The first Friday of the month brings with it the monthly non-farm payrolls, a defining economic report for the US. While inflation data may currently be trumping the employment numbers in importance, there is always widespread excitement about the jobs release. This time around, the Fed remains very much data dependent with the recent data surprising to the upside and cementing the two rate hikes which the new updated dot plots implied at the June FOMC meeting.

A solid employment report is expected to reveal an ongoing tight jobs market and allied to sticky inflation, should support the dollar. However, we are nearing the end of the tightening cycle with markets still forecasting a lot more work to be done in other G10 countries, notably the UK and Europe. We also get other important data out of the US before Friday, including the ISM manufacturing and services sector reports. These surveys point to the economy still struggling, which stands in contrast to the official activity data. The services numbers will be a focus to see if they follow the manufacturing sector into contraction territory.

The RBA are seen keeping rates unchanged at its meeting on Tuesday after surprising markets with hikes in its two previous decisions. Last month’s meeting was finely balanced according to the recent minutes, but since then there’s been a surprisingly big fall in the May headline CPI print to 5.8% from 6.8% in April. That said, jobs growth is still strong with stickiness in services inflation remaining a concern for policymakers. A “hawkish hold” may be the order of the day, with the bank keeping the door open to further future tightening if required.

Major risk events of the week

03 July 2023, Monday

–US ISM Manufacturing: Consensus expects an eighth consecutive reading below 50 which would be the longest stretch since the Great Recession. A sub-50 print denotes contraction. The June figure is forecast at 47.1 from 46.9 in May.  New orders continued to plummet amid higher interest rates, but factories boosted employment to a nine-month high.

04 July 2023, Tuesday

–RBA Meeting: Money markets price in a 40% chance of the RBA raising the cash rate by 25bps to 4.35%. Recent data supports policymakers’ concerns over the strength of domestic inflation indicators. Jobs growth is still strong pointing to upside risks to prices, but the latest monthly CPI data slowed more than forecast. The aussie has slumped recently back below the 200-day SMA at 0.6690 and into the multi-month range.

05 July 2023, Wednesday

–FOMC Minutes: The focus will be on the consensus opinion around June’s “skip” decision. In addition, the interest rate dot plot was revised higher by 50bps for 2023 to 5.6% from 5.1%. Officials are placing a big emphasis on incoming data, but rate cuts are now very unlikely, according to Fed Chair Powell. 

06 July 2023, Thursday

-US ISM Services: The market median sees the June print ticking up to 51.2 from 50.3. Softer readings in the past 14 years had only been seen during the pandemic in 2020. Focus will also be on the employment sub-component which dropped below 50 and new business from overseas which remained strong in May.

07 July 2023, Friday

-US Non-Farm Payrolls: Expectations are for a 265k headline print. This is set against the 339k above consensus number in May but a higher jobless rate and softer wage growth. The unemployment rate for June is forecast to tick down one-tenth to 3.6% while earnings growth is likely to soften to 0.3% from 0.5% in May.

-Canada Jobs: Canada’s economy lost a net 17k jobs in May, worse than the estimate of +23k. The jobless rate rose one-tenth above the estimate to 5.2%. This report will be important for the Bank of Canada meeting later in the month which markets give a 60% chance of another 25bp hike. USD/CAD fell to nine-month lows last week at 1.3116. Oversold conditions have eased but resistance sits at the early February low at 1.3262.