Fed rate hike expectations may have eased following the shock Brexit vote but US non-farm payrolls will still be closely watched next week as it’s an important barometer for the US economy. Also to keep an eye on are central bank meetings in Australia and in Sweden.
Fed speeches and non-farm payrolls in focus
After a quiet start to the week as Americans celebrate Independence Day on Monday, things will get busier from thereon with plenty of economic data to keep investors occupied. Starting with factory orders on Tuesday, they are expected to drop by 0.5% in May after a strong jump the prior month. The ISM non-manufacturing composite will follow on Wednesday. The index fell to the lowest since February 2014 in May, raising further fears about a slowing US economy following the weak jobs report for the same period. However, non-manufacturing activity is forecast to improve in June with the index expected to increase to 53.5 from 52.9.
Also due on Wednesday are the Fed’s minutes of the June FOMC meeting. As the meeting was held before the UK voted to leave the EU, the minutes may not be viewed as being too relevant now and dollar traders may instead choose to pay more attention to upcoming appearances by New York Fed President William Dudley on Tuesday and Wednesday, and by Fed Governor Daniel Tarullo on Wednesday. Rate hike expectations by the Fed have dramatically diminished after the Brexit referendum, though expanded stimulus in other parts of the world, including the UK, may give the Fed less reason to maintain accommodative policy.
On Thursday, the ADP employment report is out ahead of the NFP report the following day. Employment is forecast to rise by 150k in June in the ADP survey, slightly weaker than the 173k seen in May. The consensus forecast for Friday’s non-farm payrolls change is a bit higher though at 180k. This would be an improvement on May’s figure of 38k, which was the lowest in over 5 years, but still down on the 200k plus readings seen in preceding months. The unemployment rate is expected to edge up to 4.8% in June, while average earnings are forecast to stay unchanged at 0.2% month-on-month.
Quieter week for the Eurozone
Business sentiment surveys will be the main data out of the Eurozone next week, along with retail sales. The Eurozone sentix index out on Monday will be one of the first surveys that will include some of the impact post the Brexit vote on business confidence in the Eurozone. The index is forecast to deteriorate from 9.9 in June to 5.0 July. On Tuesday, the final June services and composite PMIs from Markit are published, as well as retail sales figures for the euro area in May. Also to watch will be industrial production and trade data out of Germany. Industrial output in Germany is forecast to stay flat in May at 0% month-on-month when released on Thursday, while exports (out on Friday) are expected to have grown by 0.3% for the same period.
RBA expected to hold rates
The Australian dollar has recovered just over half of its losses from the Brexit aftermath but is now facing renewed pressure from a weaker Chinese yuan. The Reserve Bank of Australia will likely welcome any depreciation in the aussie to help cushion the Australian economy from a potential further slowing of global growth, particularly in China. The RBA will meet on Tuesday and is expected to keep rates at a record low of 1.75% for now. Also out of Australia next week on Tuesday are retail sales and trade balance figures.
UK manufacturing to slip back
PMI data out of the UK next week will consist of the construction PMI on Monday and the services PMI on Tuesday. Both indices are forecast to decline in June in the run-up to the EU referendum, but remain in growth territory above 50. Industrial and manufacturing output data is due on Thursday and are forecast to show a contraction in May. Following a strong surge in April, both industrial and manufacturing production are expected to decline by 1% month-on-month in May. However, the data is unlikely to have a major impact on the pound as investors will want to wait for post-Brexit indicators before coming to any conclusions on the implications of the June 23 vote to leave the EU.
Riksbank expected to keep policy unchanged amid Brexit concerns
Sweden’s central bank, the Riksbank will meet on Wednesday for its latest policy meeting but is not expected to announce any fresh measures following a rate cut in February and an expansion of its bond buying program in April. The Swedish krona has weakened slightly against the dollar and the euro since the end of April, giving the Riksbank a helping hand in fighting near zero inflation. But the central bank may decide to respond with further easing if Brexit fears start to materialize.
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