- US non-farm payrolls (Jun) – 07/07 – the US jobs market has continued to confound expectations for all this year, and it is this factor that is making the Federal Reserve's job in trying to return inflation to its target rate much harder to achieve. When the May payrolls report was released a month ago, we once again saw a bumper number, this time of 339k, with April revised up to 294k. The resilience of the jobs market has also been a little embarrassing for the economics profession, comfortably beating forecasts for the 14th month in succession. It also presents a problem for the Federal Reserve in the context of whether to to stick or twist when it comes to more rate hikes in the coming months. We've already seen a pause in June, however the commitment to raise rates by another 50bps by year end has got markets a little nervous, driving yields higher at the short end of the yield curve. For June, forecasts are again for a number below 300k, at 213k. We did see a rise in the unemployment rate from 3.4% to 3.7% while the participation rate remained steady at 62.6%. Wages also remained steady at 4.3%, however we also know that job vacancies after briefly dipping below 10m in March, rose strongly again in April to 10.1m. Against this sort of backdrop the Federal Reserve had to downgrade its forecast for end of year unemployment from 4.5% to 4.1%. Even with this adjustment it's hard to see how this will play out unless we see a significant rise in the participation rate, and vacancies start to disappear.
- RBA rate decision – 04/07 – having paused earlier this year when it came to their own rate hiking cycle the RBA now appears to be playing catchup. Having caught the markets by surprise in April by hiking rates by 25bps, they followed that up in May by another 25bps rate increase pushing the cash rate up to 4.1%. The sudden hawkish shift in stance appears to have been prompted by stinging criticism over its failure to spot early enough the inflation surge seen at the end of 2021, and through 2022. They were hardly unique in this, with other central banks being similarly caught out, however their response has been fairly tepid, in comparison to the likes of the RBNZ where rates are much higher at 5.5%. This suggests that the RBA might feel it has to overcompensate in the opposite direction, running the risk of them tightening too hard and unsettling the housing market. Will the RBA raise rates again or decide to wait and see.
- Manufacturing PMIs (Jun) – 03/07 –. recent flash PMI numbers suggest that the underperformance in manufacturing has continued in June with activity in Germany falling to its lowest level since March 2020, at 41, and the initial Covid lockdowns. In France we saw similar weakness albeit slightly higher at 45.5. Of slightly great concern has been weakness in Chinese economic activity with weak demand there feeding into a global narrative that the economy is slowing, weighed down by higher costs and varying degrees of supply chain disruption. Economic activity in Italy and Spain has also been weak, however on the plus side they have managed to outperform France and Germany. If the eurozone is to avoid a 3rd quarter of negative growth then it is Italy and Spain that might allow them to do it.
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