U.S. Payrolls to Provide Signpost for Fed: World Economy Week

Written by
Simon Kennedy
Written by

Simon Kennedy

Twitter
WhatsApp
Facebook
Reddit
Email

(Bloomberg) --

The U.S. economic expansion reaches record territory this week, but the focus is on whether the Federal Reserve will seek to lengthen it by cutting interest rates at the end of next month.

Much may be determined Friday with the release of labor market data for June.

While unemployment is around a five-decade low, a second successive weak non-farm payrolls report may be enough for the Fed to cut rates on July 31 for the first time in a decade with the debate shifting quickly to the size of the reduction.

May Payroll Stumble -- Aberration or New Trend?

A strong report may though be enough for investors to rein in their rate cutting bets and ponder if the Fed will wait until September for more information on the economy.

“The June jobs report will be among the most important data points considered by Fed officials as they mull whether or not to lower the fed funds rate at the end of July,” said Carl Riccadonna, chief U.S. Economist at Bloomberg Economics. “Another sub-100,000 increase in payrolls would compel officials to act sooner, rather than later. Our baseline forecast is for a 150,000 increase.”

The markets will be driven earlier in the week by the truce in the U.S.-China trade war agreed on Saturday between Donald Trump and Xi Jinping at the G-20 in Japan. Also worth monitoring is a wave of global manufacturing data which is likely to show industry remains gripped by recession.

Here's our weekly rundown of other key economic events:

U.S.

As far as the payrolls report is concerned, the median of economists surveyed by Bloomberg is for payrolls to gain 160,000 and average hourly earnings to accelerate 3.2%. The reaction of markets may be shaped by the fact they could be thin after the July 4 holiday. Monday's manufacturing purchasing managers index is predicted to come in the weakest since 2016, raising concerns that industry's pain may soon shift to the services sector. Data for services comes Wednesday.

For more, read Bloomberg Economics' full Week Ahead for the U.S.

Asia

Markets will get a good gauge of the state of manufacturing across Asia in the early part of the week as PMIs are published. Australia's central bank will meet to set monetary policy in the northern city of Darwin on Tuesday, with economists divided on whether Governor Philip Lowe will follow up last month's interest rate cut with another reduction. The Bank of Japan's Tankan index on Monday will indicate how businesses feel with a sales tax hike pending. Analysts predict a pullback in sentiment. On Friday, India will release its federal budget -- a key blueprint that'll signal the re-elected Narendra Modi government's policy priorities.

BOJ Tankan Indexes for Business Conditions, Outlook

For more, read Bloomberg Economics' full Week Ahead for the Asia

Europe, Middle East and Africa

Multiple European Central Bank officials are due to speak this week, providing potential hints at the shape of future policy. They include the first public appearances by ECB Chief Economist Philip Lane. In the U.K., factory and services PMIs for the end of the second quarter will give another measure of the economy as the jostling to replace Prime Minister Theresa May again makes the risk of a no-deal Brexit seem more likely.

Russia will probably confirm its first-quarter economic growth was 0.5% at a final reading on Monday or Tuesday, after President Vladimir Putin unveiled a plan to try and double the rate of expansion to a sustainable 4% annually by 2024, with a promise of about $400 billion in spending. South Africa PMI and business confidence will be a vote of confidence on the policies of President Cyril Ramaphosa, who's struggling to convince investors that he has a viable plan to pull the economy out of its longest downturn since 1945. Turkey is expected to report that June inflation moderated to 16.2% on Wednesday from 18.7% in May, as the central bank comes under renewed pressure from President Recep Tayyip Erdogan to cut interest rates.

Turkish Inflation to Decelerate

For more, read Bloomberg Economics' full Week Ahead for EMEA

Latin America

Industry data this week will shed some light on the second-quarter performance of South America's two largest economies, after both contracted in the first three months of the year. Brazil's May industrial production, due on Tuesday, is forecast to decline 0.3% from the previous month, supporting the view that the country will have another bad quarter. In Argentina, however, industry output may start showing signs of a slow recovery as the economy benefits from a stable peso, potentially helping President Mauricio Macri's re-election bid.