The dollar put in a mixed performance against the majors last week. AUD, EUR, and CAD outperformed while NOK, SEK, and JPY underperformed. For Q2 as a whole, AUD, NZD, and NOK outperformed while JPY, CAD, and EUR underperformed. We believe the same economic and monetary policy divergences that boosted the dollar in Q2 are likely to carry over into Q3.

AMERICAS

Data last week did not change the Fed narrative at all. PCE readings fell as expected but remain elevated enough to warrant a continuation of the Fed’s cautious stance. Meanwhile, the real sector data remain firm and economic growth remains at or above trend. The Atlanta Fed GDPNow model is now tracking Q2 growth at 2.2% SAAR vs. 2.7% previously and will next be updated Monday after the data. Elsewhere, the New York Fed Nowcast model is tracking Q2 at 1.9% SAAR and Q3 at 2.2% SAAR and both were steady from last week's estimates.

FOMC minutes will be released Wednesday. The minutes will offer more details behind the Fed’s hawkish hold. Recall that the Dot Plots shifted to show only one 25 bp cut was expected this year versus three previously, while updated macro forecasts saw higher headline and core PCE inflation projections for 2024 and 2025. Chair Powell emphasized “we need to see more good data to bolster inflation confidence,” supporting our long-standing view that the FOMC is in no rush to loosen policy. The market sees 70% odds of a September cut, but it will of course depend on the data. Powell speaks Tuesday. Williams speaks Wednesday and Friday.

June jobs data Friday will be the highlight. Bloomberg consensus is 190k vs. 272k in May, while its whisper number stands at 198k currently. For reference, the average gain over the past 12 months is 232k. The unemployment rate is expected to remain steady at 4.0% even as the participation rate is expected to rise a tick to 62.6%. With the labor market in better alignment, the pace of wage growth will be a bigger driver of Fed expectations. Average hourly earnings are forecast to rise 0.3% m/m, with the y/y rate expected to fall two ticks to 3.9%. Ahead of that, ADP private sector jobs will be reported Wednesday and are expected at 158k vs. 152k in May. Of note, NFP has outperformed ADP in nine of the past ten months.

June ISM PMIs will also be important. Manufacturing will be reported Monday and headline is expected at 49.1 vs. 48.7 in May. The regional Fed manufacturing business surveys suggest risks are balanced. Of note, S&P Global manufacturing PMI rose to a three-month high of 51.7 in June vs. 51.3 in May. Prices paid component is expected at 55.8 vs. 57.0 in May, new orders is expected at 49.0 vs. 45.4 in May, and employment is expected at 50.0 vs. 51.1 in May. Services will be reported Wednesday, and headline is expected at 52.5 vs. 53.8 in May. The regional Fed non-manufacturing business surveys suggest risks are balanced. Of note, S&P Global services PMI rose to a 26-month high of 55.1 in June versus 54.8 in May. Keep an eye on prices paid, which came in at 58.1 in May.

Other labor market data will be reported this week. May JOLTS data will be reported Tuesday, with job openings expected at 7.864 mln vs. 8.059 mln in April. Labor demand is cooling, with the number of job openings relative to unemployed workers down near its pre-pandemic level. Moreover, the job openings rate (job openings as a percentage of total employment plus job openings) fell in April to 4.8%, the lowest level since December 2020 and nearing the 4.5% threshold consistent with a significant increase in the unemployment rate. June Challenger jobs cuts will be reported Wednesday. Weekly jobless claims will be reported Thursday.

Canada highlight will also be June jobs data Friday. Consensus sees a 25.0k rise in jobs vs. 26.7k in May, while the unemployment rate is expected to rise two ticks to 6.4%. Overall, labor market pressures are easing and evolving largely as the Bank of Canada expected at the time of the April Monetary Policy Report. We doubt the BOC will deliver a follow-up policy rate cut in July as the odds are below 50%, but a September rate cut is almost fully priced in by the market.

Canada also reports June PMIs. S&P Global manufacturing PMI will be reported Tuesday. Services and composite PMIs will be reported Thursday. Ivey PMI will be reported Friday.

EUROPE/MIDDLE EAST/AFRICA

The first round of the French legislative elections is being held Sunday. Turnout has been high so far. Bloomberg’s poll of polls shows the hard-right National Rally party would get 36.2% of the vote in the first round, up 0.1 point. The hard left alliance would get 28.3%, down 0.1 point. Macron’s centrist Ensemble group would get 20.4%, unchanged. To make it through to the second round July 7, candidates need to win at least 12.5% of voters. However, if one candidate gets 50% of vote cast and turnout represents at least 25% of the constituency's registered voters, the candidate is elected without the need for a second round. That feat is rare. Overall, polls suggest the most likely election scenario following the second voting round is a hung parliament. The hard-right National Rally would get 229-271 seats out of 577 in the National Assembly, the hard left alliance would get 167-198, and Macron’s centrist Ensemble group would get 76-110. A hung parliament will generate more political instability, further weighing on French bonds and the euro.

The annual ECB Sintra Forum on Central Banking will take place Monday through Wednesday. The theme will be “Monetary policy in an era of transformation.” Plenty of key speakers will take the stage. See here for details. In terms of ECB officials, Nagel and Lagarde speak Monday. Guindos, Elderson, Schnabel, and Lagarde speak Tuesday. Guindos, Cipollone, Lane, Knot, and Lagarde speak Wednesday. Cipollone speaks Thursday. Nagel and Lagarde speak Friday. Villeroy speaks Saturday.

