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Weekly Market Update: Jul 30, 2023 – Aug 5, 2023

Weekly Market Update Capex.com
Cristian Cochintu
Cristian Cochintu
06 June 2023

Coming up this week: updates on the labour market to probably steal the limelight from BoE and RBA.  

With the best part of two months until the next Federal Reserve meeting, all eyes will be on the ISM business surveys and the July nonfarm payrolls report as they're expected to show a further contraction. After better inflation news in the UK, the BoE is poised for a smaller rate hike. In the eurozone, there will be important GDP and inflation data released.      

What are the key market drivers this week? 

  • Business surveys and the NFP are expected to show a further contraction of the US Economy  
  • Bank of England poised for smaller rate hike after better inflation news  
  • Another close call for the RBA?
  • GDP and inflation data releases ahead of the ECB Meeting next week
  • Oil will also be in the spotlight as the OPEC+ alliance holds its monthly meeting.
  • Earnings season continues this week with reports due from some of the market’s most widely held names.
     

Start every week on the front foot with a preview of what are the key market drivers this week. You can sign up here to receive the Week Market Update by email each Monday. 

Economic Calendar Events Jul 30, 2023 – Aug 05, 2023 

Here are the most important events and releases that affect the forex, stocks, and commodities markets this week: 

Monday, July 31 

CNY: Manufacturing PMI  
EUR: CPI & Core CPI Flash Estimate y/y
Arista Networks (ANET), ON Semiconductor Corp. (ON), Welltower Inc. (WELL), Diamondback Energy (FANG), and Eversource Energy (ES) report earnings  

Tuesday, August 1 

AUD: Cash Rate and RBA Rate Statement 
USD: ISM Manufacturing PMI and JOLTS Job Openings
EUR: Manufacturing PMI  
Merck (MRK), Pfizer (PFE), Toyota Motor Co. (TM), Advanced Micro Devices (AMD), Caterpillar (CAT), BP (BP), Starbucks (SBUX), Uber Technologies (UBER), Altria Group (MO), and Marriott International (MAR) report earnings

Wednesday, August 2  

NZD: Employment Change q/q and Unemployment Rate 
USD: ADP Non-Farm Employment Change
Crude Oil Inventories
Qualcomm (QCOM), CVS Health Corp. (CVS), Shopify (SHOP), PayPal Holdings (PYPL), Equinix (EQIX), Thomson Reuters Corp. (TRI), Ferrari (RACE), Humana (HUM), Phillips 66 (PSX), and MetLife Inc. (MET) report earnings

Thursday, August 3  

CHF: CPI m/m
GBP: Bank of England Policy Meeting and Interest Rate Decision
EUR: Services PMI
USD: ISM Services PMI
Apple (AAPL), Amazon (AMZN), ConocoPhillips (COP), Amgen (AMGN), Stryker Corporation (SYK), Booking Holdings (BKNG), Gilead Sciences (GILD), Airbnb (ABNB), Cigna (CI), and Occidental Petroleum (OXY) report earnings 

Friday, August 4  

AUD: RBA Monetary Policy Statement
USD: Nonfarm Payrolls Report (Jul) 
CAD: Nonfarm Payrolls Report (Jul) 
Enbridge Inc. (ENB), Dominion Energy (D), and Liberty Media Corp. (FWONA) report earnings 
 


    

 

An eXclusive look at market-shaking events 

Here is an exclusive look at what to expect in the markets this week based on reliable sources of information, such as leading financial websites, Central Banks' statements and data, news/press releases, analyst reports, and not only. 

US: business surveys and the labor market are expected to show a further contraction in the economic activity

We now have the best part of two months until the next Federal Reserve meeting with the market seemingly content in the view that we are at or very close to the end of the Fed’s tightening cycle and that recession can be avoided as inflation gradually returns to its 2% target. Analysts remain skeptical, but the upcoming data isn’t likely to shake the market's mindset.

Job openings are projected to have fallen to 9.5 million last month from 9.82 million in May, as availability cooled. On Wednesday, payroll provider ADP will follow with its National Employment Report tracking growth in private sector payrolls. Projections call for a gain of 210,000 in July, after payrolls surged by almost half a million in June. This could set the stage for the July nonfarm payrolls report on Friday. Economists project U.S. employers added 190,000 jobs this month, slightly below a gain of 209,000 in June. This would mark the smallest increase since a decline in late 2020, indicating the Fed’s rate hikes are finally cooling the red-hot labor market. The unemployment rate is projected to hold steady at 3.6%, near a 50-year low.

Given that the Senior Loan Officer Opinion Survey from the Federal Reserve is such an important leading indicator, traders will be keeping an eye on it. It demonstrates that banks' appetite for lending has dramatically decreased, and this is supported by weekly lending figures that show loan repayments are now outpacing new lending, which has caused a reduction in the number of outstanding loans in the economy. Given the significance of credit to the American economy, it is extremely concerning that the likelihood of economic activity declining continues starting in the fourth quarter. If that is the case, it will contribute to accelerating the economic disinflationary trend. 

