The Week Ahead: US Job Report, Elections, and Euro Area Inflation in Focus

The US Dollar

On Monday, July 1, the June ISM Manufacturing PMI numbers will attract investor attention. If the numbers rise more than expected, it could boost hopes for a soft economic landing. However, since manufacturing makes up only 30% of the US economy, these numbers are unlikely to change the Fed rate path.

The JOLTs Job Openings report on Tuesday, July 2, will influence the Fed rate path more. Further declines in job openings and job quit rates could signal a deteriorating labor market environment. Workers are less likely to quit with fewer job openings and a weakening labor market.

It could be a pivotal Wednesday, July 3, session for the US dollar. ADP nonfarm employment change and jobless claims will guide investors on labor market conditions.

A sharp increase in nonfarm employment and a further decline in jobless claims may reduce investor bets on a September Fed rate cut. However, the ISM Services PMI will warrant investor attention. The services sector contributes over 70% to the US economy and fuels headline inflation.

After the July 4 holidays, the focus will shift to the June US Jobs Report. Better-than-expected wage growth, a steady US unemployment rate, and a sizeable increase in nonfarm payrolls may sink investor bets on a September Fed rate cut.

Tighter labor market conditions would support wage growth and increase disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation.

Investors should also consider the FOMC Meeting Minutes (Wed) and Fed speeches in another crucial week for the US dollar. Views on inflation and the timing of a Fed rate cut could move the dial.

The EUR

Finalized Eurozone Manufacturing PMI and German inflation numbers will put the focus on EUR/USD and the ECB on Monday. Unless there is a change in the Manufacturing PMI, German inflation figures could affect expectations for a Q3 2024 ECB rate cut.

Preliminary inflation figures for the Eurozone will also warrant investor attention on Tuesday. An unexpected pickup in inflationary pressures could sink investor expectations of a Q3 2024 ECB rate cut.

On Wednesday, finalized Euro area Services PMIs will need consideration. Revisions may garner the attention of the ECB. The services sector accounts for over 60% of the Euro area economy and remains an inflation bugbear for the ECB.

The German economy will be in the spotlight on Thursday and Friday. Factory orders and industrial production will be in focus. Weaker-than-expected figures could support investor hopes of a Q3 2024 ECB rate cut.

Beyond the economic data, the French Election results from Sunday and sentiment toward the July 7 run-off will influence buyer demand for the EUR/USD. However, investors should also monitor ECB commentary and consider the ECB monetary policy meeting minutes (Thursday).

The Pound

On Monday, finalized UK Manufacturing PMI numbers will draw attention to the Pound. An upward revision to the PMI could indicate a strong UK economy. However, since manufacturing is less than 30% of the UK economy, these numbers are unlikely to change the Bank of England’s interest rate plans.

Revisions to finalized UK Services PMI numbers on Wednesday could influence BoE rate hike expectations. The services sector accounts for over 70% of the UK economy and contributes to inflation.

Other stats in the week include house price data. However, these will likely play second fiddle to the private sector PMIs.

Beyond the numbers, the UK General Election is the main event of the week for the Pound. However, investors should also consider Bank of England commentary and the BoE Credit Conditions Survey (Thurs).

The Loonie

On Wednesday, trade data from Canada will impact buyer demand for the Loonie. Improving trade terms could signal a pickup in the demand environment. Beyond the headline trade balance, investors should consider import and export trends.

However, employment figures may influence buyer appetite for the Canadian dollar more. Weaker labor market conditions could fuel expectations of a Bank of Canada interest rate cut.

The Australian Dollar

On Monday, Australian job ads and finalized manufacturing sector PMIs could affect buyer demand for the Aussie dollar. The job ad numbers will likely attract more interest, with a larger-than-expected slide in job ads a signal of a waning Australian labor market.

The RBA Meeting Minutes on Tuesday will also need consideration. In June, the RBA Rate Statement and RBA Governor Michele Bullock highlighted board member discussions about hiking rates. After the policy decision, hotter-than-expected inflation numbers have fueled investor bets on a 2024 RBA rate hike. The Meeting Minutes could reveal the necessary conditions to raise interest rates.

However, trade data will also warrant investor attention on Thursday. Australia has a trade-to-GDP ratio of over 50%. Weaker trade terms could impact the Australian economy and labor market, with 20% of its workforce in trade-related jobs. Improving trade terms could fuel investor expectations of an RBA rate hike.

The Kiwi Dollar

On Tuesday, New Zealand business confidence figures for Q2 will put the NZD/USD in focus.

A pickup in business confidence could temper investor bets on an RBNZ rate cut. Upward trends in business confidence could signal a pickup in economic activity and hiring. An improving labor market may support wage growth and increase disposable income.

The Japanese Yen

The Japanese Yen is in the intervention zone. So, this week could be volatile. On Monday, finalized manufacturing PMI and consumer confidence numbers from Japan will attract attention. Unless there is a change to the PMI, consumer confidence will likely impact the USD/JPY more. Higher consumer confidence could indicate more spending and increased inflation pressures.

On Wednesday, the Tankan Survey-based reports will also need consideration alongside finalized services PMIs. With investors considering a possible July Bank of Japan rate hike, the focus will be on the non-manufacturing Tankan Indexes and any revisions to the Services PMI. Upward trends in services sector activity could fuel expectations of a July BoJ policy move.

On Friday, household spending will be a crucial data release. A jump in household spending could fuel demand-driven inflation and enable the BoJ to tighten monetary policy to bolster the Japanese Yen.

However, weak numbers could adversely impact the Yen. Private consumption contributes over 50% to the Japanese economy. Further declines in household spending could signal a Q2 economic contraction.

Beyond the numbers, investors should monitor for signs of intervention to bolster the Yen. Bank of Japan commentary also needs consideration.

Out of China

On Monday, the Caixin Manufacturing PMI will impact demand for riskier assets. If it falls more than expected, it could challenge investor optimism for 5% growth amidst fading hopes for a more meaningful stimulus package.

On Wednesday, the Caixin Services PMI will also be influential. The services sector makes up over 50% of China’s economy. Weak demand here could affect the Aussie dollar, Kiwi dollar, and Loonie.

Beyond the numbers, investors should monitor EU-China tariff negotiations.