JP
Jibun bank flash PMIs
Wednesday, 24 July at 10.30am AEST
Japan’s June Purchasing Managers’ Index (PMI) for services activities reversed sharply to 49.4, down from 53.8 in May, marking its first contraction since August 2022. The decline may be attributed to a stagnation in new business as elevated prices weigh on domestic demand. This component had previously expanded for 21 consecutive months.
Despite the contraction in services, international sales continued to be supported by the weak yen, and the 12-month outlook and job creation both remained relatively strong. This raises some hopes that the June weakness is a one-time blip. June manufacturing activities also showed slight weakness, coming in flat at 50.0 from the previous 50.4.
Validation will be sought from upcoming PMI readings to determine if new business growth will improve. Further weakness could indicate an outright decline in demand, potentially reigniting growth concerns.
JP Jibun bank PMI chart
EU
HCOB flash PMIs
Wednesday, 24 July at 6.00pm AEST
This week, the ECB maintained its three key lending rates as expected. During the press conference, President Lagarde emphasized that the ECB’s decision in September remains completely undecided, highlighting the bank’s approach to making decisions based on incoming data, without committing to a fixed rate path ahead of time.
In light of this, there is keen interest in this week’s PMI data. The PMI index dropped to 50.9 in June, down from 52.2 in May, breaking a five-month trend of increasing readings. For July, expectations suggest a slight improvement, with the PMI composite index projected to rise to 51.2. Currently, the European interest rate market indicates a 66% likelihood of a 25 basis point (bp) rate cut in September.
EA HCOB composite flash PMIchart
US
Q2 GDP growth rate
Thursday, 25 July at 10.30pm AEST
In the first quarter (Q1) of 2024, the US economy grew at a slower pace than initially reported, posting an annualised growth rate of 1.4% compared to the initial estimate of 1.6%. This slower pace was due to a downward revision in personal spending. With easing inflation and softer growth conditions recently, a rate cut from the Federal Reserve (Fed) in September has been fully priced in by the markets.
The advance estimate for the US GDP in the second quarter (Q2) is expected to show an improvement, with growth anticipated to be around 1.8%, up from 1.4% in Q1. The Atlanta Fed’s GDP estimate for Q2 suggests even stronger growth, projecting a rate of 2.5% as of 16 July 2024. This upward revision from the previous forecast of 2.0% last week was influenced by a stronger-than-expected retail sales report for June.
Given the recent dovish shift in rhetoric from the Fed, a significant outperformance in the GDP reading might be required to convince markets to delay expectations for rate cuts. Without such a performance, September remains the anticipated timeline for the start of the Fed’s easing process.
US GDP quarter-on-quarter chart
US
Core PCE inflation
Friday, 26 July at 10.30pm AEST
In May, the headline Personal Consumption Expenditures (PCE) price index did not increase, maintaining the annual inflation rate at 2.6% YoY. The US core PCE price index, which excludes food and energy prices, rose by a modest 0.1% from the previous month. This was the smallest increase since November 2023, slowing the annual core PCE inflation rate to 2.6% in May from 2.8% previously.
The Federal Reserve closely monitors the PCE inflation readings because they provide a comprehensive measure of inflation, reflecting changes in consumer behavior, such as substitutions made when prices rise. While the central bank officially tracks the headline PCE, it often places more emphasis on the core figures as they are considered a more accurate reflection of long-term inflation trends.
For June, market expectations suggest that the headline PCE will rise by 0.1% month-over-month (MoM), which would reduce the annual rate to 2.5%. The core PCE is anticipated to increase by 0.2% MoM, keeping the annual rate steady at 2.6%. A 25 bp rate cut is fully anticipated at the Fed’s September Federal Open Market Committee (FOMC) meeting, with an additional 63 basis points in rate cuts expected before the end of the year.
Core PCE price index month-over-month chart
US
Q2 2024 earnings
The US Q2 2024 earnings season continues this week, with earnings reports scheduled from companies including Visa, Ford, and two tech giants, Alphabet and Tesla.