Good morning,
Paris opened the 2024 Olympics in spectacular style with thousands of athletes parading along the River Seine in a groundbreaking opening ceremony. For the first time, the traditional stadium was swapped for a waterway, transforming the city into a vibrant stage. The four-hour spectacle, featuring performances by Lady Gaga and Celine Dion, concluded with French sporting legends Teddy Riner and Marie-José Pérec lighting a hot air balloon-shaped cauldron. Despite arson attacks on the French train network and evening rain, the event dazzled with its ambitious celebration of French history, art, and sport, showcasing landmarks like the Eiffel Tower and the Louvre.
Last Week
The People’s Bank of China (PBoC) surprised markets last week with a series of rate cuts, slashing its main short-term policy rate for the first time since August 2023. Monday’s reduction of the seven-day reverse purchase agreement by 10 basis points to 1.7 per cent, aimed to bolster the economy amid expectations of a potential Fed cut. This was followed by a Thursday cut to the medium-term lending facility, dropping the rate on Rmb200bn ($27.5bn) of one-year loans to 2.3 per cent. The moves have raised concerns about China’s economic health, notably impacting the Australian and New Zealand dollars due to their reliance on Chinese demand for raw materials. Interestingly, the offshore CNH gained, prompting speculation about possible adjustments to the trading bands against the US dollar.
The widening chasm between the UK and EU economies became more pronounced last week as PMI data revealed opposing trajectories. In the UK, both manufacturing and services PMI’s remained in expansionary territory, with the services sector showing its ninth consecutive month of growth. Conversely, the Eurozone PMI’s indicated prolonged difficulties in both sectors. This divergence saw the euro fall on Wednesday, increasing the likelihood of another rate cut in September. Meanwhile, sterling has thrived, reaching its strongest level since the 2016 EU referendum, buoyed by resilient economic growth, stubborn inflation, and political stability following Labour’s election victory.
Late Sunday evening, it was announced that current US president Joe Biden will not run in November’s election, endorsing Vice President Kamala Harris as his successor. This shift refocused attention from Trump to Harris, with betting markets narrowing the odds on her victory as Democrat donors poured $90 million into her campaign. The markets responded swiftly: the Mexican peso strengthened by 0.7%, US treasuries rallied, and the ‘Trump trade’ reversed. However, US stocks saw their worst day in over a decade on Wednesday, with leading indices falling by 3%, as investor enthusiasm for AI, a key market driver this year, waned. Harris, poised to be the first female president, garnered influential Democratic endorsements, solidifying her campaign.
This Week
This week, all eyes are on the Bank of England (BoE) as it joins the Bank of Japan (BoJ) and the Federal Reserve in holding key meetings. The BoE is widely expected to make the most significant move amid a sluggish economy and concerns over weak consumer demand. Inflation remains above target but isn’t rampant, suggesting a cautious approach. Despite the yen’s impressive rebound in July providing some relief to policymakers, a dovish stance could jeopardise its recovery. The BoE’s quarterly projections and outlook report will be pivotal, with any decision to ease likely framed as a hawkish cut. Consequently, the pound might not see a significant drop even if a rate cut is announced.
Over in the US, Attention will also be on pivotal US economic data and the presidential race AND the Federal Reserve’s latest meeting on Wednesday. The Fed is the least likely to alter policy this week, following a stronger-than-expected Q2 GDP reading, which reduced the odds of a surprise rate cut. The US economy shows only mild signs of slowing down, complicating the Fed’s certainty about reaching its 2% inflation target. Fed Chair Jay Powell is expected to signal a dovish tilt without committing to a rate cut at their next meeting. We then finish the week with Friday’s Jobs report, with Non-Farm payrolls anticipated to show that 185k jobs were added last month, a weaker print could boost Wall Street sentiment but hurt the dollar, reinforcing aggressive rate cut bets. Additional data, including ISM PMIs and JOLTS job openings, will further influence market dynamics.
Key Events
Tuesday July 30th
All Day German Prelim CPI
15:00 US CB Consumer Confidence, JOLTS Job openings
Wednesday July 31st
02:30 Australian CPI
10:00 Euro Core CPI flash estimates
13:15 US Non-farm employment change
13:30 Canadian GDP, US Unemployment Change
15:00 US Employment Cost Index
19:00 US Federal Funds Rate
19:30 FOMC Press Conference
Thursday August 1 st
12:00 UK Monetary Policy Statement
12:30 BOE Gov Bailey Speaks
13:30 US Unemployment Claims
15:00 US Manufacturing PMI
Friday August 2nd
07:30 Swiss CPI
13:30 US Average hourly earnings, Unemployment Claims
Have a great week,
The Garton Team.