It’s another action-packed week with several different risk events to spice up market volatility. The key data release will be the latest US inflation numbers which are the last major data point before the FOMC meeting at the end of this month. Money markets have nailed on a 25bp rate hike in a couple of weeks’ time and give just below a 40% chance of at least another 25bp move by the November meeting. Bets were taken off the table after Friday’s slightly softer US labour market report as the chances were close to a 50/50 possibility before NFP.

The resilience in recent economic data has stood out in recent weeks. Interestingly, that has caused US Treasury yields to spike higher but then fall back with key psychological levels like 5% in the two-year and 4% in the ten-year breached. But this move has not helped the dollar, which is fell to finish on its lows last week which was the first week of losses in three. Markets will focus on the core inflation print as the softer headline inflation will chiefly be down to base effects. Remember that hot CPI readings from June 2022 will now be dropping out of the 12-month calculation. Any weakness in the core will see the DXY test the June lows.

UK jobs data will be important for the Bank of England meeting which comes at the start of August. Aside from next week’s CPI data, this is a key release for policymakers due to the stickiness in UK price pressures. A 25bp rate hike is baked into next month’s meeting but continued strong wage growth will push the dial towards another bigger half-point move. GBP has been benefiting from more aggressive rate expectations with recent highs at 1.2848, a potential mark of resistance.

Two central banks meet this week with the RBNZ set to stand pat, while the Bank of Canada is expected to hike rates by 25bps though it is a close call. The manufacturing sector is struggling amid a global slowdown while oil prices are muted. Yet other parts of the economy remain resilient with a still strong labour market highlighted by today’s stronger-than-expected jobs print.

Major risk events of the week

11 July 2023, Tuesday

–UK Jobs: Pay growth has picked up recently with the April reading ticking up to 7.2%. Is this a genuine increase in pay pressures or down to the 10% living wage increase? The BoE terminal rate has surged to 6.4%.

–German ZEW Business Survey: A modest improvement in investor sentiment in June has fuelled hopes that the current recession in Europe’s biggest economy could be a mild one. Persistent headwinds with soft, recent data have seen export-focused sectors struggle with the weak global economy.

12 July 2023, Wednesday

–RBNZ Meeting: Markets expect the RBNZ to leave rates unchanged at 5.50%. The bank gave markets a strong steer in May that no further hikes would be required. The data since then has likely given comfort to policymakers that its on-hold stance is appropriate for now. But analysts still expect a data dependence stance.

-US CPI: The headline inflation print is set to decline to 3.6% from 4% in May. This is primarily due to base effects. The core rate is forecast to fall to 5% from 5.3% previously. Analysts say that shelter costs are likely to keep prices sticky. This is the final CPI report ahead of the FOMC meeting at the end of the month.

–Bank of Canada Meeting: Consensus sees a 25bp rate hike taking rates to 5%. Sticky core inflation above target and excess demand are likely to prompt another hike. The jobs market also remains tight with the recent better-than-expected reading.

13 July 2023, Thursday

-UK GDP: The May estimate is forecast to fall from the prior 0.2%. But this will be mostly to do with the extra bank holiday due to the King’d coronation in May. Policymakers are currently more concerned with high core price pressures than slow growth.