 0.8% whilst the Labour Cost IndexY/Y is seen ticking lower to 3.5% from 3.8%.

Analysts at Westpac suggest “The New Zealand labour market is clearly softening, with higher-frequency indicators pointing to outright job losses in recent months. We estimate that the unemployment rate rose from 4.3% to 4.7% in the June quarter.” The desk also flags that wage growth is slowing from highs, although the public sector pay agreement may distort the metric for the June quarter.

RBA Announcement-Tuesday

The RBA is likely to keep the Cash Rate at the current level of 4.35% during next week’s meeting with moneymarkets pricing around a 96% chance for rates to be kept unchanged and just a 4% likelihood of a 25bps cut. The RBA has refrained from rate adjustments since its last increase in November and it stuck to a hawkish tone at the prior meeting in June where it reiterated that the Board remains resolute in its determination to return inflation to the target and that inflation is proving persistent. It also noted that inflation has been declining more slowly than previously expected and remains high, as well as stated that the path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.

Furthermore, the minutes from the meeting stated the Board judged the case for holding rates steady was stronger than for hiking and that they needed to be vigilant to upside risks in inflation with data suggesting upside risk for the May CPI reading. This was eventually realised as the monthly inflation for May accelerated with Weighted CPI YY firmer-than-expected at 4.00% vs. Exp. 3.80% (Prev. 3.60%) which spurred the likes of Deutsche Bank and Morgan Stanley to call for a 25bps hike at the upcoming RBA meeting.

However, the more recent monthly CPI data for June has since softened to 3.8% and the quarterly CPI for June was also mostly lower-than-expected including the RBA’s preferred TrimmedMean measure of inflation which spurred some banks to drop their calls for a hike and saw money markets switch from pricing outside chances of a hike to a very small chance of a cut.

Furthermore, the latest jobs data was mixed and supported the case for a continued pause as headline Employment Change for June topped forecasts with an increase of 50.2k vs. Exp. 20.0k (Prev. 39.7k) which was mostly due to full-time jobs although the Unemployment Rate unexpectedly rose to 4.1% vs. Exp. 4.0% (Prev. 4.0%) but coincided with a similar magnitude increase in the Participation Rate.

China Trade Balance-Wednesday

Trade Balance in USD terms for Jul is expected to show a narrower surplus of USD 98bln (prev. USD99.05bln), with export growth seen at +10.4% (prev. +8.6%) and Imports at +3.3% (prev. -2.3%). The metrics will be closely watched as a demand gauge at a time of sluggish Chinese domestic demand. Using the Chinese Caixin PMIs as a proxy, the release suggested “Export orders meanwhile continued to rise, but the rate of growth slowed from June to a modest pace”, as the release also called for “intensifying policy stimulus, ensuring effective implementation of previous policies, and unleashing market vitality”.

The Trade Balance data also comes after the CCP’s Third Plenum in which it outlined “a strategic roadmap to deepen reform further comprehensively and advance Chinese modernization, providing direction for high-quality development of the economy in the future.

Bank of Canada Minutes-Wednesday

At its late July policy meeting, the BoC cut rates by 25bps to 4.50%, as was expected by the majority of analysts. Within the statement, it noted that risks to the inflation outlook were balanced, and it removed language that referred to the central bank being more concerned about upside inflation risks. However, it noted that it was assessing opposing forces on inflation, with ongoing excess supply lowering inflationary pressures, although shelter and some other services inflation is holding inflation up.

Ahead, the BoC said decisions will be guided by incoming data and their potential impact on the inflation outlook. In its updated economic projections, it revised its Q22024 CPI forecast to 2.7% (from 2.9%), with Q3 CPI seen at 2.3%. The BoC does not see CPI returning to the midpoint of its target range until 2026 however, and it also nudged up its 2025 CPI projections to 2.4% from 2.2% in April. It left its estimate of the nominal natural rate unchanged at between 2.25-3.25%, while it now sees the output gap between -0.75% and -1.75% (in April, it was estimated between -0.5%and -1.5%).

In his post-meeting press conference, Governor Macklem said there was a clear consensus to cut rates, and if inflation continued to ease broadly in line with their forecasts, it would be reasonable to expect further rate cuts, though the timing will depend on how the BoCsee these "opposing forces" playing out. Writing after the announcement, RBC said it was looking for an additional two rate cuts this year, leaving the overnight rate at a "still restrictive" 4% by the end of 2024.

New Zealand Inflation Forecast-Thursday

There are no expectations for the Kiwi inflation forecasts, with the 1-year ahead previously at 2.7% and the 2-year ahead at 2.3%. Analysts highlight that the importance of this particular survey for the RBNZ has waned over time, albeit it could still provide some useful insight into economic conditions. The desk at Westpac suggests “With inflation falling faster than expected and signs that activity is cooling, expectations are set to take another step down this quarter. However, markets expect that they will be above the 2% midpoint of the RBNZ’s target, with domestic inflation pressures remaining sticky. A lower reading would strengthen the case for earlier rate cuts.”

China Inflation-Friday

CPI Y/Y is seen ticking higher to 0.4% in July (prev. 0.2%) whilst PPI is expected to remain in deflation at -0.9%(prev. -0.8%). The release will be watched as a gauge of demand in the Chinese economy. Using the Chinese Caixin PMIs as a proxy, the release suggested “Average selling prices declined for the first time since May. Chinese manufacturers indicated reducing selling prices to support sales amid increased competition. This was partially supported by input cost inflation easing to the lowest in the current four-month sequence.” Senior Analyst at Caixin flagged that “Price levels were under pressure. An increase in prices for raw materials pushed up input costs moderately, keeping the gauge in expansionary territory for the fourth consecutive month. Output prices, however, decreased amid intensified market competition and sales pressure, with the corresponding gauge in contractionary territory for the sixth time in the past seven months.”

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