US stock and bond markets are closed today

July 4, 2016

The Main Macro Events This Week

United States: US stock and bond markets are closed today for the independence celebrations. There are only two items of note on the abbreviated week’s calendar, the June jobs report (Friday) and the FOMC minutes (Wednesday). But with the much changed landscape following Brexit, and the Fed sidelined for the foreseeable future, there may be limited impact from these reports. The jobs report will be important, however, as we look to gauge whether the weakness in April and May data was more an anomaly or a new trend. The FOMC minutes to the June 14, 15 policy meeting will be of lesser value since the discussions will seem rather irrelevant after the surprise Brexit vote. Other data reports this week include the June ISM non-manufacturing index (Wednesday), May factory orders (Tuesday), May trade (Wednesday), and June ADP payrolls (Thursday). The services ISM is expected to bounce back to 53.5 after slipping 2.8 points to 52.9 in May. Such a rebound would help alleviate worries over general economic slowdown. Factory orders are forecast falling 0.7% given the 2.2% drop already reported in durable orders. The May trade deficit is seen widening to -$40.0 bln, after expanding to -$37.4 bln in April, with imports climbing another 1.3% after the 2.1% April jump, while exports should inch up 0.1% after a 1.5% gain previously. The ADP report, which will set the stage for the BLS jobs report, is expected to post a 165k private payroll increase.

Canada: Slate of economic data in Canada is heavy this week. The Bank of Canada’s Business Outlook Survey (today) is expected to reveal divergent moves in sentiment among industries. The impact of the Alberta wildfires and production shutdown should weigh heavily on oil industry sentiment. However, the outlook for the rest of the economy should see further modest improvement. The trade report (Wednesday) is seen revealing a slight unwinding of the trade deficit to -A$2.8 bln from -A$2.9 bln in April. Exports are seen falling 3.0% in May, while imports suffer a similar sized decline to leave the deficit little changed. But the risk is to the downside for both the May deficit and the size of the export pull-back. Building permits (Thursday) are expected to improve 1.0% in value terms during May after the 0.3% dip in April. The Ivey PMI (Tuesday) is seen improving to 51.0 in June from 49.4 in May. Finally, the employment report (Friday) is projected to reveal a 10.0k jobs gain alongside a rise in the unemployment rate to 7.0% from 6.9% in May.

Europe: the EMU June Services PMI (Tuesday) is expected to be confirmed at 52.8. The manufacturing reading was revised up, which leaves room for an upward revision to the composite, but while survey data confirmed that the economic recovery gathered pace again at the end of Q2, Markit said with the release of the manufacturing number that responses were gathered ahead of the Brexit result, so that they don’t capture the impact of the U.K.’s decision to leave the EU. German manufacturing orders (Wednesday) and industrial production (Thursday) data for May will be even more out of date in light of the recent events. Even if there are sizeable large- ticket items in the orders number that should underpin industrial production going ahead, the risk is that the Brexit referendum will lead to cancellations as investment projects are being put on hold until the future relationship between the rest of the EU and the U.K. is more clear. For what it’s worth, we are looking for a rebound in manufacturing orders of 0.8% m/m (med same), after the -2.0% m/m contraction in the previous month, while production is expected to ease -0.2% m/m (median 0.0%). The data calendar also has Eurozone May retail sales (Tuesday), German trade data for May (Friday), as well as French production numbers (Friday) and EMU PPI (today), none of which will change the outlook, which currently hinges on the Brexit fallout. Events include a German 2-year sale on Wednesday, which will likely see strong demand in the current climate.

United Kingdom: Incoming data will remain largely irrelevant while the numbers continue to pre-date the Brexit vote. The timely YouGov/CEBR consumer confidence survey, which gives weekly updates, gave a taste of what may come, with its headline reading of 104.3 in the days after June 23, down from 111.9 for the first three weeks of June. There is also growing anecdotal evidence of slowing activity in the property market and the market for high ticket items, such as cars. Against this backdrop, it’s difficult to be anything by bearish of sterling, especially against the dollar, which will be natural safe haven refuge from European strife. We expect the pound to see 1.2500 against the dollar before long.

China: June Caixin services PMI (Tuesday) is forecast dipping to 51.0 from 51.2. June fixed investment is due during the week and CPI numbers on Saturday.

Japan: In Japan, the June Nikkei PMI services PMI will be reported (Tuesday). It improved to 50.4 in May from 49.3 previously. May preliminary leading and coincident indices are due (Thursday), followed by June 1st 20-day trade data (Friday). The May current account surplus (Friday) is expected to narrow to JPY 1,800.0 bln from 1,878.5 bln. June bank loan data are also due (Friday).

Australia: In Australia, the Reserve Bank of Australia meets (Tuesday) and is expected to maintain the 1.75% setting for the cash rate. The RBA left its official cash rate unchanged at 1.75% in June, as had been widely anticipated. In May, they unexpectedly cut to 1.75% from 2.00% following an unanticipated drop in Q1 inflation. Economic data features the May trade report (Tuesday), expected to reveal a deeper -C$1.8 bln deficit in May from the -A$1.6 bln deficit in April. Retail sales (Tuesday) are seen improving 0.4% in May after the 0.2% gain in April. Building approvals (Monday) are expected to fall 3.0% in May after the 3.0% gain in April. The May ANZ job ads and the May Melbourne Institute inflation index are both due Monday. RBA Assistant Governor (Financial Markets) Debelle speaks, Wednesday, at the Thomson Reuters industry event: Examining the FX Code of Conduct (Phase One).

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