We come into a new month with the marquee US non-farm payrolls report the highlight in another jam-packed week of risk events. The Bank of England and the RBA rate decisions are finely poised, megacap tech earnings will be front and centre with Amazon and Apple reporting, while PMI data will grab the attention in the US and China. The summer months are traditionally quieter in terms of liquidity and volumes. But the Fed and the ECB last week highlighted their data dependent stance, overriding their previous forward guidance bias. This means we should expect volatility as markets try and predict the end and turn of the most aggressive tightening cycles in recent memory.

We now have close to eight weeks of data to digest before the next FOMC meeting with investors seemingly content that a recession will be avoided as inflation finally returns close to target. That has historically been a tough gig for central bankers which means any cracks in the data will upset this narrative. The headline monthly US jobs gains may slow but still remain solid and the unemployment rate is seen sticking near historic lows. Gauges of labour market strength have been mixed heading into the July data. Job postings are trending lower but regional Fed surveys have been more constructive and initial jobless claims have been receding. Traders should also be wary of the ISM business surveys Stateside which may show a further contraction in manufacturing while the service sector continues to pick up the slack.

The Bank of England is certain to raise rates when it meets on Thursday but there less confidence about the size of the hike. Better inflation news and softer data has seen money markets price in the higher likelihood of a smaller quarter-point move which would be a step down from the prior 50bp move in June. Although services inflation, a key metric for policymakers on the MPC, slid last month, the recent upside surprise in pay growth will keep the hawks concerned even though there was a cooling in the jobs market. Tuesday’s RBA meeting sees economists split on the outcome with just over half those in a recent Reuters poll predicting a 25bp rate rise following a pause in July. Money markets are more certain of a hike as the recent softer inflation numbers remain well above the bank’s 2 – 3% target range.

The eurozone will feast on GDP and fresh inflation numbers to kick off the week after the single currency dipped below 1.10 after Thursday’s ECB meeting. A decent drop in core inflation is needed to help the doves cement the case for a pause in rate hikes in September. There are growing signs that the region’s economy could follow Germany and be headed for a recession.

Major risk events of the week

31 July 2023, Monday

–Eurozone GPD, CPI: Economists say GDP is trending very close to zero growth so the question is whether a small positive figure can print. Initial country estimates were decent except for a deteriorating Germany. Core inflation is key for the ECB although we get a second CPI report at the end of August ahead of the next ECB meeting. EUR/USD closed below 1.1032 last week in a bearish sign. That made it is second straight week of losses after hitting 1.1275 a few weeks ago. The 50% mark of the 2021/22 decline is 1.0942.

01 August 2023, Tuesday

–RBA Meeting: This rate decision is a close call with some analysts pointing to the most recent softer inflation data giving the bank an excuse to stand pat. But others anticipate a 25bps hike which would take the cash rate to 4.35%. They cite sticky services inflation as a reason to take more “insurance” with a hike in August, while retaining a tightening bias. AUD/USD has slipped to the bottom of its long-held range near 0.66.

-US ISM Manufacturing: The market median sees a slight tick up to 46.9 in July from 46.0. Manufacturing slumped in June hitting levels last seen during the pandemic. There was good news as price pressures at the factory gate continued to deflate. But risks of a downturn have increased with rates rising the fastest in over 40 years.

03 August 2023, Thursday

-Bank of England Meeting: Markets price in a 75% chance of a 25bp rate hike. They have reined in bets on a 50bp rise which now stand at 25%, due to the cooler June inflation data and weaker-than-expected activity data. But some think elevated risks of inflation persistence remain, which the MPC is worried about.  A continued rise in wage growth is also a concern. GBP is trying to cling onto its June highs around 1.2848. A long-term trendline comes in below around 1.2750.

– US ISM Services: Consensus forecasts non-manufacturing ISM falling to 53.0 from 53.9. A reading above 50 indicates growth in the sector, which accounts for more than two-thirds of the economy. Focus will also be on the prices paid component which fell to more than a three-year low. That suggests services inflation could continue to cool.

04 August 2023, Friday

-US Non-Farm Payrolls: Expectations are for a 190k headline reading after June’s 209k print was the first time in fourteen months that the consensus has overestimated the headline. The jobless rate is forecast to remain unchanged at 3.6%, while earnings are predicted to fall to 0.3% from 0.4%. There is one more job report in September before the next FOMC meeting. The dollar’s corrective rebound enjoyed a second week of gains in a row. Initial resistance comes in around 102.

-Canada Jobs: Canada’s labour market is expected to remain relatively resilient after the economy added more jobs than forecast in June. The 59.9k print was the most since January. The unemployment rate increased for the second straight month and is now at the highest level since February 2022, though it is still below the pre-pandemic 12-month average. Friday’s break higher in USD/CAD is nearing the long-term February low at 1.3262.