ECB publishes the account of its June 6 decision Thursday. At that meeting, the ECB delivered the widely expected 25 bp rate cut but took a hawkish tone as it emphasized that it “is not pre-committing to a particular rate path” and warned “it will keep policy rates sufficiently restrictive for as long as necessary to achieve” its 2% inflation target. President Lagarde maintained the hawkish tone in her press conference. She said the next few months would be “bumpy” and added that the speed and timing of rates cuts will be determined by the data. Lagarde also acknowledged that one ECB governor objected to a cut, and Robert Holzmann (the most hawkish member on the council) later admitted it was him. Reports later emerged that ECB officials were “all but excluding” a July cut and that even September is open to question.

Eurozone data highlight will be June CPI Tuesday. Headline is expected to fall a tick to 2.5% y/y while core is expected to fall a tick to 2.8% y/y. Ahead of that, Germany reports June CPI Monday, and its EU Harmonised inflation is expected to fall three ticks to 2.5% y/y. Last week, EU harmonized CPI inflation for France and Spain slowed to 2.1% vs. 2.3% and 3.5% vs. 3.8%, respectively, while Italy’s quickened to 0.9% y/y in June from 0.8% in May. Overall, Eurozone disinflationary process is well on track and supports the case for the ECB to cut rates again in September.

Eurozone reports final June PMIs. Manufacturing will be reported Monday. Italy and Spain report for the first time and are expected at 44.3 and 52.9, respectively. Services and composite PMIs will be reported Wednesday. Italy and Spain report for the first time and their composites are expected at 51.3 and 56.0, respectively. Of note, the preliminary June eurozone composite fell for the first since October and is the lowest since March.

Key eurozone industrial data will be reported. German factory orders will be reported Thursday and are expected at -6.1% y/y vs. -1.6% in April. German IP will be reported Friday and is expected at -4.3% y/y vs. -3.9% in April. France and Spain also report IP Friday and are expected at -1.1% y/y and 1.3% y/y, respectively.

Eurozone reports May retail sales Friday. Sales are expected at 0.2% y/y vs. flat in April. Italy also reports sales Friday.

The U.K. general election will be held Thursday. Polling stations close at 10 PM GMT, with exit polls results announced shortly after. Labour is expected to win an outright majority. See here for our election primer.

Bank of England DMP survey for June will be reported Thursday. Inflation expectations remained contained, with 1-year ahead expected to fall a tick to 2.8%. Easing inflation expectations will raise odds of an August policy rate cut, which is currently 65% priced-in money markets.

U.K. reports final June PMIs. Manufacturing will be reported Monday. Services and composite PMIs will be reported Wednesday. This was the second straight drop in the composite and is the lowest since November.

Switzerland reports June CPI Thursday. Headline is expected to remain steady at 1.4% y/y for the third consecutive month, which would match the Swiss National Bank’s (SNB) Q2 projection. Core is expected to rise a tick to 1.3%. The SNB has scope to ease further as inflation remains well within the bank’s stability range of 0-2%. The market sees over 50% odds of a third cut in September.

Switzerland reports June PMIs Monday. Manufacturing is expected at 45.5 vs. 46.4 in May. Both were in contractionary territory in May for the first time since March and shows that the economy is slowing, and that further easing is warranted.

Sweden reports June PMIs. Manufacturing will be reported Monday. Services and composite PMIs will be reported Wednesday.

Riksbank releases its minutes Wednesday. At last week’s meeting, the bank delivered a dovish hold as it warned “the policy rate can be cut two or three times during the second half of the year” vs. previous guidance that “the policy rate is expected to be cut two more times during the second half of the year.” Macro forecasts were updated, with both CPI and CPIF inflation revised down significantly for 2024 and 2025. There are only three policy meetings in H2; the market sees 85% odds of a cut in August, 90% of a second cut in September, and 65% odds of a third cut in November. If the Riksbank is to be believed, those odds of a November cut should be higher.

ASIA

Japan highlight will be Q2 Tankan report Monday. Large manufacturing index is expected to remain steady at 11, while large non-manufacturing index is expected to fall a point to 33. Large manufacturing outlook is expected to rise a point to 11, while large non-manufacturing outlook is expected to rise a point to 28. Lastly, all industry capex is expected at 13.9% vs. 4.0% in Q1. With much of the recent data coming in soft, we see downside risks to the Tankan report.

Final June PMIs will be reported. Manufacturing will be reported Monday. Services and composite PMIs will be reported Wednesday. This was the first drop in the composite PMI since February but is the lowest since December.

RBA minutes will be reported Tuesday. At the June 18 meeting, the bank delivered a hawkish hold as it reiterated that “the Board is not ruling anything in or out.” Importantly, Governor Bullock confirmed during her press conference that the Board discussed the option of raising rates while the case for a rate cut was not considered. The RBA noted “inflation remains above target and is proving persistent” and emphasized again that “the Board expects that it will be some time yet before inflation is sustainably in the target range.” The minutes should offer more color around the discussion for raising rates. The market sees 50% odds of a rate hike in September.

Australia May retail sales will be reported Wednesday. Sales are expected to rise 0.3% m/m vs. 0.1% in April. The RBA’s liaison discussions points to subdued consumption growth, with retailers indicating that sales volumes have been little changed in recent months. Moreover, consumers have been trading down to cheaper products, as most discount retailers have seen a lift in sales. Overall, the RBA is in no rush to loosen policy as it expects it will be some time before inflation is sustainably in the 2-3% target range.

Final June PMIs will be reported. Manufacturing will be reported Monday. Services and composite PMIs will be reported Wednesday. The composite PMI has fallen three straight months to the lowest since January and suggests that ongoing tightness in monetary policy is having a significant impact on the economy.