   

UK: BOE poised for a smaller rate hike after better inflation news

The Bank of England is under less pressure to repeat the 50 basis-point rate boost it delivered in June thanks to some positive news about UK inflation. In June's data, services inflation, a crucial indicator for the Bank, declined, contrary to BoE projections for it to remain constant. Better news in other sectors, like food, were added to that. A recent upward surprise to wage growth did, in fact, temper this better inflation narrative, but even that was countered by persistent worker returns and other evidence of slowing in the labour market. In a recent press conference, Governor Andrew Bailey acknowledged the latter argument.

In short, there’s just about enough in the latest data flow for the Bank to be comfortable with reverting back to a 25bp hike in August. A 25-bps increase is fully baked in, but markets have assigned around a 30% probability of a larger 50-bps move. While traders could reasonably argue that the latest inflation number is just one data point, they could have made a similar argument about the previous month’s data, which the Bank said had contained “significant news”.  

Markets shouldn’t rule out a 50bp hike though, especially if the committee concludes that it will likely hike again in September. Governor Bailey explained at the European Central Bank's recent Sintra conference that it was this logic that partly drove the Bank to do a 50bp hike last month. 

 

Eurozone: GDP and inflation data releases on the agenda before ECB Meeting next week

The European Central Bank made a dovish turn this week by not committing to further rate hikes. The change in stance came on the back of softer inflation readings as well as growing signs that the Eurozone economy could be headed for a recession. Some of the most crucial data points before the September meeting start the following week, with inflation and GDP on the agenda.

Although Germany's stagnant GDP was worse than anticipated, the initial country estimates are good. The concern is whether a very slight growth rate can be achieved when the GDP is currently drifting very closely to zero growth. French numbers on inflation offer some solace, but for the ECB, only a significant decline would be viewed as dovish evidence before September. This week, the ECB will issue data on unemployment, which is crucial since it will help relieve its concerns about inflation persistence if the labor market is cooling.

 

AUD: Another close call for the RBA?  

Markets and economists are divided on what the Reserve Bank of Australia will do when it meets on Tuesday to make its policy announcement for August. Following a break in July, analysts expect the cash rate to rise by 25 basis points to 4.35%. The decision was close, according to the minutes of the July meeting, and the Board decided to "reassess the situation" in August. On Friday, the Bank will release new economic estimates, although it's uncertain how much clarity they will offer. The unemployment rate decreased to 3.5% in June, but inflation also decreased more than anticipated, with the CPI cooling to 6.0% year-over-year in Q2. Recent economic data has been relatively mixed.

Other data, however, have been more depressing because both the manufacturing and services PMIs fell in July. Markets do anticipate one final 25-bps increase over the following nine months, but they aren't confident that officials will start raising rates. The fact that Australian exporters stand to gain from China's increased attempts to boost its economy, however, provides cause for optimism. Because a hawkish hold is the most dovish alternative, if policymakers decide to abstain from another meeting, the decision may not have a significant negative impact on the Australian currency. However, if they decide not to wait and raise rates the next week, they are not likely to rule out further increases, which would strengthen the local currency.

The AUD could also gain if the PMIs out of China show some improvement in July. The official manufacturing and non-manufacturing PMIs are out on Monday, while the Caixin manufacturing and services PMIs are due on Tuesday and Thursday, respectively.

 

More data and an OPEC meeting 

On Thursday, Switzerland will monitor the CPI figures, and early on Wednesday, New Zealand's quarterly jobs statistics will be crucial for the Kiwi. On Friday, Canada will also receive its July employment statistics.  

Another strong employment report may enhance the likelihood that the Bank of Canada will raise rates again this year, which would strengthen the Canadian dollar. The big oil producers are not anticipated to make any significant modifications to their output quotas, thus the Canadian dollar is likely to ignore an OPEC and non-OPEC country summit on Thursday. Following the previously announced cuts by Saudi Arabia and Russia, as well as on the expectation that stronger pro-growth policies in China, oil futures have been climbing recently. 

Earnings Season Continues 

Earnings season continues next week with reports from tech giants Apple and Amazon, as well as a handful of big pharma companies including Pfizer, Merck, Amgen, Humana, Gilead Sciences, and Cigna. We’ll also get earnings from Toyota, Caterpillar, Starbucks, Uber Technologies, Airbnb, and PayPal, among others.

Don’t miss the neXt market shaking events  

The information presented herein is prepared by capex.com/ae and does not intend to constitute Investment Advice. The information herein is provided as a general marketing communication for information purposes only.Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience, or current financial situation. 

Key Way Markets Ltd shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein. Past performance and forecasts are not reliable indicators of future results.

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Cristian Cochintu
Cristian Cochintu
Financial Writer

Cristian Cochintu writes about trading and investing for CAPEX.com. Cristian has more than 15 years of brokerage, freelance, and in-house experience writing for financial institutions and coaching financial writers.