Drivers for the Week of June 27, 2021

Here's a look at the main drivers in Developed Markets this week.
  • Jobs data Friday will be the highlight for the week; other important snapshots for June will emerge; Fed speakers are likely to continue pushing the more hawkish narrative; Fed manufacturing surveys for June will wrap up this week; Canada reports a fair amount of data this week
  • Eurozone has a fairly busy week in terms of data; if eurozone CPI measures ease in June as expected, the ECB’s dovish stance will be vindicated; Sweden’s Riksbank meets Thursday and is expected to deliver a dovish hold
  • Japan reports some key data this week

The dollar remains rangebound ahead of key US data this week. DXY remains stuck just below 92.. The euro remains heavy near $1.19 after having trouble breaking above $1.1950 last week, while sterling remains heavy just below $1.39 after the dovish BOE decision last week. Lastly, USD/JPY continues to trade just below 111. The March 2020 high near 111.70 is the next target, followed by the February 2020 high near 112.25 and the April 2019 high near 112.40. Indeed, strong U.S. data this week should help the dollar see broad-based gains.

AMERICAS

Jobs data Friday will be the highlight for the week. Consensus sees 700k jobs added vs. 559k in May, with the unemployment rate expected to fall a tick to 5.7%. Average hourly earnings are expected to rise 3.6% y/y vs. 2.0% in May. Ahead of the jobs report, ADP reports private sector jobs Wednesday and are expected at 550k vs. 978k in May. By all accounts, the softer jobs numbers seen in recent months are due more to supply than demand, in which case wages will have to adjust higher. Perhaps this is behind the expected jump in average hourly earnings.

Other important snapshots for June will emerge. Chicago PMI will be reported Wednesday and is expected at 70.0 vs. 75.2 in May. ISM manufacturing PMI and auto sales will be reported Thursday. The PMI is expected at 61.0 vs. 61.2 in May, while auto sales are expected at a 17.0 mln annual rate vs. 16.99 mln in May. Last week, Markit reported preliminary June PMI readings, with manufacturing at 62.6 vs. 62.1 in May and services at 64.8 vs. 70.4 in May.

Fed speakers are likely to continue pushing the more hawkish narrative. Indeed, Bullard, Rosengren, and Kaplan last week all spoke of a 2022 rate hike. Williams, Barkin, and Quarles speak Monday. Barkin speaks again Tuesday. Bostic and Barkin speak Wednesday. Bostic speaks Friday. While some on the FOMC remain in the more dovish camp, we expect more and more to tilt hawkish of the economic data remain strong.

Fed manufacturing surveys for June will wrap up this week. Dallas Fed reports Monday and is expected at 32.5 vs. 34.9 in May. So far, Richmond came in at 22 vs. 18 in May, Kansas City came in at 27 vs. 26 in May, Philly Fed came in at 30.7 vs. 31.5 in May, and Empire survey came in at 17.4 vs. 24.3 in May. Despite some modest softness, the U.S. manufacturing sector remains in solid shape, growing but at a slightly slower pace.

Other minor data should fill out the picture of robust growth in the U.S. June Conference Board consumer confidence (119.0 expected) and April S&P/CoreLogic house prices will be reported Tuesday. May pending home sales (-1.0% m/m expected) will be reported Wednesday. June Challenger job cuts and May construction spending (0.4% m/m expected) will be reported Thursday, followed by trade data (-$71.3 bln expected) and factory orders (1.5% m/m expected) Friday.

Canada reports a fair amount of data this week. April GDP will be reported Wednesday and is expected to jump 19.1% y/y vs. 6.6% in March. May building permits, trade, and June Markit manufacturing PMI will be reported Friday. For now, the Canadian economy appears to be healing but after two straight months of weak jobs, the Bank of Canada is likely to remain on hold for now. Next policy meeting is July 14 and no change is expected then.

EUROPE/MIDDLE EAST/AFRICA

Eurozone has a fairly busy week in terms of data. Germany reports preliminary June CPI Tuesday. Headline inflation is expected to ease to 2.1% y/y from 2.4% in May EU Harmonized. German June unemployment will be reported Wednesday, while May retail sales will be reported Thursday. Spain reports June CPI and May retail sales Tuesday. Headline inflation is expected to remain steady at 2.7% y/y. France reports June CPI and May consumer spending Wednesday. Headline inflation is expected to rise to 1.9% y/y from 1.8% in May EU Harmonized, while spending is expected to rise 7.5% m/m vs. -8.3% in April. Eurozone headline CPI will be reported Wednesday, which is expected to ease to 1.9% y/y from 2.0% in May. Final June manufacturing PMI readings will be reported Thursday.

If eurozone CPI measures ease in June as expected, the ECB’s dovish stance will be vindicated. ECB speakers this week are too many to name here. Suffice to say that most will maintain the dovish narrative. The only exception will likely be Weidmann both Monday and Tuesday. ECB asset purchases for the week ending June 25 will be reported Monday and net purchase are likely to remain near the recent average of EUR20 bln per week.

Sweden’s Riksbank meets Thursday and is expected to deliver a dovish hold. At the last meeting April 27, it delivered a dovish hold. The bank said that “monetary policy needs to remain expansionary to support the economy and for inflation to be close to the target of 2% more permanently.” It kept rates steady at 0.0% and maintained its QE program at SEK700 bln, adding that its QE program will be fully utilized by the end of 2021 and that its size will be maintained at least until end- 2022. The flat rate path was extended another quarter to Q2 2024. However, the bank again noted that it’s possible for the repo rate to be cut if needed, but we believe it does not want to go negative again and will instead rely on further QE if more stimulus is needed.

ASIA

Japan reports some key data this week. May labor market and retail sales data will be reported Tuesday. Unemployment is expected to rise a tick to 2.9%, while sales are expected to fall -0.7% m/m vs. -4.6% in April. May IP, housing starts, and April auto production will be reported Wednesday. Q2 Tankan survey will be reported Thursday. The large manufacturing index is expected at 16 vs. 5 in Q1, while large non-manufacturing is expected at 3 vs. -1 in Q1. Of note, the large manufacturing outlook is expected at 18 vs. 4 in Q1, while large non-manufacturing outlook is expected at 8 vs. -1 in Q1. Planned all-industry capex is expected at 7.2% vs. 3.0% in Q1. The Q2 economic outlook remains cloudy due to the extended state of emergency, but Q3 may finally see some improvement if the Tankan survey is to be believed.

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